The Grow or Die Imperative
for Independent Shoe Store Owners
By Alan Miklofsky
The retail landscape, particularly for independent shoe store owners, is a challenging one, characterized by the relentless need to grow or face potential closure. This article aims to provide a deeper understanding of this grow-or-die business model, emphasizing the importance of income growth and operating ratio improvements to counteract expense growth and protect net operating income and net income.
The Grow or Die Business Model
Independent shoe stores, like many other retail businesses, operate in a highly competitive environment. The "grow or die" paradigm is particularly pertinent in this sector. Simply put, businesses that fail to expand their customer base and increase sales are likely to be outpaced by competitors and may ultimately close down. This reality has been starkly highlighted by recent trends in retail store closures.
In 2023 and 2024, the retail industry has seen a significant number of store closures. In 2023 alone, over 9,300 retail stores closed in the U.S., including major chains and independent stores. The trend has continued into 2024, driven by factors such as changing consumer preferences, economic pressures, and the ongoing shift towards e-commerce. For independent shoe store owners, these closures underscore the urgency of adapting and growing their businesses to avoid a similar fate.
The Importance of Income Growth and Operating Ratios
Income growth is crucial for independent shoe stores, as it directly impacts their ability to cover expenses and generate profits. Without consistent growth in revenue, expenses—such as rent, utilities, labor, and inventory costs—will inevitably erode net operating income (NOI) and net income.
According to Jerry Storch, former CEO of Toys R Us, "Retailers have to generate same store sales increases of three to four percent a year to be healthy. And, if they don't do that, they can't pay the wage increase for their people, rent increases, cost of living, cost of doing business goes up by three or four percent a year." This insight highlights the critical threshold for growth that retailers must achieve to maintain financial health.
Operating ratios, which include metrics like gross margin, operating margin, and inventory turnover, are essential indicators of a store's financial health. Improving these ratios can help mitigate the impact of rising expenses. For instance, enhancing inventory turnover by optimizing stock levels can reduce holding costs and increase sales velocity.
Correlation Between Income Growth and Consumer Traffic
Consumer traffic is a critical driver of income growth. More foot traffic generally translates to higher sales and revenue. Therefore, independent shoe store owners must focus on strategies to attract and retain customers. Some effective strategies include:
Enhancing In-Store Experience: Creating a unique and engaging shopping experience can differentiate a store from competitors. This might include personalized customer service, attractive store layouts, and exclusive product offerings.
Leveraging Technology: Utilizing digital marketing, social media, and e-commerce platforms can help reach a broader audience and drive traffic to both physical and online stores.
Community Engagement: Building a loyal customer base through community events, loyalty programs, and partnerships with local organizations can boost repeat business and word-of-mouth referrals.
Data-Driven Insights
Data from 2023 and 2024 highlights the significant impact of store closures on the retail industry. For example, the closure of major retailers like Bed Bath & Beyond and Foot Locker stores has left gaps in the market that independent shoe stores can potentially fill if they can effectively attract displaced consumers.
Moreover, the economic pressures of inflation and changing consumer spending habits necessitate a focus on value and affordability. Consumers are increasingly seeking value for money, which independent stores can capitalize on by offering competitive pricing and unique products.
Overall retail sales only grew 2.3% over the last year, and inflation currently sits at 3.3%. This means sales aren't keeping up with inflation, and consumers aren't buying as much. However, the decline in sales and/or inflated expenses in a single independent retailer location might be an even more significant factor that needs to be taken into consideration.
Beyond KPIs: A Holistic Approach to Business Health
Monitoring Key Performance Indicators (KPIs) is essential for tracking business performance, but it’s not sufficient on its own. Pete Mohr, Jr., emphasizes this point: "You want your business to thrive, but just monitoring the Key Performance Indicators (KPIs) isn't the golden ticket. That's just scratching the surface. Think of your KPIs as the pulse of your business; useful, but not the full picture. A pulse tells you you're alive, not if you’re dancing a jig or gasping for breath."
This analogy underscores the importance of looking beyond numbers to understand the full health of your business. While KPIs can indicate whether your business is operational, they do not provide insights into customer satisfaction, employee morale, or market positioning—all critical elements for long-term success.
Conclusion
Independent shoe store owners are in a grow-or-die business. The survival and success of their stores depend on continuous income growth and improvement in operating ratios to counteract the inevitable rise in expenses. By understanding the importance of consumer traffic and employing strategic initiatives to boost it, these businesses can improve their financial health and thrive in a competitive retail environment.
The recent wave of retail store closures serves as a stark reminder of the challenges faced by the industry. However, it also presents opportunities for agile and innovative independent shoe stores to capture market share and grow their businesses sustainably.
References
· Retail Dive. (2023). Store closings 2023: A list of chains that have closed stores this year.
· USA Today. (2023). These retailers closed the most stores in 2023.
· CNBC. (2024). Retailers are closing more stores in 2024. Here’s why.
· Jerry Storch, former CEO of Toys R Us, as cited in various industry reports.
· Footwear News. (2023). Foot Locker to close over 400 stores by 2026.
· Bed Bath & Beyond closures impacting retail landscape in 2023 and 2024.
· U.S. Department of Commerce. (2024). Retail sales growth and inflation rates.
· Pete Mohr, Jr., insights on the importance of looking beyond KPIs in business management