The UK high street has been the casualty of increased competition from online retailers. Many high street brands have a fallen due to the continued demand to shop online.
However, despite business like Jessops, HMV and Blockbuster shutting up shop, small independent retail business with little or no need to adapt to eCommerce have continued to thrive.
So what are some of the key drivers that make retail businesses profitable?
Profits – The overall profit for retailers is sales volumes. The level of turnover will depend on the type of retailer, products or services that are offered. Selling a clothing retailer may turn over a high volume of low-value stock whilst selling a jewelry shop will have lower sales with higher margins.
Assets – The quality of assets will determine the value for a prospective buyer. Intangible assets like brand, Intellectual property, and customer relationships will also play an important role in the value of a retail business. Being a small retail business, certain shops can still generate a strong brand name in the local area.
Repeat Business – Having a strong relationship with customers and the experience that goes with that ensures customers keep coming back. Many customers prefer to support local businesses even if the same product is available cheaply elsewhere.
Staff – A risk factor to consider is if one person in the business is responsible for the customer relationship and experience. Buyers would consider whether the retail business would be sustainable without that person.
Location - The location of a business is also a key valuer. Kwikfit whose sites are typically located on major routes and out of town cities reinforces their brand name and making it easy to remember when you need a new tyre. Having a prime location in a busy shopping centre like Westfield Shopping Centre or Lakeside Shopping Centre will benefit from a high level of footfall. Rental costs would be high due to location and this would be a key consideration from a buyer.
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