Retail is a vital, ever-evolving industry, and business owners must manage the many aspects of their company with agility and careful attention—particularly when looking to sell. Buyers of retail companies seek a stable business with good cash flow, the potential for growth, and a proven ability to execute. That’s why understanding how to market your retail company is critical.
What unique characteristics would make your business attractive to potential buyers and ultimately drive a higher sale price? What systems and metrics will demonstrate your company’s value to interested buyers? The essential checklist below will help you think holistically about your business and assess your company’s strengths and areas for improvement so you can lead a successful sale process and achieve the maximum value for your retail company.
Build Effective IT Systems
To succeed in any retail business, you’ll need to make the right investments in technology and systems over time. This may include enterprise resource planning systems, warehouse management systems, and systems for managing store labor and other store-related functions. What’s more, developing a company culture that embraces the use of these systems is crucial to their adoption and ultimate success. In such a competitive industry, proper implementation and utilization of technology can be the difference between success and failure. Many retailers have found themselves unprepared for the need to use technology in various aspects of business management—don’t be one of them.
Develop Your Brand Reputation
A sharp, insightful understanding of your customer base, including how they perceive your brand and how that perception has changed over time, is an important factor that any potential buyer will evaluate closely. Your company should have clear and consistent brand messaging, as well as the proper systems and processes in place to collect and respond to customer feedback. A strong brand reputation, as measured through Net Promoter Score, online reviews, or social media conversations, can greatly enhance the value of your business.
Maximize Supply Chain Efficiency
Now more than ever, your ability to manage your supply chain effectively is fundamental to the success of your retail business. Potential buyers will intensely scrutinize overall supply chain cost, delivery performance, forecasting accuracy, inventory management, and in-stock levels, in addition to other criteria, to assess how well you manage the flow of products through your operation. Poor inventory management has led to the demise of many retailers, and buyers are going to assess how you handle your supply chain to avoid this outcome. Key metrics for evaluation include the following:
Gross margin return on investment
Supply chain cost per unit sold
Order fill rate
Strong performance in these areas over time, as well as your commitment to continued investment in systems to enhance data collection and analysis, will be viewed positively during a sale process.
Measure Your Marketing Spend and ROI
As a retailer, you should be able to demonstrate your ability to use legacy and digital media channels to generate store traffic and sales. Maintaining a focus on return on investment (ROI) will give buyers the confidence that you are spending your marketing dollars sensibly. Print circulars have proved to be a resilient form of advertising for many retailers, despite the difficulty in measuring their impact. One way to gauge effectiveness is to provide specific offers or coupons as part of the circular and then calculate their redemption over a given timeframe.
In addition to print advertising, retailers should display an ability to execute and measure successful digital ad campaigns. This includes placing effective ads across social media and various websites, implementing loyalty programs and apps, and building an engaged audience across various social media channels. These channels offer a way to measure the effectiveness of your campaigns, target specific audiences, and deliver visibility among a younger demographic that may not respond to print or other legacy forms of advertising. Below is a partial list of metrics a potential buyer will want to evaluate:
Marketing spend ROI, by channel
Sales per square foot
Customer acquisition costs
Customer lifetime value
Monitor Your Store Labor and Operations
Besides cost of goods sold (COGS), the largest expense on most retailers’ income statements is store labor. Implementing the right processes to allocate store labor hours, valuable incentive plans to motivate employees, and systems that accurately track and execute store labor plans will enable your store(s) to operate as efficiently as possible while still providing a high level of customer service.
Vigilant monitoring of other store expenses, including store-related telecom and IT costs, facility maintenance and service, and utilities, is also necessary to minimize your overall store operating costs. Periodically seeking new bids for these services can help reduce costs as well. Employing discipline when it comes to store labor and operations expenses demonstrates a management team’s execution abilities and will be viewed favorably by buyers.
Consider Your Competition
Given the intense competition within the retail industry, potential buyers will conduct an in-depth analysis of the competitive landscape for your retail business. Additionally, buyers expect owners to have intimate knowledge of their competition and their competitive differentiation. Why would a customer choose your store over another? What are your biggest competitors doing in terms of store expansion? As a retailer, you must adopt a competitive mindset and proactively think about ways to outdo your competition, both at a local level in terms of day-to-day store execution and strategically at the corporate level. Developing an in-depth understanding of your competitive landscape will help drive your company’s value during the sale process.
Highlight Growth Opportunities
A proven capacity for new store additions will be another attractive characteristic that can drive a higher purchase price for your retail business. Financial buyers will focus heavily on potential store growth and on management’s experience and history in opening new stores. An established process for store expansion will give buyers confidence in a team’s ability to continue adding stores.
Additionally, new lines of business—for example, to support new categories, expand into e-commerce, or add curbside pickup—can be an attractive point for buyers as they assess the possible growth trajectory of your retail company. If you can demonstrate historical growth as well as identify a plan for future growth, in terms of both new store additions and same-store sales, a higher multiple is likely to be placed on your business.
Analyze Your Product Mix and Gross Margin
Profound insight into your product mix and gross margin, by category and for key products, is something else buyers expect in this day and age—and an important factor in any impending sale process—because it reveals a data-driven approach to merchandising. Managing vendor relationships to minimize the potential COGS and to maximize vendor funding will increase gross margins and thus the financial promise inherent in your business. Furthermore, being able to analyze your typical market basket so you understand the association between items can lead to better pricing and product mix decisions, which can increase both sales and margin.
Prepare for Success
Selling your business is a life-changing decision that you must make with the utmost care. Having a good strategy isn’t enough—execution, as you know, is the key to becoming a great retailer. To ensure a smooth and successful closing on the transaction, you should consult with an investment banker before beginning the sale process.
PCE has a team of credentialed investment bankers and valuation experts available to help you maximize the value of your business in a sale transaction. Whatever you wish to accomplish, our team can define, analyze, and present solutions that allow you to take the next steps toward success.
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