Building out a store vs. building out the web

Brick-and-mortar retailers each have their own formula for plotting store expansion strategies ranging from a gut feeling it’s time to move into a new market to very sophisticated modeling that factors corporate growth goals, demographics, market penetration, competition and more. And for some multi-channel retailers, the potential cost of achieving even part of the targeted growth goal via the online channel also is beginning to figure into store expansion strategies.

For some retailers, a business case can be made that if the retailer has hit a critical mass in the online channel, the same several million to build a new store might be applied toward a serious upgrade of web capabilities, whether it’s a new platform, supply chain, or other need, says J.C. Williams Group senior partner Jim Okamura.

J.C. Williams Group already has conducted such modeling on behalf of some multi-channel retailer clients, he adds. “If the percentage of boost you get from the e-commerce value exceeds on an absolute basis what you would get in another store, at that point, you should think about decelerating the store growth strategy investment and investing on the e-commerce side, if you believe that growth will continue,” he says.

Okamura adds that’s a valid consideration for regional multi-channel retailers, or specialty lifestyle multi-channel retailers whose stores are especially expensive to build, such as BassPro’s huge Outdoor World stores, for example. However, he notes, the math is much different for big box multi-channel merchants, where a single Wal-Mart Super Center, for example, may bring in close to $100 million a year. “You’d have to have a lot more online business to offset what comes in from a store of that size,” he says.