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August 16, 2017

Gauging New Store Potential


“If you build it they will come.” This frequently mis-quoted line from W.P. Kinsella’s 1982 novel “Shoeless Joe” has become a popular rallying cry among entrepreneurs who want to start-up an
antique or consignment store. (The actual quote is “If you build it he will come.”) The idea is that if you open a store, customers will flock to you and you’ll be an instant success.

Anyone who has ever opened a store knows it isn’t that easy. In the coming decade, hundreds (maybe thousands) of shops will open across America. US Bureau of Labor Statistics data states that most of these stores won’t last five years. Some won’t survive the first year

So, before opening a store, a more relevant question is: “What’s the opportunity for a new vintage store in my area?” No matter how nice your store is, how well located and how well stocked, an opportunity must exist for a store like yours in the area you wish to operate. Otherwise, you’ll be struggling from the beginning.

How can you be sure that an opportunity exists? Below are a few ways of researching a store’s potential, but please don’t limit yourself to this list. Keep a notebook handy as you research, and write down any questions that come to mind as you investigate. The more you learn, the more questions you will have. Not all of your questions will have answers, but as you work through the “discovery” phase of your project, you will either gain confidence that your shop can be a success as you have envisioned it, or that your chances of success are poor. Either way, you will be glad you spent the time researching your project.

First, look for similar stores in your desired market area. Such stores are competition, but in the antique business competition is good. If you want to open a vintage furniture store and there are two more such stores within a block or so of where you want to open, (and they have been in business for a while) then you can be sure that they are selling enough furniture to stay in business. Don’t assume that they are healthy businesses, though; go down to the County Clerk’s office and see if there are any liens or lawsuits pending against these businesses. If their landlord or the phone company has filed a lien against them, then they aren’t paying their bills. If business is bad for them (an established business), then it will likely be bad for you as well.

Then search for online reviews of the competitor’s businesses. Reading their reviews will give you an idea of what they are doing well and what they are doing poorly (if anything). You’ll know beforehand exactly how high the bar is set for your business. Next, visit your competitor’s stores. Are they well merchandised? Do they have a lot of inventory? Do they have good sales help? How do they treat you when you come in? Visit your competitors several times before you open. While you’re there, pick up a copy of their consignment agreement.

What if there are no similar businesses? Does that mean that no opportunity exists? No, it doesn’t.

Another way to gauge the level of opportunity for a new vintage store is to Google “retail trade potential report” (minus quotes) and the name of the city in which you want to set up shop. Retail Trade Potential Reports are used by cities to promote business opportunities in their town. The data is used to (hopefully) attract more businesses and jobs to the area. Here’s a shot of a report compiled by Younger Associates http://younger-associates.com/ for the city of Memphis, Tennessee (see box below).

Retail potential report

In the Memphis report three columns exist: Demand (projected sales), Supply (estimated amount of goods available to be sold) and Opportunity Gap. Opportunity Gap is the difference between how much is expected to sell and how much is available to be sold; in other words, the shortfall.
The shortfall (opportunity) is what you should particularly be interested in. Although new goods are listed in this chart rather than vintage goods, you will get an idea of what the sales opportunity is for your type of product. There will always be bargain-hunters around, and if you have the right mix of merchandise, then you will attract customers who are just as willing to buy quality vintage goods as new items.

Let’s take a look at some of the numbers from the Memphis chart.
Starting with women’s clothing. It’s expected that sales in Memphis will be in the range of about $2,875,000. The inventory on hand at the existing women’s stores is just over $4,500,000. In other words, there is nearly twice as much product available than is likely to be sold. Can you still operate a successful women’s vintage clothing store in such an atmosphere? Sure you can. What this report tells you, though, is that your competition will be fierce; you may need to spend more money than anticipated on advertising to bring into your store some of the $2,875,000 that will be spent on women’s clothing.

In the Women’s Vintage Clothing category, better opportunities may exist elsewhere, if you can be flexible about the location. Just 100 miles northeast of Memphis is the town of Three Way, Tennessee, which also provides a Retail Trade Potential Report. Let’s have a look at their report (shown below):

Three-Way-TN-report-1

The town of Three Way expected women in their market area to purchase about $227,000 worth of clothing in 2013. But, guess what? There are no women’s clothing stores in Three Way. Clearly, women in Three Way will have to shop elsewhere for their clothes. So, the sales potential in Three Way for a vintage women’s clothing store may be up to $227,000.
Does this mean your sales will be that high? No, but the potential exists. If you lived in Three Way and nice vintage clothing was available locally, would you skip your local store and drive 100 miles to Memphis to shop for clothes?

Consider that the sales opportunity for a children’s and infant’s store in Three Way is about $64,000, which probably isn’t enough to pay expenses and make a profit; but a combined women’s, children’s and infants’ store in Three Way might do very well, with potential sales of $291,400.

Now look at the Children and Infants’ clothing category in Memphis: The opportunity there is huge. Demand is more than 12 times the available supply. Children’s and infants’ clothing is expensive – even at bargain outlets like Wal-Mart. In 2013, Memphis, a nicely appointed, well-stocked and well-located vintage children’s clothing shop might have done very well.

Another way to assess the potential for a shop is to visit the Chamber of Commerce. The Chamber will have all the statistics that are available for your town. They will also know if a shop like yours has been tried before, and how successful it was. Some of the “old-timers” at the Chamber may even be able to hook you up with someone who has done what you want to do that could advise you.

Also helpful are specialty trade associations and publications. Associations pop up around clearly identifiable niches, like antiques, musical instruments, crafts and hobbies, toys, etc. To see if a trade association exists for your particular specialty, Google the specialty (for example, “toys”) and the words “trade association.”
If you build it, perhaps they will come – but only if you’ve done your research first.

– See more at: http://www.antiquetrader.com/antiques/antiques-americana/antique-stores-shops-malls/gauging-new-store-potential-with-research-data#sthash.YBsr8gHv.dpuf

Originally posted 2016-02-13 14:23:47.

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About Wayne Jordan

Wayne Jordan is a Virginia-licensed Auctioneer (#3481), as well as an AIA and CAGA Certified Personal Property Appraiser.

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