Opening a Store Is Easy. Making the Numbers Work Is the Hard Part.
Inside The Industry Series | What it takes to open a store
RETAIL STRATEGY | STORE ECONOMICS | PROPERTY & INVESTMENT
HMV’s planned departure from its Oxford Street flagship exposes a fundamental tension in modern retail: a store can grow sales, attract customers and strengthen a brand’s presence while still facing a commercially unviable future.
For retailers, the challenge is no longer simply finding the right location or generating sufficient footfall. It is understanding whether a store can deliver a sustainable return on investment while balancing property costs, customer demand, omnichannel performance, capital requirements and the risks of a long-term lease.
That distinction matters more than ever.
Opening a store is an operational milestone. Making it a sound investment is a commercial discipline.
For retail leaders, the real question is not simply whether a store can succeed. It is whether the opportunity justifies the capital, cost and commitment required to make it work.
THE EXECUTIVE VIEW
A new store can be a powerful growth opportunity. It can bring a brand closer to its customers, create experiences that digital channels cannot fully replicate, strengthen customer relationships and generate sales across a wider retail ecosystem.
But every new location also creates financial obligations. Capital is committed before trading begins, operating costs continue regardless of performance, and property agreements can leave retailers exposed long after the original investment case has changed.
The strongest retailers understand both sides of that equation.
Before committing to a new location, management needs clear answers to six fundamental questions:
Customer proposition: Why does this store need to exist, and what distinct value will it deliver?
Property economics: Does the location justify its total cost of occupation?
Profitability: Can the store generate sufficient contribution and profit under realistic trading conditions?
Capital and cash: How much investment is required, and can the business support the store until it reaches sustainable performance?
Contractual exposure: Do the lease terms reflect the commercial risks and uncertainties of the investment?
Exit and flexibility: What happens if the original business case no longer holds?
HMV’s Oxford Street decision provides a timely illustration of why these questions must be considered together.
The lesson extends well beyond one retailer or one flagship. It goes to the heart of how retailers should assess growth, allocate capital and manage their physical estates.
1. THE PHYSICAL STORE HAS A DIFFERENT ROLE. THE ECONOMICS STILL HAVE TO WORK.
The customer journey no longer begins and ends in a single channel.
A shopper might discover a brand through TikTok or Instagram, research a product on its website, compare prices on a marketplace and eventually purchase in-store. Another might encounter a product in a physical shop before completing the transaction online.
For retailers, this creates an opportunity to make physical stores more valuable to the wider business. It also creates a challenge: understanding how much value each store actually contributes.
A store may generate value through product discovery, customer acquisition, service, loyalty and brand experience. Its contribution may therefore extend beyond the transactions recorded at the till.
However, these benefits should not simply be assumed.
If customers who visit a store would have purchased the same products online anyway, attributing those sales entirely to the physical location risks overstating its incremental contribution.
Retailers need to distinguish between two measures of performance.
Direct store performance includes sales, gross margin, conversion, average transaction value, labour productivity and the store's contribution after its attributable operating costs.
Wider business contribution includes genuinely incremental online sales, customer acquisition, retention and other measurable benefits generated by the store's presence.
The distinction is particularly important when comparing different store formats.
A flagship may be designed to build brand awareness and deliver an experience that reinforces the entire business. A smaller store may focus on convenience, product availability and local demand. An outlet may be primarily concerned with inventory clearance and cash recovery.
Each has a different commercial purpose and should be assessed accordingly.
The objective is not to force every store into the same financial model. It is to ensure that each store has a clearly defined role, measurable objectives and an investment case that reflects its purpose.
The question is not simply whether a retailer should open a store. It is whether that particular store creates enough measurable value to justify the investment.
2. PRIME LOCATIONS: THE OPPORTUNITY AND THE PRICE OF ENTRY
Location remains one of the most consequential decisions in retail property.
Footfall, accessibility, surrounding brands, customer demographics, tourism and the wider retail offer all influence a store's potential. Yet the locations offering the greatest visibility and customer access can also carry the highest property costs.
