Would new location be boom or bust?

THE CHALLENGE

Five years after opening Metro Element – a retail showroom offering fine furnishings, home decor and a full-service designer floral department – Christina Loc realized the store was too small.

The Calgary-based company's sales were increasing, and the cramped store lacked the space to attractively display additional inventory. Ms. Loc was faced with a tough decision: Should she relocate Metro Element to a larger space to facilitate its growth?

THE BACKGROUND

Ms. Loc and her husband co-founded Metro Element in 2005, intending to focus on designer floral arrangements. The first inner-city store was chosen for its location. It was on a corner with traffic lights, on a busy road that leads into downtown Calgary. It had good parking, visibility, a fair amount of foot traffic and it was in an up-and-coming community.

At the time it opened there were few shops in the vicinity. Many customers credit Metro Element with changing the neighbourhood.

The nearby businesses were a mix of retail and services, including a trendy restaurant, a confectionary, and a tanning salon. The neighbourhood is mixed-residential, consisting of older homes, new infill homes, condominiums and apartments.

The only problem was that at 1,500 square feet, the space was too large for a florist. After attending some trade shows the couple decided to add furniture and home decor accessories to the floral design business. This product combination allowed Metro Element to serve customers through the various stages of their lives: from furnishing first apartments and flowers for dates, to flowers for weddings and more furniture for homes, to gifts for housewarmings and other personal milestones.

The store had many repeat customers, some of whom bought flowers weekly and others who purchased furniture and accessories for their home and gifts for their friends.

Many customers lived in the surrounding neighbourhood.

THE SOLUTION

To facilitate Metro Element's growth and to effectively display its home furnishings and expand its inventory, significantly more space was required. The partners spent a lot of time thinking about whether or not to move the store.

The following risks were considered:

• Metro Element was established in its location.
• Ms. Loc would miss her regular customers who might be unable to readily access a new location.
• Could Ms. Loc build personal rapport with people in the new community?
• Would the new location be busy enough?
• What would be the effect on sales of moving into a community with more competition?
• The ability to cover the higher leasing costs.

The preference was to find a space within walking distance of the original store, but none were large enough.

Some of the considerations for a new location were:

• Proximity to the original location.
• The store's exposure.
• Foot and car traffic.
• Parking availability and cost.
• Lease costs.

A location that previously housed a furniture store was considered and then rejected for two reasons. First, the space was very large, resulting in high lease payments that would have put significant pressure on sales. Second, the previous store had gone out of business on very bad terms with its customers. Metro Element did not want to open with a "bad taste" resonating from these poor business practices.

A major shopping centre was also considered. However, the lease rates were extremely high (almost $200 a square foot) and furniture requires a lot of space, so the costs were not feasible.

The couple entered into negotiations for a location in the newly renovated downtown shopping complex. The 4,000-square-foot store came with a hefty price tag. Ms. Loc talked to another retailer in the same complex who said the bulk of downtown sales occurred between 11 a.m. and 2 p.m. Furniture purchases are usually made by both partners, so Ms. Loc believed it might be difficult for both to shop together – especially because the complex is open late only on Thursday evenings. Parking accessibility and cost are also an issue in downtown Calgary.

THE RESULT

In July, 2010, Metro Element relocated to a 5,000-square-foot showroom in the trendy and lively inner-city neighbourhood of Kensington.

The new location is on a corner with large windows. The high-traffic street connects into downtown. The neighbourhood is a well-developed retail environment with many trendy independent stores and restaurants. The location commanded a higher lease rate and combined with the large space the lease is expensive. Ms. Loc questioned whether Metro Element's sales would be sufficient to sustain the leasing commitment.

It turns out that furniture sales are better in the new location. Competition is good – it generates more traffic for targeted items such as furniture.

Flower sales were not really affected by the move as most are generated through telephone and online orders. The product is designer flowers, not supermarket flowers, so walk-in sales take a long time to develop. Regular walk-in sales are now starting to occur.

Accessory sales are better in the new location as a result of the higher volume of foot traffic and proximity to many restaurants and shops.

The decision was difficult but once Metro Element moved Ms. Loc realized it was the right choice. The move allowed the store to attractively display more merchandise and increase its sales. Because of the success, Metro Element is looking forward to finding many new locations and to expanding the business further by entering new markets.

Special to The Globe and Mail

Sandra Martin-Malach is a professor of entrepreneurship in the Haskayne School of Business at the University of Calgary.

This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.

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