Expand Your Growth Portfolio

In a market environment characterized by scant growth and persistent overcapacity, mature specialty retailers have no choice but to pursue non-core growth initiatives. Most companies wisely consider only “adjacent” opportunities, meaning those that leverage existing corporate competencies and other assets.

The range of adjacent opportunities is still broad, from new classifications to new concepts. Yet, for even the most highly publicized growth initiatives, the track record is sketchy: for every LOFT (the supportive sister in Ann Inc.), there is a Justice (who ruthlessly cannibalized her sibling, Too); for every Hollister, a Ruehl; for every PINK, an Aerie, etc.

Where do these ideas come from? Commonly, a CEO comes back from a shopping trip and declares, “We are going to do X.”  Or a board member suggests, “You should look at Y.”  Or Design, frustrated by the lack of merchant imagination, presents, with samples and creative zing, new concept Z.  Or, most often, a competitor will announce A, and everyone now thinks, “#$%@!, we have to do A!”

Since the stakes are so high, let us suggest that the effort to identify, evaluate and test potential growth opportunities be commensurately thorough and disciplined.

1.  Identify Options. Structure, but cast a wide net.

Even limited to adjacent opportunities, the range of options, with all their possible permutations, are numerous. Here is a sample framework:

Framework for Identifying Growth Opportunities

Dimension Variable Some Current Examples
Product Category Yoga-wear, scarves, shoes
  Price Lower, more promotional
  Occasion Halloween
Customers Age Younger
  Gender Male
  Size Plus
  Fashion segment Hipster prep
Real Estate Format Strip, street, outlet, tourist
  Design Vintage
  Location Hip-urban
  Geography Dubai, NICs
Marketing Channels Mobile, Pinterest
  Psychographics Young Digerati, Gen Z, Girls
Messages Core emotion
Promotions 40% off
Sub-brands Young designer; Made in USA

When you go through this exercise, note industry analogs, both successes and failures. Also, don’t always think incremental or finely targeted. Some of the highest-growth concepts (H&M, Uniqlo, Forever 21) execute big. Finally, revisit periodically. Opportunities in new channels and segments are limited only by the imagination.

2.  Screen. Use multiple criteria to evaluate options.

Example Criteria and Scale

Criteria Best = 10 Worst = 1
a. Investment at risk Low High
b. Return rate potential High Low
c. Certainty High Low
d. Time Period Immediate Long
e. Testable Easy Hard
f.  Competitive barriers High Low
g. Synergy Multiplicative Cannibalistic
h. Resources available Plentiful None

Criteria a. – d. are common to any financial evaluation but may remain qualitative for this phase. The rest are less common but no less important: if the concept is easily testable (e.), it will help reduce risk; f. measures competitive risk; g. estimates the impact to the rest of the enterprise (this is very important because it impacts the ROI hurdle); and h. confronts directly whether you’ll have the resources to execute.

3.  Select. Choose a portfolio of investments for test, incubation and launch.

We suggest dividing opportunities into two categories, strategic and opportunistic. Strategic investments – typically longer-term – will move the needle in a big way. Shorter-term, low-risk, opportunistic investments (e.g. new stores), will help keep shareholders happy and fund the strategic opportunities.

A sample growth portfolio:

Strategic

  • Strengthen/protect the core businesses (see related Aug 16 and Sep 28 posts)
  • Fund one high-investment, high-return, long-term growth initiative
  • Explore, test or incubate – with little investment – another

Opportunistic

  • Pursue several other short-term, low-investment, high-return rate initiatives – these will help fund the other initiatives
  • Test other opportunistic investments for future rollout

Summary

Strengthening your core business is essential in this highly competitive market, but may not be sufficient. Think broadly about growth opportunities and have a portfolio of different risk-and-return options in various stages of development. Be flexible about the future – stage investments to reduce risk and be ready to cut losses and move onto “next” – which, because of good planning, you know exactly what that is.

Posted in Growth