CBRE's UK Retail Property Outlook 2026: Midyear Review reported that Oxford Street's vacancy rate fell from 4.3% at the end of 2024 to 0.4% in June 2026, its lowest level in 20 years.
CBRE also reported that average prime Central London rents increased by 7.6% year on year in the second quarter of 2026.
These figures indicate strong demand for certain prime locations. They should not, however, be interpreted as evidence that every UK high street is thriving. Retail property performance remains uneven, with significant differences between locations, formats and catchments.
For retailers, the commercial implications are clear.
A high-profile address can offer visibility, customer access and brand credibility. But these benefits must be weighed against the full cost of occupation and the financial commitments attached to the property.
Footfall is not conversion. Sales are not profit. And a prestigious address does not automatically represent a good investment.
The right location is not necessarily the busiest or most recognisable. It is the location where the customer opportunity, operating model and property economics combine to produce an acceptable return.
The best property decision is not the one that secures the most impressive address. It is the one that creates the strongest commercial outcome.
3. THE INVESTMENT STARTS BEFORE THE FIRST SALE
The cost of opening a store extends far beyond rent.
Depending on the format and property, a retailer may need to fund:
Deposits, legal fees and other lease-related costs.
Design, construction, fit-out, fixtures, fittings and signage.
Initial stock, replenishment and associated inventory requirements.
Recruitment, training and wages.
Technology, security, payment systems and inventory management.
Launch marketing and ongoing customer acquisition.
Working capital to support the business while sales develop.
Much of this expenditure occurs before the first transaction.
Once the doors open, the retailer must continue meeting its financial obligations while the store builds awareness, attracts customers and establishes its trading pattern.
If sales develop more slowly than expected, the business may need to fund the shortfall from elsewhere. If several stores open simultaneously, the pressure on cash and management resources can become more significant.
This is why the opening budget is not the same as the total investment required.
Retailers must understand the complete capital commitment, including the cash needed to sustain the store until it reaches an acceptable level of performance.
That requires more than a single sales forecast.
Management should test the investment against credible downside scenarios. What happens if sales are 15% below plan? What if the opening is delayed? What if the fit-out exceeds budget or gross margins come under pressure?
These are illustrative stress tests rather than universal benchmarks. The appropriate assumptions depend on the retailer, format and market.
The purpose is to establish whether the business can absorb a disappointing start without compromising its wider financial position.
A store may eventually become successful and still create serious financial pressure if the business does not have sufficient capital to reach that point.
A credible store investment plan must account for the cost of getting to success, not just the cost of opening the doors.
4. TURNOVER DOES NOT GUARANTEE PROFITABILITY
One of the most important distinctions in store economics is the difference between generating sales and generating sufficient contribution to cover the costs of trading.
Consider a simplified example.
A store generates £250,000 in monthly sales and achieves a 40% contribution margin after the costs directly associated with those sales.
That produces £100,000 in monthly contribution towards fixed costs.
If the store's monthly fixed costs are also £100,000, it reaches break-even under these assumptions, before any additional costs not already included in the calculation.
If sales fall, margins deteriorate or fixed costs increase, the position changes quickly.
The example is illustrative, not an industry benchmark. A real investment appraisal must clearly define which costs are included in the contribution margin and which sit within fixed costs.
It must also account for seasonality, markdowns, returns, stock availability and the cash tied up in inventory.
For retail leaders, the critical questions are:
What level of sales is required to break even?
How much contribution does each additional pound of sales generate?
How sensitive is profitability to changes in sales, margin and operating costs?
How much cash will the store consume before reaching sustainable performance?
What return will the business earn on the capital invested?
A busy store can still be unprofitable. Equally, a smaller location with lower overheads may deliver a stronger return on capital despite generating less revenue.
The distinction becomes particularly important when retailers assess flagship stores, where high sales and visibility can create a perception of success that masks the underlying economics.
The objective should not be to maximise turnover at any cost.
