A report from Clark showed that GAP Inc. is planning to close its 200 GAP and Banana Republic stores in the next 3 years and open new 270 locations for its growing brands, such as Old Navy and Athleta. Also, a latest article in Forbes stated there will be more number of retail stores opening than closing in 2017. What are the reasons backing the store commencement and closures? Talking about store closures, the prime reason could be the growing shift to e-commerce from physical stores.

Following this, the high rental prices plummet the profits of retail businesses. Though the retail rental rate in Europe is not more expensive than it is in top US markets, the difficulties retailers face from this issue resonate equally across all regions.

Also, the inability to cope with changing consumer habits, innovative technologies and bankruptcies add to a retailer’s decision to close an existing store. Thereby, this article revolves around 3 factors to consider before opening a store.

Competitors: Standing out in the business dynamism

Considering today’s highly dynamic and digitalized world, where everything has a digital and virtual component, competitors for all business models are present both online and offline.

To begin with the detractors; knowing beforehand the similar players in a location and their business patterns will help you put forward a different strategy. You might encounter companies operating the same business as yours or selling different product that immensely attracted your target market already. Additionally, some companies, that sell more efficient product/service than you do, get a higher percentage of the market quota, making it even more difficult for your business to function. This scenario requires a better market segmentation taking into account the changing customer preference and innovative technology.

But how can an executive efficiently identify the competitor presence in an area without investing much time and money? Geoblink, a Location Intelligence solution, specialising in location analytics, helps enterprises find the potential competitors in a desired location instantly and effortlessly.

For example, from the application, let’s find the competitors for a fashion store in an area selected within a 15-minute walking distance from Puerta del Sol, 3442, 28013, Madrid, Spain.

The application shows 1,032 fashion stores in the selected area. 

Thus, knowing your competitors in this precision will improvise the strategy for your new store. 

Cannibalisation: Drawing clients from the nearby stores 

What exactly is Cannibalization? Cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of introducing a new product by the same producer. It is a reality that dampens the growth of a company, where an existing store loses its sales to a new store in a different location. It’s not only the problem of retail managers, but also retail realtors, FMCG owners, restaurants, franchisors, etc.

• Retail managers look into opening new stores as a consequence of increased profits and growing demand  
• In franchising, the relationship with your franchisees can be deterred if the new store is in close proximity to the existing one

In the above cases, is the new store driving additional sales or plummeting? how to overcome the cannibalisation effects of a new store? Firstly, the new store should be put in a physical location after accurately assessing the performance, sales and profit of your existing store. Based on these statistics, you can choose which store to open. Secondly, some companies are cannibalising their operations by taking the business online and offering similar products at lower prices. In the above cases and also an important evaluation before opening a store is knowing the number of prospective clients you can drive into your store. But, what if you could know this data in advance?

Let’s suppose you are planning to open a store at Calle de Sal, 3, 28012, Madrid, Spain. How many clients can you expect from the nearby stores?

The image shows that your prospective store can have 223 clients with 91 clients coming from store 1 and 52, 42, 21, 17 clients from other stores respectively. Knowing beforehand this metric could improve the market segmentation and help in setting your business strategy in the right path.  

Targets: Reaching your potential customers

Finally, target is not only important for your expansion strategy, but also important for logistics, marketing, communication, retail, etc. At a macro level, defining your target audience seems to be easy. For example, smartphone manufacturers targeting those population who are interested in purchasing their first brand new smartphone in future. However, in most of the business cases, targeting the audience requires a granular approach. Managing to reach your target customers generates increased revenues but above all develops customer loyalty. That is to say, knowing more of what people consume, their profile, the socio demographic details, etc., serves as a source to cater to the customer needs and design varied marketing campaigns to drive sales from your next store. In addition to the general analysis, delving into the indicators such as the number of inhabitants, average age, educational level, disposable income, unemployment rate, population density, pedestrian traffic of your next location will add value to your new store’s strategy. 

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But there are more indicators that can elevate your business strategy to the next level. To know them:

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For example, let’s see where in the municipality of Madrid, Spain you can find your target audience. If you are planning to target the female population aged 25 to 50 with a disposable income between 18,250 € – 40,650 € and a touristy presence of at least 1 million people approx., then the places listed in the image below could be your next profitable store location:

Another option, you know the location of your next store but want to know more about a specific indicator. For example, the national and foreign expenditures towards fashion in a specific area.

To learn about this metric, let’s take an area in Madrid’s enthralling Gran Vía street which is created within a 15-minute walking distance from its center point.

It can be seen from the Geoblink application above, overall, in the selected area the national and foreign expenditures are at 83.6% and 16.4% respectively. Among these expenditures, Argentina shows a higher percentage of fashion expenditure (17.92%) followed by the United States (12%) and France (9%).

As a matter of fact, identifying your target audience and knowing their socio-demographic data, will strengthen your objective of opening a new store with solid analysis.

Thus, opening a new store is good for the company’s growth and also for the economy, driving employment opportunities. Also, the location of your new store unveils your business’s success magnitude. By taking into account the competitors, population metrics, customer preferences, accessibility, visibility and walking traffic surrounding your store, you are going in for a profitable business year.