Smart site selection is critical to any growing business, but with so many factors to weigh, it often goes wrong. Here, three companies ready to open new locations get help from expert advisers.
A Niche Business Weighs Two Nearby Metro Markets
Fashion Camp teaches children and adults how to design and sew clothes. Operating from two Orange County, California, retail stores, the company holds classes and workshops, hosts parties and corporate events, and sells things: sewing machines and notions, books on fashion design, and its own instructional DVD and guidebook. Founder Erin Bianchi Hibbert is eager to launch another store, but she is still scarred by her failed attempt to establish a foothold in Las Vegas, where her operation closed just a year after its June 2012 opening. "We are struggling with the right move," she says. "Do you move to Los Angeles and have the L.A. presence? Or go south, to San Diego, which also has a lot of appeal? And how do you find a place that is easily accessible to the most families? These are the questions I ponder daily."
Ted Clark, executive professor of entrepreneurship and innovation at Northeastern University, where he also serves as the director of the Center for Family Business, says that though Hibbert's thriving Orange County locations prove that her business model works, she needs to keep in mind that Fashion Camp is a niche business. Therefore, Clark believes that Hibbert's first imperative is to find a community large and affluent enough to support one of her stores, where a five-day "fashion camp" currently sells for $325.
Clark also says that given the high level of training and customer interaction required by Hibbert's business model, the next store should be a reasonable driving distance from Hibbert's successful Tustin, California, site. "Her failed Las Vegas expansion has taught her that there is much more to expansion than 'If you build it, they will come,' " Clark says.
Shopping malls should take precedence, he adds, because Fashion Camp's success to date has come in malls that offer ample foot traffic and plenty of exposure to the target audience. "Using the criteria of population and distance, Los Angeles and Pasadena could be prime locations," he says.
Although Hibbert harbors a soft spot for San Diego, because she sees it as a family-friendly location that might be simpler to navigate in terms of opening a new location, Jennifer Martin, a small-business coach and founder of Zest Business Consulting, urges her to look north instead--specifically, to Los Angeles.
Martin cites two reasons: word-of-mouth advertising resulting from the company's Orange County success, and the usefulness of L.A. for furthering Hibbert's long-term vision of having multiple locations, perhaps using a franchise model.
"If Erin wants to create a worldwide business," Martin says, "she needs to be in high-profile places and larger cities, sooner rather than later." Los Angeles offers great media opportunities, given its robust public relations industry, and it would give Hibbert the chance to expand her business from a base in one of the most well-known, fashion-forward cities in the world.
Martin also agrees with Clark that Los Angeles's proximity to the company's current stores is an important advantage. "The longer trip from Tustin to San Diego may quickly become a grind," she says. In short, both experts point out that the ability to travel to a new site relatively quickly and inexpensively, in order to train new hires, argues for a nearby expansion location. Score one more point for L.A.
Los Angeles offers the right combination of glitz and family-friendliness.
In Canada, a Big Market and Big Questions
Royce Leather sources wallets, card cases, travel accessories, bags, and luggage products from craftsmen around the world and sells them through major department stores and online retailers. Headquartered in Secaucus, New Jersey, the company employs 18 people and generates $5 million in annual sales. To minimize duty charges and shipping fees associated with sales outside the U.S., Royce is contemplating opening a warehouse and distribution facility in Canada, a country that accounts for nearly a quarter of its revenue. But CEO Andrew Royce Bauer and his brother, marketing director Billy Bauer, aren't sure whether to go with Ontario or Quebec. "The geographical breadth of Canada can make shipping a logistical nightmare," Billy Bauer says.
Quebec may be charming--and Canada's largest province geographically--but the experts agree that Ontario, particularly the greater Toronto area, is the logical choice for Royce Leather's first company-owned Canadian distribution center. "There are many advantages in having a warehouse in an area where the company gets its maximum sales, and which is also conveniently located for distribution to the country," says Sheriff Thaver, CEO of To Be Canada, a consulting firm in Mississauga, Ontario, that advises companies on doing business in Canada. "This would facilitate quicker delivery, reduced transportation costs, and better customer service. Since the greater Toronto area has the largest market and is more centrally located than any area in Quebec, it scores on all points."