It should be to generate sustainable, profitable growth while ensuring that the capital committed to each location is working as effectively as possible.
5. THE WIDER COST BASE: TAXATION AND OPERATING PRESSURE
Property, staffing and stock are not the only costs retailers need to consider when assessing a new location.
Business taxation can also influence the economics of opening, operating and expanding a store.
The British Retail Consortium's October 2026 analysis, published ahead of the Budget, reported that retail and hospitality together paid £62 billion in business taxes during 2025/26.
The BRC also reported that, for every £1 of pre-tax profit generated by retail, the equivalent of 72p was paid in business taxes.
This is the BRC's measure of the wider effective business tax burden, incorporating business rates, employer National Insurance contributions, VAT and other taxes. It is not a corporation-tax rate.
The analysis highlights the wider financial pressures facing the sector and the potential implications for investment, employment and prices.
For retailers considering new stores, the practical point is straightforward: investment decisions must reflect the full cost of operating a location.
A model built around rent, wages and projected sales alone risks understating the financial commitment.
Retailers need a complete view of the costs that affect their particular business, together with an understanding of how changes in those costs could alter the investment's viability.
The stronger the pressure on operating margins, the more important disciplined financial modelling becomes.
When margins are under pressure, the quality of the investment decision matters as much as the ambition behind it.
Source: British Retail Consortium, October 2026 analysis. See the original BRC publication for the methodology and definitions.
6. HMV: WHEN GROWING SALES ARE NOT ENOUGH
HMV's planned departure from its Oxford Street flagship offers a particularly revealing example of the relationship between store performance and property economics.
The retailer returned to its historic Oxford Street home in November 2023. In October 2026, it announced plans to leave the site in March 2027 after its landlord proposed doubling the rent.
HMV also cited substantial renovation costs, stating that the combination would make the location commercially unviable.
The decision comes despite reported year-on-year sales growth of 25% at the store.
Source: Retail Gazette's reporting on HMV's planned Oxford Street departure.
The distinction is important.
The available reporting does not establish that the store was unprofitable before the proposed changes. Rather, HMV's stated position is that the proposed rent increase and renovation costs would make continuing at the location commercially unsustainable.
That is a different story from a retailer closing a store because customer demand has disappeared.
HMV is also seeking another West End flagship, indicating its intention to retain a physical presence in the area.
The case illustrates three important principles.
First, strong sales do not guarantee an acceptable return. Revenue must be considered alongside the cost of generating it, the capital required to sustain the store and the financial obligations attached to the property.
Second, a store's economics can change even when its customer proposition remains strong. A material increase in rent or an unexpected capital requirement can alter the investment case without any deterioration in customer demand.
Third, the decision to leave a location is not necessarily a decision to abandon physical retail. A retailer may continue to believe in the value of a flagship while concluding that the existing property no longer offers the right commercial terms.
HMV's situation should therefore not be reduced to a simple narrative about the decline of the high street.
Instead, it raises a more important question for retail leaders: how much should a business be prepared to invest to retain a particular location, and at what point does the cost outweigh the benefit?
That question applies to new store openings just as much as existing locations.
The lesson is not that prime retail is failing. It is that even a store with growing sales must justify its next phase of investment.
7. THE LEASE: BUILDING FLEXIBILITY INTO THE INVESTMENT
A store investment does not end with the opening-day budget. The lease can determine how much flexibility a retailer retains when trading conditions change.
Before signing, management should understand the full contractual commitment, the potential for costs to increase and the practical options available if the store fails to perform as expected.
Lease length and break clauses
How long is the retailer committed to the property? Is there a contractual break option? When can it be exercised, what notice is required and what conditions must be satisfied?
A break clause can provide valuable flexibility, but it is not an automatic exit. Its effectiveness depends on the wording of the agreement and the retailer meeting the relevant conditions.
Rent reviews and additional liabilities
How can rent change over the lease term? What other property-related costs could increase? Does the investment remain viable if the total cost of occupation rises?
