The purpose of this paper is to show that most retail and franchise businesses have the goal of rapidly expanding to create a nationwide or even international network of outlets. Achieving that goal requires more than just having an appealing offering that works in one city. Business leaders need to determine a pathway to national presence that takes account of the geographic scale economics for their particular business. Some businesses will benefit from rapidly going national with simultaneous growth in many regions of the country. Others will benefit from a much more measured approach, building strong scale advantages in one region before expanding into the next. In this column, Stuart Jackson considers examples of both business types and offers lessons to help companies decide which type of growth strategy is right for them.
In this article, Jackson considers the expansion strategies of two different retail businesses, Starbucks coffee shops and Staples office supply stores. Jackson looks at how each business expanded and considers their different sources of competitive advantage and scale economics versus competitors. He then draws lessons that can be applied broadly across multi‐site businesses.
Just because you have the ultimate goal of being a nationwide or global player in your industry does not mean that the best way to get there is to open outlets as fast as possible across the country. Companies that take care to build competitive advantage at each stage of their expansion will enjoy higher profitability, even if growth may be slower at times. The pay‐off is that they will have the resources to sustain continued growth into new markets and win the struggle to create value for investors.
By looking in detail at local and national benefits of scale in the retail industry, the article provides valuable insights into how to understand and predict which geographic growth strategies will maximize long term success and value creation.
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