Expansion Strategies: Should You Strike While the Iron Is Hot?

By Rich Lindblom, YSN

I think we all kind of find ourselves in uncharted waters right now.

  • BrandSource dealers are growing market share faster than any other segment of the industry.
  • Margins are generally as high as they’ve been in recent memory.
  • There’s a lot of prime retail space available (and often at a discount).

Chad Evans, AVB’s VP of Merchandising, summed it up pretty well last spring at Summit when he said, “BrandSource dealers have gained large amounts of share during the pandemic due to being nimble. They have figured out ways to get product and communicate with customers in a much more effective way than their competitors.”

He continued, “There is also no doubt that BrandSource dealers’ increased focus on digital marketing and their websites has been a great equalizer. It used to be that customers had a hard time finding the independent dealer in their area, but this has changed and we are winning, because not only can a customer find the BrandSource dealer, but they are finding they are competitively priced, knowledgeable, and have what they need.”

Now consider this: According to U.S. News & World Report, retail vacancies are currently around 11 percent nationwide and could potentially double to upwards of one quarter of all U.S. storefronts by 2025 as a result of the pandemic and retailers being forced to close unprofitable stores.  At the same time, the average cost of rental space has dropped by about 2 percent nationwide.  This means that landlords need to fill their vacant stores and there are some bargains out there for the taking. 

What does this mean for all of you?  Let’s do the math:

Growing Market Share + Growing Margins + Prime Real Estate Available at a Discount = An Opportunity

I know there are quite a few BrandSource members who have already seen this golden opportunity and taken advantage of it.  So I reached out several across the country and asked one simple question: What made you decide that now was the right time to expand your operations? 

Here’s what they had to say:

Mark Patterson, Pattersons Home Appliances, Tennessee: “The retail, multi-family, and housing markets are booming in my area and I have an amazing staff that is ready to step up and take on the challenge that a new location brings.  After looking for several months, I found a great location that was just remodeled at a price per square foot so cheap that I signed the lease the same day I saw it.”

Kris Winter, Direct Appliance, California: “We had been thinking about expanding for a while but then the pandemic struck and that really put it over the top for us.  It ended up being like the perfect storm.  The combination of huge consumer demand and cheap retail space made it an easy decision for us. In fact, we are planning on adding another location before the end of the year.”

David Jones, Jones Appliance & TV, Iowa: “With the continued growth we have seen over the past few years, I decided that it was time to invest in a major showroom remodel and a software upgrade while also adding an additional delivery crew. The way I see it, if you are not working to grow your business, then you are going in the wrong direction. For me, there is no such thing as standing still.”

Yasmin Cortez, Alcaraz Appliances, California: “Overall, the decision to expand operations is a difficult decision. But when you have faith and the drive to go for more, everything falls into place. We highly encourage dealers to be realistic with where they are at and if they see that they can expand operations, go for it!”

Now, don’t get me wrong, expansion might not be the right move for everyone. You need to consider all the factors involved, including adding personnel, vehicles and warehouse space — not to mention the additional rent and overhead.  If you are not confident that you can increase your revenues by an amount at least equal to or greater than your increased expenses, then expansion is not for you. It’s really that simple.

Having been in the industry since the 1970s, believe me when I say I’ve seen a lot of businesses in our industry fail, and far too often the cause was overexpansion.  Thinking back to the 1980s, I can recall a certain appliance manufacturer pushing its dealers very hard to open additional locations and I saw several good dealer friends of mine in the Chicago market go out of business because of it.

I also speak from personal experience. My company took a bite of the apple during that aforementioned push to add stores in the late 1980s and we opened a third location.  Well, it didn’t take very long at all for us to figure out that while we were selling more machines, we were actually making lessmoney, so we closed that store back down after only three years.

The bottom line is that if you are considering expanding your business, there is one basic rule you should follow: If the only people making more money are the manufacturers, then don’t do it.

Still, for some of you the time has never been better for expansion.  If the idea of expanding has been bouncing around in your head for a while now, this might be the right opportunity.  But don’t just take my word for it — do your homework, crunch the numbers and then consider your options. 

It’s funny, even though I’m retired now, I constantly find myself looking at available properties when I drive down a busy street. And when I see a nice-looking location I think to myself, “Man, that would be a great place to put an appliance store!” 

So who knows, maybe the next time you drive past that sweet looking vacant shop on a busy street corner in the next town over, perhapsyou’ll stop and take down a phone number.

I have three goals in mind when writing my articles: To motivate, educate and entertain.  If I have accomplished at least one of those three, I’ve done my job. Don’t be shy about letting me know what you think by writing me at egvrich@gmail.com.

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