Why My Company (NicHarry.com) Is Closing Down Two Physical Stores
The short answer is that these two stores failed. Neither of them made sufficient profit to justify staying open.
If you want the long answer, keep reading.
Five years ago I started a small experiment that I called NicSocks (now www.nicharry.com). We sold socks. I used R5000 (±$350) to build a small business that turned a profit after 30 days of running.
Fast forward 3 years and we had opened 5 physical retail stores, we had a website that shipped globally, we had plans to open more stores once we figured out which store size/model worked best for our business and things were pumping. Our team had gone from 2 to over 20 people in 12 months and were sprawled across 3 cities.
Everything was amazing and we were flying high off the back of great store performance through rocking summer weather and tourist trade in Cape Town.
Ecommerce & Physical Retail
Nic Harry started as an ecommerce sock business in November 2012. In August 2014 we opened the doors to our first physical sock experience. By this time we had a wider range of product and a deep range of socks.
The store was a banging success. We paid off our capital investment and the store was profitable within 2 months. I worked the store myself with my co-founder and we really dug into the customer and in-store experience.
A few months into this I decided that the path to profit in South African retail lies in physical outlets and since our first store did so well that perhaps we should open another, immediately.
I hustled my way into the V&A Waterfront with a small 10mx10m kiosk. A fantastic size for a young brand selling premium socks in the country’s premium mall.
Again, this store was a banging success. We paid off our capital investment and were profitable in less than two months. We believed that we had a model that worked for us: Physical stores complimented by fantastic product, customer service and ecommerce capabilities.
I brought on a new investor and raised further funding to grow our store footprint in South Africa. We did this aggressively. Between August 2015 and February 2017 we opened five physical stores in three cities. That’s a store every 3.6 months. I used to be quite proud of that number. Now I think it’s insane and I’m actually quite tired if I’m honest.
We opened stores in the following locations:
Rosebank Mall — Johannesburg
Menlyn Park — Pretoria
Tyger Valley — Cape Town
V&A Waterfront — Cape Town
Wale Street — Cape Town
We specifically set out to experiment and learn which store model would work for Nic Harry. We had 10m², 20m² 30m², 50m² and 60m² stores all ready for testing and experimentation.
I thought that I had it all figured out: Open stores, sell socks, make money, open stores, etc etc. But here’s the thing; store size isn’t really the single variable that we should have been measuring. There’s a lot that goes into making physical retail work. Things like product depth, staff training, logistics, turnover per m² of store space you occupy, cost per m² calculations and an immense amount of other things that pile on.
I am a naive retailer and had no clue what was going on much of the time! I still don’t. In fact, some of the best retailers I know don’t have a clue either.
Menlyn & Tyger
We have officially closed our Menlyn Park and Tyger Valley stores. Menlyn closed in August 2017 and Tyger Valley closed at the end of October 2017.
These two stores closed for vastly different reasons.
Menlyn Park itself is battling with vacant stores and retail rot. They have incredibly bad management and the people running the centre don’t give a damn about their tenants or the relationships they are damaging. There is also a distinct lack of foot traffic (humans) and the mall is simply too big for people to shop in an easy manner.
Much of the blame lies with me and how we opened and ran this store.
Menlyn was our third store and it was our first outside of Cape Town. We hired an inexperienced team and struggled to maintain the same ethos with a team far away that we manage in our Cape Town stores. I spent 6 months flying from Cape Town to Johannesburg every other week to try and rectify this. These costs mount and are unsustainable.
We practice a very flat structure at Nic Harry. This means no managers. Everyone is a key-holder, everyone has access to our systems, figures, processes and everyone is responsible for themselves and their store. This requires the right people in the right positions. We did not have this at Menlyn. We had really great salespeople who battled to gel into the Nic Harry way of doing things. No amount of work, new product, sales could turn this struggling store into a profit centre for us.
Tyger Valley is a different beast altogether. This store began as a pop up in a really bad location in the mall. This incurred losses for us over a period when we should have been making serious money. We then relocated (a second shop fit was required which meant more capital expense) but unfortunately the move didn’t give us the increase in turnover we required to stay open. The landlord in this scenario was much more helpful, pleasant and well-intentioned.
Menlyn and Tyger were our biggest stores by size (50m² and 60m²). They were also the highest actual rental. The size of the store + the rental + staff costs + low turnover meant that our previous dream store model broke.
I thought we could turn it around with a wider range of product and improved team performance but I was wrong. There is only so much you can do if your model won’t financially work out.
Focus Is Hard
Here’s the thing about startups: It’s fucking hard to focus when profit is small, staff is few and opportunity is big.
As we began rolling out stores one major side of our business began to suffer: ecommerce. While I was focused on hiring staff and building stores and negotiating leases and moving into stores and training staff and firing staff and designing new product all the while our ecommerce kept falling by the wayside. It became less and less of a priority because turnover was kicking up in our physical stores.
Over the last 24 months our turnover has grown but our profit has been in decline. We’ve been spending money opening stores in the face of a major recession and shift in spending habits.
Our website is the lowest cost centre in the business and logically it’s where the growth should come from: low cost = high profit. But due to the lack of focus it slipped and that potential profit was missed.
The last 18 months has taught me that focus is imperative.
Focus on getting your model right.
Focus on getting your product right.
Focus on getting your profit right.
Focus on getting your customer service right.
What Did We Learn?
Lots of lessons come from failure and if you don’t look back and learn the lesson then all you’ve done is fail. So here are a few things I’ve learned over the past two years:
A physical presence is an imperative for the future of retail. I believe that in the future people will want to experience a brand in real life as much as they want the convenience of online shopping. When a store works, it really works well. When it tanks, it tanks hard.
Physical stores are expensive to set up and maintain. This is something that I was warned about. Everyone told me that physical retail is tough on the bank account. They weren’t wrong, I just didn’t listen.
Leases are like buses, there’s always another one coming. One of my investors told me this. A friend of his who has opened thousands (literally) of stores told him to mention it to me. I ignored this one and it cost me. If you are thinking of opening a physical store and you are unsure of the lease terms, location, your businesses cash position then do me a favour and stop. Take a pause, wait a month. See if that lease is still there, see if you can get a better deal or location. Don’t rush to open because there will always be another store sometime in the future.
Experiments are fantastic but test one thing at a time. We chose to test a lot of things: new location, new product, new team, new store sizes, new business model, new logistics, new systems. Sometimes this can work with magical effect but most of the time if you are testing everything out you won’t know why you fail or what is working.
Experiment more slowly.
Overall, the thing that I learned is that nothing worth doing is easy. This is not the first time I’ve learned this lesson. Sometimes you have to relearn things. If it’s difficult, it’s probably going to help you be better. If it’s easy it probably won’t.
I would have loved to have saved a bit more of the capital that we spent opening these two stores and used it to grow a different part of my business but I’ve learned so much in the past 2 years that I can’t say I regret anything.
Hopefully the lessons I’m learning continue to help you sift through the decisions you have to make in your own life and business.