How Does This Relate?

Imagine for a moment that you are the owner of a successful business, and you want to expand your operations. There are a number of ways to go about this directly, such as opening new markets, moving into new customer demographics, or trying to take business away from your competition. Alternately, you could move into closely related products or services – if your company currently makes hammers, for example, you could move into screwdrivers or files, or other products that are made from similar ingredients (tool-steel) and marketed to similar customers (hand-tool users). This will increase your potential revenue, and will also provide some protection against disturbances in the market – if the market for hammers drops off, the market for screwdrivers may not. This type of strategy is referred to as related diversification; it’s distinct from unrelated diversification, which would be expansion into completely unrelated industries. For example, if we own a company that makes hammers and we decide to open a flower shop. Or, perhaps, if we own a company that makes and sells men’s clothing and we decide to open a restaurant…

Whether you consider unrelated diversification a valid strategy or not is a matter of personal preference, but you may want to watch how Brooks Brothers does with their steakhouse before you make your final decision on that point. A story in last week’s New York Post claims that the famous retailer is planning to repurpose a large retail space around the corner from its New York flagship store into an upscale steakhouse sometime during the 2014 calendar year. There are no details yet, but New York City is already home to a number of premium steak restaurants, and it seems obvious that anyone attempting to break into that market will require more than name recognition and a clever stunt to get the public’s attention. If the company can somehow come up with an absolutely top-grade steakhouse operation they might be able to compete on either cost or value or both, and if they can use their name recognition to get people to come in and try the place, they might have a chance…

How likely any of that is remains to be seen. Clearly the company has a well-established brand image that goes back to 1818 and conveys the impression of superior quality and workmanship, if not the most competitive price. And this is hardly the first attempt to use an unrelated brand and/or reputation to develop a food service operation. In recent years we have seen a number of companies not normally associated with food open (or license someone else to open) branded restaurants using their name and logo, notably including cable television network ESPN and motorcycle manufacturer Harley Davidson. And while the company does not appear to have any significant experience in food service, they are very well known for both superior customer service and world-wide product distribution. With over 300 retail locations in place and a number of possible ways to cross-promote products, this idea may not be so odd after all…

I can’t help wondering how many other companies might be contemplating similar moves – or would if they saw Brooks Brothers pull this off. Would we next encounter McDonald’s sportswear? Apple coffee houses? Starbuck’s health and beauty products? The one constant I have noticed in my years as a business teacher and a management consultant is that no idea is too outlandish that someone somewhere hasn’t considered turning it into a consumer business – and if bacon-flavored salt, vodka and personal lubricant can all be winners, what’s wrong with a super-premium retailer branching out into a super-premium restaurant?

This isn’t to suggest that the new venture will be easy, if it isn’t just a publicity stunt in the first place. I’m just noting that it won’t be the strangest thing we’ve seen this week, let alone this decade…

Business Diversification

One of the common strategies used to increase the volume of sales a company is making is to expand operations into additional business sectors, either by re-positioning the products you already have, finding new markets or new distribution channels, or by introducing new products to the mixture your company carries/makes/promotes. So, for example, if you company sells coffee-based beverages, you could diversify your operations by introducing food items, making other types of beverage, or selling beans and coffee-related merchandise (such as coffee makers) on a retail basis. Alternately, if you make large automobiles and sales of such vehicles are down, you could diversify by using the same manufacturing division to produce small cars, airplanes, boats, or gasoline- and diesel-powered machinery of other types. But when all else fails, you can always jump into a new business sector altogether…

A story being reported this week on Fox News Online details the strategy used by a Hummer dealership in Illinois, which when faced with flagging sales and attempts by General Motors to sell off the entire Hummer division, decided to offer retail products for sale in their dealership. Specifically, they decided to start selling firearms and ammunition right off of the same sales floor from which they normally sell cars – or giant SUVs, at least. Technically, both products are retail sales; both require special documentation and ownership licenses in many states, and both are noted for resulting in a lot of accidental deaths when operated by careless people. But beyond those obvious similarities, the business times don’t appear to have much in common – at first…

The owner of this now unique operation claims that because Hummers are popular with hunters, fishermen and other outdoors types, the two business models produce natural synergy. This may even be true, at least as regards some significant portion of the company’s customer base. Certainly, anyone who actually intends to use their Hummer to reach remote hunting camps (or even remote camp locations where encounters with unfriendly wildlife are possible) might find the combined dealership and gun store to be convenient. For that matter, persons who are buying a Hummer to compensate for certain personal insecurities might also be interested in purchasing firearms, and this will provide them with a convenient means of doing so. A much more immediate question would appear to be whether this combination is really a good idea; to wit, should we be selling people products that boost their self-esteem by making them feel invulnerable at the same time we sell them products that give them the ability to destroy things?

Or, on the other side of the issue, should business owners start looking for non-traditional ways to diversify their businesses using their existing facilities and equipment? I’ve seen examples such as a combination coffee house and neighborhood legal clinic (the coffee is reasonably priced, and the legal assistance is as cheap as they can make it) and a combination Laundromat and singles bar (meet new people while you do the wash) – although that last example combines two of the most depressing human activities possible into a single nightmare. Perhaps in the future we will see new combined business models, such as a weight-loss clinic and clothing store (work towards a smaller clothes size, then reward yourself by buying them) or a combination movie theater and restaurant (dinner and a show) or a combination college book store, debt management counseling center and support group (if you were in college these days, you’d understand)…

Granted, some of these may sound like silly ideas. But if they make the difference between closing your doors, putting all of your employees out of work, and having to go do something less enjoyable for a living and staying in business, it’s hard to imagine what would be wrong about such operations. Perhaps the time has finally come for that store I dreamed up back in my Undergraduate days, which would carry both slingshots and chunks of rump steak (and other things that go “splat” when they hit something). I can see it now…

“Ya-HA! Ya-HA!” (Twang!) SPLAT!

You know what they say: if it's good for the economy, it's good for America...