The financial model should reflect the contractual terms and test the effect of plausible cost increases.
Fit-out and reinstatement
What happens to the retailer's investment when the lease ends?
Could the agreement require fixtures and fittings to be removed or the premises to be returned to an agreed condition? What additional costs might arise?
These obligations can affect the ultimate return on the initial capital expenditure.
Assignment, subletting and alternative options
If the retailer no longer wants to occupy the property, can the lease be assigned or the space sublet?
The available options will depend on the agreement and any applicable consent requirements. They should not be assumed to be available without restriction.
Exit costs and residual exposure
Closing a store does not necessarily end the retailer's financial obligations.
Depending on the circumstances and contractual terms, liabilities may remain in relation to rent, dilapidations, reinstatement or other costs.
These potential exposures should be understood before the original commitment is made.
Retailers should obtain appropriate legal and property advice when negotiating leases. Not every risk can be eliminated, and the terms available will vary between properties and landlords.
The objective is to understand which risks can be controlled, which must be accepted and what options remain if the investment no longer performs as expected.
The best time to understand the cost of leaving a store is before committing to the lease.
8. THE TFTT STORE INVESTMENT SCORECARD
The principles above can be translated into a practical framework for retail directors, finance teams and property leaders assessing a proposed store.
The TFTT Store Investment Scorecard is designed to bring the strategic, operational, financial and contractual considerations into one decision-making process.
It is a TFTT framework, not a published industry benchmark. Individual retailers should set their own performance thresholds according to their strategy, risk appetite, capital position and existing store estate.
The purpose is not to reduce a complex investment decision to a single score. It is to make the assumptions visible, expose the principal risks and establish the conditions that must be satisfied before capital is committed.
THE TEN QUESTIONS EVERY RETAILER SHOULD ANSWER
1. Strategic purpose
What role will the store play within the wider estate? Why is this location required, and what will it deliver that existing stores or digital channels cannot?
2. Customer demand
Who will shop there? What is the evidence of local demand, expected frequency of visits and likely customer spend?
3. Sales and margin
What sales, gross margin and contribution are realistically achievable? Are the assumptions supported by comparable stores, trading history or credible local market evidence?
4. Break-even
What level of sales is required to cover the store's operating costs? How much headroom exists between forecast performance and break-even?
5. Capital requirement
What is the total upfront investment, including fit-out, stock, technology, launch costs and working capital?
6. Cash-flow profile
How much cash will the store consume before it reaches sustainable performance? Can the business fund the ramp-up without putting pressure on other operations?
7. Downside resilience
Can the business absorb lower sales, weaker margins, higher property costs or a delayed opening? What happens if several of these factors occur together?
8. Omnichannel contribution
What incremental online sales, customer acquisition, retention or other measurable benefits will the store generate? How will the business distinguish incremental value from sales that would have occurred anyway?
9. Lease flexibility
What are the lease length, break dates, notice requirements, rent reviews and relevant contractual conditions? How much flexibility remains if performance falls short?
10. Exit exposure
What liabilities, reinstatement costs and unrecovered investment could remain if the retailer closes the store? What practical options would be available instead?
HOW TO PUT THE SCORECARD INTO PRACTICE
The scorecard should be completed before the retailer signs the lease, using a documented base case and at least one credible downside scenario.
The base case should set out:
Expected sales by month, season and relevant product category.
Gross margin and contribution assumptions.
Rent, business rates, service charges, labour and other operating costs.
Fit-out, opening stock, technology and launch costs.
Working-capital requirements and the expected cash-flow profile.
The anticipated break-even date.
The total capital invested and expected return.
Any additional omnichannel benefits included in the investment case, together with the method used to estimate them.
The downside case should test the investment against a combination of potential challenges:
Sales fall below plan.
The store takes longer to reach maturity.
Gross margin is weaker than expected.
Rent or other property costs increase.
Fit-out costs exceed budget.
Stock sells more slowly, tying up cash for longer.
