The Right and Wrong Way to Build Market Share

One of the first strategic retail presentations I attended took place in our Park Avenue offices. Executives from Management Horizons, the forerunner of today’s TNS Retail Forward, expounded on the need to build same-store sales, that the benefit of adding sales from existing customers far outweighed the benefit to be garnered from opening new stores.

Thirty years later the retail industry still grapples with that seemingly simple suggestion. Retailers would rather spend tens of thousands of dollars erecting new stores than investing a fraction of that amount to convert shoppers into buyers. Too many fail to keep track of their most valuable asset—their customers. They don’t monitor their comings and goings. They base staffing levels on sales histories, not on when shoppers are inside the store. That’s akin to stocking goods based on what’s sold and not on what the customer might actually want. If your sales support does not match shopper traffic, your store could be losing sales simply because customers either are not waited on (in a full-service store) or they abandon baskets because checkout lines are too long.

Conventional wisdom suggests this is the perfect time to build market share by either buying troubled companies or picking up locations distressed retailers have made available. A report out of the World Economic Forum in Davos, Switzerland, in late January suggested that Best Buy might snap up some vacant store locations, some made available by Circuit City.

My advice—Don’t Do It!

Perhaps outgoing CEO Brad Anderson was just being courteous and casually responding to the possibilities put forward by a reporter. After all, Anderson also was quoted as saying, “We are looking at some of those [stores], but our first priority is to stay cash strong. We would be more cautious than we would [be] in most environments and take advantage of less of that than we would have a year or two ago.”

The weight of history, at least in retailing, is that companies that grow on the carcasses of failed or failing retailers oftentimes wind up sharing the graveyard, or at least have one foot in it.

Some examples: Ames choked on its acquisitions of Zayre and Hills; Gottschalks never was able to capitalize on its purchase of Lamonts; Macy’s has struggled with former May Department Stores units; similarly, Bon-Ton hasn’t been able to digest Carson Pirie Scott and other Midwest department stores it bought from Saks, Inc.; and going back 30 years, Kmart’s pickup of many W.T. Grant stores traded short-term gain for long-term problems.

Some companies have successfully grown by acquisition. Target comes to mind. It bought Gold Circle, Richway, Gemco, Memco and other stores. And in its early years Wal-Mart bought smaller chains, such as Kuhn’s/Big K.

But mostly, successful retailers grew organically, by picking sites that matched their real estate strategies. They didn’t compromise their beliefs merely to save a few dollars on a location that was slightly off.

Location. Location. Location. If the location does not exactly match your strategic plan, pass it up. After all, one reason Best Buy is still standing, as is Bed Bath & Beyond vis-a-vis Linens ‘n Things, is that it had better real estate than Circuit City.

Build market share from within. Don’t buy other people’s problems.