Retail Stores : Opening / Closing

[dreamybear]

https://www.valuebuddies.com/thread-1240...#pid143145
"Just open aggressively everywhere and those that are not profitable, close them down, leave the healthy ones behind and you have a decent business that is sustainable. You need at least a decent 10-20M of course. As Big Toe would say, you need to be rich in order to become richer. there are just more opportunities open to those with the means."

I came across this post from the SS thread and it triggered something that has always been on my mind. Why do companies open and close (so many) outlets annually ? e.g. CSS / Miniso.

From a layman's perspective : For a company that has many years of operating experience, surely wouldn't one have a good idea on favorable locations to open the outlet ?  Or is it something of an art than a science, i.e. it's just not possible to predict such matters like customer flow / purchase ?

Is there a better way to identify favourable locations e.g. maybe use of predictive A.I., consult fengshui master, etc. ?

Does the closed rate of outlets reflect management's capability ? 

CSS IR2024
https://corp.chowsangsang.com/uploaded_f...3744c3.pdf

Miniso Grp AR2023
https://filecache.investorroom.com/mr5ir...023%29.pdf

[Big Toe]

In retail, esp brick and motar stores, everything is fluid, NOTHING can predict what is going to happen next. While a very experienced owner can somewhat estimate the cash flow and profit for a new outlet, it is impossible to look into the future(unless you are apple and your shop is apple store, then you can somewhat predict the demand).

Using AI is a joke. Much like using AI for stock investment. Both wont work well. Between the 2 jokes, using AI for store opening is a bigger joke. At best they can assist.

And here lies the disconnect.
1. Between business owners and investors with no experince in running a biz/little to no insight into the industry.
2. The current expectations of AI(predictive/generative) and its capabilities. I would say in most applications of AI in its current form, it is a fail. Not sure what the future holds, hope it improves.

A friend has a store, great location, great parking, very visible from the main road, very brisk business for many years. And all of a sudden, the carpark will be removed and the shop will no longer be visible from the main road permanently due to infrastructure works. From a 10/10 location to a 2/10 location.

Another real life example, another proftable shop, took quite a far bit of capital to set up and plenty of approvals needed. Shortly after, the exact same business is replicated by a competitor along the same row barely 10 meters away. Result : both shops not profitable.

It is really difficult to do business now, may it be in retail or manufacturing etc there is a youtuber Josh Tan - TheAstuteParent. He is very successful as a financial advisor. But he did fail miserably when he opened his own ice cream shop previously. Would give 10/10 for trying but completely underestimating how difficult it is to survive in F&B. In a very strange way, people who are very smart and with high qualifications tend to fail in their own business, esp in retail. Then again, most new businesses fail, so it shouldnt come as much of a surprise.

[dreamybear]

Thanks Big Toe for your detailed explanation. 

It seems open/close/relocate outlets is a "necessary business expense" for this business (at least most). I suppose it somewhat tells the moat/competitive strength of the brand. Perhaps one of mitigating methods used by companies is thru' the use of franchisees.  

For that matter, other than the Apple store, I think McDonalds fall into the same category(at least I think in SG).

[Big Toe]

You need to be quite wealthy to own a Mac. The owner of a reasonably large new mac in a high human traffic location is already at least a multi millionaire. If someone is looking for a cheaper alternative there are some global F&B brands which are a couple hundred K to open. But that is only 1 store, usually one would need to open a few stores to have a reasonable income. And maybe 3 out of the 4 will be profitable, one will close down. 7-11 have lower margins than F&B but the chance of success is slightly higher.

So unless the new business brings something new to the table or have adequate cash to burn, running a small business is not an attractive option. Due to the nature of the work I do, I sometimes hear from hundreds of potential new bosses looking to start a biz. I also hear from a fair number of small to medium sized established biz owners as well. I also get to meet and chit chat with some large sized local business owners, but that is more rare and they are always busy.

What I can say is that the reason why some wanna-be-bosses want to be a boss and starting a business is exactly why they should never ever do it. I can remember one saying that he is unable to get along with his boss and some colleagues so he wants to be boss. Reality is that he will meet customers/staff/stakeholders that is 100X far worse than all his colleagues and bosses combined in his own biz, if he starts one, it is inevitable.