How to Size Your Store Wisely – Think Small

Since the size of your store can directly impact the amount of inventory you carry, size it wisely.   I say “think small”!  The bigger the store, the more inventory you need.   The smaller the store the less you need.

My first store was 1300 square feet with 200 square feet of storage space.  My sales per square feet (total annual sales volume divided by total square feet) were over $800.  My inventory turned over 6 times in a year.  My average inventory investment averaged $200,000.  Pretty good numbers by anybody’s measurement.

When my lease came up for renewal, my landlord urged me to expand.  He said I could do a lot more volume if I just had the space.  He gave me incentives like helping build out the new store, deferring rent during construction, all kinds of goodies.  The logic seemed sound.  If I was doing $800 a foot in 1500 sf then in 2400 sf I could do 60% more volume.  Wrong!   I wasn’t as smart then as I am now so I re-sized my store to 2400 square feet.  Big mistake!

From the beginning customers commented how the bigger store didn’t feel as special.  I added new departments and broadened my selections to attract new customers.  This just muddled my image.  I increased inventory levels to support projected increases in sales.  Inventory turns went down. Margins suffered. Sales in the bigger store never really achieved the projected forecasts.  The fatal flaw in my plan was – not enough incremental customer demand in our small community to support the additional space.

Here’s what learned.

1.  Think small.  Less really can be better.

2.  Small is more intimate.  It produces a different customer experience.

2.  Small forces laser precision editing.  Finding unique product for 1500 square feet is much easier than for 2400 square feet.

3.  Small speeds up merchandise flow.  Floor sets and window changes occur daily.  Customers buy with a sense of urgency.

4.  A small space that exceeds customer demand is more productive than a bigger space that doesn’t.

5.  If you build it they may not come. But your landlord will every time looking for his bigger rent check.

Inventory Management is Like Weight Management

Planning and maintaining an ideal inventory level for a brand or store is like trying to maintain an ideal weight.  If you get to “thin” your assortment is weak and you can’t meet your sales goals.  Customers get discouraged because they can’t get the sizes, colors or styles they want.  They turn to a competitor and may not come back.  When you let your inventory get “overweight”, bloating and sluggishness sets in.  Your goods hang around longer and turns go down, your promotional dollars go up and margins go down, your merchandise investment becomes less productive.   Your customers may find the excess unattractive.  To thin or to fat you can’t win.  You have to strive for balance to achieve stability yet maintain flexibility to go after growth.

The bottom line is you can only achieve consistent profitability by having a substantial supply of the things that customers want when they want them and by having a good deal less when they don’t.