The store generates less incremental omnichannel value than forecast.
The assumptions should be grounded in the retailer's own trading history, comparable locations, local market evidence and proposed property terms wherever possible.
Unsupported optimism should not be treated as a forecast.
Management should also identify the assumptions that have the greatest influence on the result. If the investment only works when every assumption is favourable, the business case deserves greater scrutiny.
SET DECISION GATES BEFORE OPENING
A store should not be judged solely on whether it opens successfully. Management should establish in advance how performance will be reviewed and what action will follow if the investment falls short.
Pre-commitment gate
Is the customer proposition clear? Is the location commercially justified? Does the base case deliver an acceptable return, and can the business absorb the downside?
Pre-opening gate
Are fit-out, stock, staffing and technology costs within the approved budget? Have the necessary operational arrangements been completed, and is sufficient working capital available?
Early-trading gate
Is the store achieving the required sales, conversion, margin and customer measures during its initial trading period? If not, are the shortfalls temporary, explainable and recoverable?
Maturity gate
Has the store reached the contribution and cash-flow performance required to justify the capital invested? If not, is there a credible, evidence-based plan to close the gap?
Lease-review gate
If performance remains below plan, is there a realistic recovery opportunity? Should management renegotiate the terms, change the operating model, relocate or prepare to exit?
The timing and thresholds for these reviews should reflect the retailer's business model, seasonality and lease commitments.
Crucially, the decision gates must be agreed before the store opens.
Otherwise, management risks continuing to fund a weak investment simply because significant capital has already been spent.
Money already committed is not, by itself, a reason to continue.
THREE POSSIBLE OUTCOMES
The scorecard should lead to a clear recommendation.
PROCEED
The store has a defined strategic purpose, the financial case is supported by credible assumptions, the expected return is acceptable and the downside can be absorbed.
PROCEED WITH CONDITIONS
The opportunity is attractive, but approval depends on specific improvements or protections. These might include better lease terms, a lower fit-out budget, a contractual break option, additional working capital or defined performance milestones.
DO NOT PROCEED
The investment depends on unrealistic sales assumptions, offers insufficient downside protection or fails to generate enough value to justify the capital and contractual commitment.
A store that falls short on one financial measure may still be strategically valuable. A flagship, for example, may support customer acquisition or brand awareness that cannot be fully captured in its direct sales.
But those benefits must be identified, supported by evidence where possible and explicitly recognised in the investment decision. Strategic importance should inform the financial assessment, not replace it.
The scorecard is not designed to produce a universal yes-or-no answer. It is designed to ensure that management understands what must be true for a store to succeed, how much the business is risking and what it will do if the original plan no longer holds.
The strongest store investments are not based on the most optimistic sales forecast.
They are based on a clear customer proposition, disciplined financial modelling, realistic downside assumptions and enough flexibility to respond when conditions change.
THE TFTT TAKEAWAY
Physical retail remains an important growth opportunity. Stores can build brands, bring customers closer to products, strengthen loyalty and generate value across multiple channels.
But the role of the store is evolving, and the investment decisions behind it need to evolve too.
Retailers cannot rely on footfall, headline sales or the prestige of a location as evidence that an investment is working. They need to understand the relationship between customer demand, contribution, capital, cash flow and the contractual commitments that determine the ultimate return.
HMV's Oxford Street decision brings that relationship into focus. Reported sales growth has not removed the commercial challenge created by a proposed doubling of rent and substantial renovation costs.
The lesson for retail leaders is not to become more cautious about opening stores. It is to become more disciplined about deciding which stores to open, what they must deliver and how much risk the business should accept.
That discipline must begin before the lease is signed, continue through the opening and trading period, and remain in place for as long as the retailer is committed to the property.
Because the real measure of a successful store is not simply how many customers walk through its doors or how much revenue it generates.
It is whether the store creates sustainable value for the business — and whether that value justifies the cost of keeping it open.
TFTT INTELLIGENCE | INSIDE FASHION, NOT OBSERVING IT
