The only 4 ways retail businesses grow

Streamline your operation by determining the best growth strategy

Are you considering a multi-store launch? Opening additional locations? Testing a new retail concept? Launching a robust e-commerce site?

Any one of these approaches to growth requires a rigorous process of developing plans, exploring real estate or web hosting opportunities, evaluating systems, identifying mid-management talent, lining up financing and so on.

But before you get too far down the road on any of these areas, you first must decide on your fundamental growth strategy, because your growth strategy and your tactics must align.


Dynamics of retail growth

Consider this chart. It summarizes the dynamics of retail growth.

There are only two major variables that affect a retailer’s growth and expansion, displayed in the matrix above: customers (shown in the left-hand column) and merchandise mix (shown in the top row). Each of these variables is further divided between what you have now (meaning present customer profiles, present merchandise mix, etc.) and what would be new or different types of customers or merchandise mix.

The intersection of each variable represents, fundamentally, the only four ways that your business can grow: market penetration, concept development, market development and diversification.

Knowing how you intend to grow or, when you are in the midst of a growth spurt, recognizing which variables are changing the most, gives you more opportunity to exercise leadership and apply controls.


Why does this matter?

This is important because change equals stress. Even “good change” involves added stress. All of your resources — financial capital and, especially, human capital — will be impacted.

Also, each of these four fundamental growth modes demands a different amount of change and, therefore, different levels of stress on your organization.


Growth Mode 1: Growth by Market Penetration

When you take your present retail concept and merchandise mix and “roll it out” to similar types of customers by opening more store locations or venues, you are growing by market penetration.

The focus is on replicating your store concept/format or making your online retail operation scalable.

Caution: Opening additional stores in another town or launching an e-commerce website may be part of a market development growth strategy, because the customers across town and the online shoppers can be very different from the customers served from your present storefront.


Growth Mode 2: Growth by Concept Development

With concept development, the focus is to change the merchandise mix or add to it, with categories that are logical extensions for existing types of customers.

This can have major impact on your balance sheet as you add inventory.

Impacts will ripple through your profit-and-loss statements as well. While vendors may seem very generous with funds for training your staff and advertising the new product lines, beware the hidden costs of over-buying.


Growth Mode 3: Growth by Market Development

Many market penetration growth plans end up turning into growth by market development.

As we mentioned earlier, the customers across town or online shoppers can be very different from the customers served from your present storefront. This is where customer psychographics (a combination of demographics, life-stage and values) are very important.

Is your retail concept appropriate for college towns? Or county seats? Or hip urban neighborhoods? It’s important to follow the customer.


Growth Mode 4: Growth by Diversification

Growing by diversification — that is, taking a new or revised merchandise mix out to a new type of customer segment — is essentially a new retail startup.

Introducing a fresh concept to a market is an exciting opportunity. But all too often, retail organizations end up in a “diversification” mode without intending to be there.

For instance, when retailers put merchandise on their website, they intend to simply provide another way for customers to shop. But in fact, the folks who shop on the web frequently are very different from those who prefer to come into their stores. Now they have slipped into market development and needing to deal with new kinds of customers. And those new kinds of customers may want different products, too, meaning these retailers have now landed in a diversification mode with new products and merchandise mix.


The Right Answer?

Is one of these four ways to grow better than the others? Or is just one of them right for your stores?

No, of course not! In fact, when we ask retailers what way their stores are growing, sometimes they discover they are trying to grow in two or three (or even four!) ways, all at once.

However, knowing which way you intend to grow (based on an analysis of your company’s capacity and appetite for change) or, when in the midst of a growth spurt, recognizing which growth mode you are in, gives you the greatest opportunity to exercise leadership and apply controls.


Patricia M. Johnson and Richard F. Outcalt are nationally recognized retail strategists and co-founders of The Retail Owners Institute. They recently launched the WIP, an inventory management resource specifically for cannabis retailers, which can be accessed at Johnson and Outcalt can be reached at 206-623-3973. They will also be speaking at Marijuana Venture’s Retail and Dispensary Expo in Portland, Oregon on Oct. 23-24. For more information or to register, visit or call 425-656-3621.


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