An Exercise in E-Commerce Expansion

Article by:

David Barnes
EO South Australia
David Barnes - EO South Australia

Last year, retail was abuzz with a new trend: successful e-com​​merce companies choosing to open brick-and-mortar stores. Smaller companies professed how brick-and-mortar space allowed them to better communicate their brand and create a seamless customer experience. With a thriving e-commerce site, we pursued what appeared to be the next logical step: opening a small chain of storefronts. We were growing quickly and wanted to expand. We didn't want to miss our chance while riding a wave of online success, so we gave the brick-and-mortar approach a shot.

As it went, it didn’t work out well for us. There were some bumps here and there, and we eventually shut our stores and got back to doing what we do best: online retail. Unlike other businesses who have struggled with main-street retail, we have a happy ending: January was our best month ever. Our greatest success came after we reverted to our e-commerce roots. It may be painful to share, but here's what our brick-and-mortar experiment taught us about better business:

Expanding too Quickly. We wanted to grow fast, so we opened five stores across the country. But ambition doesn’t always make up for lack of process knowledge. Going from an e-commerce site to five different locations was a huge undertaking. It would prove to be the start of our undoing. In our rapid expansion, we forgot a key detail: We needed to offer a consistent and satisfying customer experience in order to protect our brand. We learned as we went, creating a state of utter chaos— our business suffered as a result. There is such a thing as growing too quickly.

Revenue vs. Profit vs. Cash Flow. Reaching more customers means more sales, right? Maybe. One of our earliest lessons learned was that revenue is far less important than profit and cash flow will always reign supreme. We want sustained growth and a great balance sheet at the end of every month. As small business experts often say, the key to growth is profit; increased revenue doesn’t always result in a competitive advantage. Most businesses find ways to increase revenue, but only a healthy profit margin will ensure you have the free cash flow that will sustain you in the long term. That’s particularly important for brick-and-mortar businesses where the lights have to stay on for you to make sales.

Cash is King. Every small business needs cash in the bank, and not just for overhead costs. When you’re leasing square footage, the shelves need to stay stocked and sales can be unpredictable. Good cash management lets you be flexible and responsive to your customers’ demands. Part of good cash management is knowing where you should resist spending your dollars. An early mistake of ours was empowering our store managers to purchase inventory. Their buying decisions were not always best for the business because they simply didn’t know what people would buy. That left us overstocked and liquidating product while our cash flow was depleted.

People Matter. You can't expand your company without a great team of people— that goes for e-commerce and brick-and-mortar businesses alike. We had an amazing team, but a few bad apples did serious damage to our business. Products that should have been sold to customers mysteriously went missing, leading to huge losses. It took us years to discover the shrinkage (otherwise known as “staff theft”), and it added up to more than a few dollars over time. To run a great business, you have to trust your people, but you also have to be on top of what’s happening throughout your operations, especially when you’re spread out over five stores in different parts of the country.

Know Your Numbers. What was our biggest takeaway? To know our numbers. In the exhilaration of a quick expansion, we lost sight of some of the most important details— and they were right there in our bottom line. The books could have alerted us to the purchasing problems and theft much earlier, and we perhaps could have successfully managed our brick-and-mortar growth.

David Barnes is an EO South Australia member, and the CEO and founder of GymAndFitness.com.au, a company focused on designing and innovating fitness equipment, as well as online distribution. He is also a contributor to EO’s Inc.com partnership portal, where this article was originally published. Contact David at [email protected].​​​​​​​​​​

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