Why Do New Brick and Mortar Businesses Fail?

You may have noticed that many new brick and mortar businesses fail within the first year or two of opening.

Beyond the prerequisites of “location, location, location,” exceptional product quality, and superior customer service, the absence of marketing and communications is a leading causes of failure among brick and mortar startups. Some companies launch without promotional funding, some don’t understand the need for it, and some suffer from both.

Others reasons that new brick and mortar businesses fail fall into three categories.

Inadequate Research During Planning

• No differentiation from the competition, including online stores
• Low demand in a niche market
• Flawed profit-loss analysis

Poor Operational Practices and or Management Skills

• Lack of management experience and or failure to delegate
• Not adapting to evolving consumer preferences
• Difficulty building a loyal client base

Reasons Beyond Control

• Increases to the state and or local minimum wages
• Changes in regulations and or tariffs
• Economic downturns and or recessions

What Types of New Brick and Mortar Businesses Fail?

Certain types of new brick and mortar businesses fail more often than others. These include restaurants, wine bars, night clubs, convenience stores, independent retail stores, gyms and fitness centers, hair and nail salons, and health spas.

If We Build It, They Will Come

“If we build it, they will come” may have worked in The Field of Dreams film, but it rarely applies to brick and mortar startups. That approach to marketing worked for thousands of years, but it eventually lost traction in the 20^th century.

According to archeologists, marketing started some 40,000 years ago in a cave. The practice advanced at an indiscernible pace until the printing press was invented in 1450. Marketing took another leap with newspaper advertising in the 1600s.

Advertising also helped marketing reach a higher level from the late 1800s through the early 1900s (“the “industrial revolution”). Not long after, advertising and public relations campaigns were very effective in convincing Americans that involvement in WWI (1914 – 1918) was necessary.

Consumer confidence was low during the Great Depression (1929-1939), so marketers focused on brand reliability and reputations to instill a sense of security.

Brick and mortar businesses could still rely on the “if we build it, they will come” adage because most communities were small and tightly woven, and word-of-mouth still carried weight.

That approach changed at the end of World War II (1945), when a bigger and faster global economy placed greater demands on marketers. Increased competition from booms in production, merchandising, advertising and education prompted comparative shopping and greater critical thinking. This period marked the end of “if we build it, they will come.”

If We Build It, They Might Come

A few brick and mortar business models actually succeed with the “if we build it” rationale. Such businesses typically benefit from the rare perfect storm.

For example, someone opens a bar and grill in a small hometown void of casual dining and nightlife. Friends and family flock to the new establishment, bringing more of the same to help increase the clientele base. With the newly found success, the business invests in print, online and radio advertising to further the momentum. The wave of success may last 10-plus years depending on the competition and product quality.

Avoiding the New Brick and Mortar Businesses Failure Trap

Successful brick and mortar businesses begin with successful planning and analysis. This includes thoroughly researching the respective market for consumer trends and signs of oversaturation. New businesses also require sufficient upfront investment capital, usually more than original projections.

Prospective startups should estimate profit margins by analyzing operational costs such as rent, labor, utilities, product components and packaging, vendors, furniture and fixtures, taxes, equipment failure, unexpected costs, and more.

Next, find a great location. This process sometimes defies simple logic. For example, establishing an auto dealership far from other car lots may seem like a great way to avoid competition, but time has proven that buyers prefer the convenience of one-stop shopping at the auto row.

Finally, budget for advertising, marketing and promotions. This includes signage, printed materials, print and or online advertising, web presence, joining local chambers and merchant groups, and more.

It’s always mission critical to know what you don’t know.

For example, many business owners are good writers, but their blog articles are not reaching new viewers because they are unaware of the need for search engine optimization. Our next blog article covers writing optimized blog articles.

As always, we are here to answer questions and discuss your promotional ideas during a free consultation.