There’s a jewelry store in town with a long tradition, a devoted client list, and a good record of solid profitability. But during the last year, it’s moved around like the “oldest established permanently floating crap game” from the musical Guys and Dolls.
It was downtown. Then it was not. It was reestablished on the other side of town, in a low-traffic area where people couldn’t find it. Then, 14 months later, it moved back to its old location.
Why? It was all about remodeling and renovation. The original building had been added to and added to until no more substantial changes could be made. The owners decided to “bite the bullet,” as they say. They made the choice to level the old building completely and start again with a new design, renovating the whole thing over from the ground up.
I spoke to the owner at length about the decision. He knew it would mean dramatically lower profitability over the course of 14 months. They would be spending vast sums on the new structure. The revenue would collapse. They knew all of this, making their decision a fascinating choice. One reason they chose a temporary location in a low-rent area was precisely to save as much money as possible during the transition. They also stopped adding to the inventory.
It is a tricky calculation, one that is possible only with intimate knowledge of the business, the venue, the expected revenues, the seasonal changes, the permanent costs of the business, the cost of losing some customers in the intervening period, and much more.
Did the gamble pay off? The owner is cautiously optimistic. The new store is gorgeous. It is back at its prime location. There seemed to be a lot of shoppers when I was there (but shoppers are not necessarily buyers). The revenue declined hugely and dramatically during the transition, as expected. But the revenues have been notably impressive since the reopening. However, it could be five or 10 years before they know for sure whether it was the right thing.
What’s more, there is no real way to prove cause and effect here. There is no status quo against which to compare the new reality. There are no control groups. You can only imagine counterfactuals and speculate. This is because business is not like natural science. You can’t just hold all things still and change one variable, much less repeat the experiment. The flow of life is forward, and an infinite number of things are constantly changing.
Read More at dailyreckoning.com . By Jeffrey Tucker.
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