Dennis Donovan, principal and co-founder of corporate relocation firm Wadley Donovan Gutshaw Consulting in Bridgewater, New Jersey, agrees, noting that despite Canada's vast expanse, its population clusters such that Royce could get its products to most of its Canadian customers via one-day delivery, by truck, from metro Toronto.
The city also has other advantages, Thaver says. Like the U.S., Ontario has a legal tradition based on national standard law, while Quebec has French-heritage civil law, based on local precedent. Plus, Ontario's official language is English; Quebec's is French.
Donovan suggests that Royce talk to the Greater Toronto Marketing Alliance about available warehouse buildings on the metro's periphery, where costs would be relatively low. The Alliance also could arrange for Royce to tour potential sites and interview other warehouse and industrial employers, not only to learn about the market but also to acquire valuable contacts and referrals for staffing agencies, economic development specialists, and small-package shippers.
If Ontario seems like a slam dunk, a more difficult decision may be whether Royce should buy or lease its own facility and run it directly, or appoint a distributor that already handles complementary products. Thaver recommends the latter, on the grounds that Royce can avoid the costs and risks of investing in infrastructure, recruitment, and other challenges.
Quebec has its charms, but Ontario, particularly the Toronto area, ticks all the boxes.
Tailoring an Expansion Plan That Builds on the Company's Online Success
Blank Label sells custom shirts online and a broader mix of men's clothing in its two Boston "Pattern Room" locations. Founder and CEO Fan Bi wants to accelerate growth by opening a third retail outlet in another city along the East Coast, where, he believes, there is a large underserved market. "Since our initial expertise was in e-commerce, we've only begun to learn how to scale in the offline retail experience," Bi says. "Narrowing down which city to pursue next--perhaps D.C. or Charlotte, North Carolina--is the first challenge."
Launching a successful business is no small feat, and both Seth Zalkin, co-founder and managing partner of consulting firm Astor Group, and Renee Fellman, a "change-agent CEO" who has headed 18 different companies, are impressed with Blank Label's track record of doubling its sales annually. But they are also apprehensive about Bi's plans to open a third location hundreds of miles from Boston. Fellman suggests focusing first on Blank Label's higher-margin Web business, which she thinks could become an even bigger engine of growth, with improvements to the website and an ongoing advertising and marketing campaign. Zalkin suggests looking closer to home for a new brick-and-mortar location. "Boston is a significant market, and it is unclear that it has been fully saturated," he says. "Before expanding into the Washington, D.C., or Charlotte areas, the company should build at least one additional location near Boston that management can visit, touch, and feel on a daily basis. With an early-stage company, time on a plane or train is not time well spent."
That said, once Blank Label does venture farther afield, Zalkin recommends Washington, D.C., over Charlotte, both because it is closer and because of its customer preferences. "D.C. is a conservative market in which people tend to dress up for both work and play," he says.
But first, Fellman recommends that Bi consider a location along the Bostonâ€“New York corridor. "Problems there will be less expensive to fix than problems in Washington, D.C.," she says. "There also may be less competition for custom clothing than in the more populous metropolitan areas."
It's also important that Blank Label pick the right neighborhood, Zalkin says. Bi is already thinking about the size of the customer base in each target city and the competition in the custom menswear segment. Zalkin advises Bi to obtain a psychographic analysis of the households in the most promising neighborhoods, and to target neighborhoods where his potential customers are already accustomed to shopping. "Avoiding bad locations is critical," he says, "and the way to avoid that is to follow the path that experienced companies in your segment--in this case, custom menswear--have already established."
He adds that Blank Label can use its Web presence to its advantage. "Once they have narrowed their list of potential locations," he says, "they can see what volume of Web orders they currently receive from those areas, and also target special offers to those places, as a way to gauge just how price sensitive customers in those markets may be."
Play it close to the vest by staying relatively near to Boston.