How many locations are profitable for a growing retail chain?

Justus Hayes - Research ·
Miniatuur Hollandse winkelstraat met vijf winkeltjes in een boog, één verlicht met warm goudlicht, andere gedimmer, vector illustratie.

For most growing retail chains, locations become structurally profitable from three to five stores, provided the operational foundation is solid. Below that number, individual locations carry a disproportionately large share of overhead, putting pressure on the margin per store. From a certain point, purchasing, marketing, and management begin to spread across more locations, which improves profitability per store. The questions below dissect every aspect of that growth decision.

From how many locations do economies of scale emerge in retail?

Economies of scale in retail typically begin to become visible from three locations, but only become truly structural at five or more stores. That is the point at which purchasing, logistics, marketing, and management are distributed across sufficient volume to meaningfully reduce costs per location.

With one or two locations, you are in practice paying for the full business infrastructure, while it is supported by only one or two sites. Think of a central warehouse, an accountant, a webshop, a marketing budget, and a general manager. Once you grow to three or more locations, those fixed costs are spread across more revenue. Purchasing power increases, suppliers begin offering more favorable terms, and the cost per unit falls. At the same time, staff can be deployed more flexibly across multiple locations, which reduces personnel costs per store.

The exact tipping point varies by sector and concept. A chain with high fixed costs per store, such as a fashion chain with an elaborate fit-out, reaches economies of scale later than a concept with low investment per location. Those who properly prepare their expansion strategy for retail space can deliberately plan for this tipping point.

Which costs do not scale linearly with more locations?

KroesePaternotte · Since 1984
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Speak directly with our retail real-estate specialists in Amsterdam.

The costs that do not scale linearly with expansion are primarily central overhead: management, IT systems, marketing, purchasing, and logistics. These are the cost items you largely already incur with one location and that need only limited expansion as the business grows further.

Concrete examples of costs with a degressive pattern at scale:

  • Purchasing costs per unit: larger volumes lead to better purchase prices and more favorable payment terms with suppliers
  • Marketing costs: a brand budget for five stores does not cost five times as much as for one store; brand awareness works cumulatively
  • IT and point-of-sale systems: a central system can serve multiple locations without proportional additional costs
  • Central business operations: a financial director, HR function, or operations manager is needed with one location and with ten locations alike
  • Logistics and distribution: with centralized storage, the cost per delivery decreases as volume grows

Costs that do largely scale linearly are rent, local staff, and energy costs per location. These are directly tied to the number of physical sites and scale accordingly. The difference between both categories largely determines how quickly a retail chain realizes economies of scale.

How do you calculate the minimum revenue per location for profitability?

The minimum revenue for a profitable location is calculated by adding up all direct costs of that site and applying the gross margin of your concept. The formula is: minimum revenue = total fixed and variable costs per location divided by the gross margin as a percentage.

In practice, the cost structure per location consists of a number of fixed elements:

  1. Rent costs: the base rent plus service charges and any turnover-related rent components
  2. Personnel costs: wages including employer contributions, for both permanent and flexible staff
  3. Fit-out and depreciation costs: the initial investment divided over the term of the lease
  4. Operational costs: energy, insurance, security, and maintenance
  5. Share of central overhead: a fair portion of central costs allocated to this location

Suppose the total costs per location per year amount to €180,000 and the gross margin of your concept is 45 percent, then the minimum revenue is €400,000 per year. Every euro of revenue above that point contributes to the profit of the location. This break-even point is the starting point for every expansion decision.

When is expansion to a new location financially justified?

Expansion to a new location is financially justified when the existing locations consistently perform above their break-even point, the central organization can absorb the additional site without extra management layers, and the expected revenue of the new location realistically exceeds the break-even point within twelve to eighteen months.

In addition to the financial criteria, there are operational signals that indicate a chain is ready for expansion. If the current locations consistently experience queues, if customers are actively asking for a location in another city, or if the concept is fully crystallized and transferable without the founder, these are strong indicators.

A common mistake is expanding while the existing location is not yet running stably. A second location does not only double the opportunities, but also the problems. Location selection is crucial here: a location in a suboptimal site will structurally fail to reach the break-even point, regardless of how strong the concept is. Available retail locations in the Netherlands through a specialized retail agent offer insight into locations not listed on public portals, which can make the difference between a profitable and a loss-making expansion.

What is the difference between a profitable and a lucrative location?

A profitable location covers all direct costs attributable to that site and makes a positive contribution to central overhead. A lucrative location goes a step further: it not only contributes to central costs, but also generates net profit after full allocation of all overhead costs.

The distinction is relevant because a location may appear profitable on paper, while upon a full calculation of all costs it is actually loss-making. This happens when central costs are not fairly distributed across locations, or when the rent is too high relative to the realized revenue.

In practice, retailers often use two measurement points:

  • Location contribution: revenue minus direct location costs, excluding central overhead. This measures whether a location covers its own costs.
  • Net profit contribution: revenue minus all allocated costs including central overhead. This measures whether a location actually adds value to the chain as a whole.

A healthy chain aims for locations that score positively on both measurement points. Locations that are only positive on the first point are a burden on the chain if the total volume is not large enough to carry the overhead.

How many locations do successful Dutch retail chains have on average?

KroesePaternotte · Since 1984
A retail question deserves a specialist answer.
Speak directly with our retail real-estate specialists in Amsterdam.

Successful Dutch retail chains vary greatly in size, depending on the segment and concept. Nationally operating chains in fashion, footwear, or home furnishings typically count dozens to more than a hundred locations. Niche players with a higher average revenue per location can operate structurally profitably with five to fifteen sites.

What all successful chains have in common is that they do not expand for the sake of the number of locations, but for the quality of the sites. A chain with ten locations on prime sites in the strongest shopping streets in the Netherlands typically performs better than a chain with twenty locations spread across secondary and tertiary sites. The rent per square meter at a prime location is higher, but so is the revenue per square meter.

The Dutch retail market in 2026 shows a clear polarization: strong locations in the ten to fifteen largest city centers are performing well, while weaker locations are under structural pressure. For a growing chain, the lesson is that it is better to open fewer locations at better sites than to scale quickly at suboptimal ones. KroesePaternotte works daily with lease data going back to 1984 and therefore has insight into which locations in the Netherlands structurally generate the strongest revenues. That knowledge is more relevant for a growing chain than any listing portal.

Do you want to expand your retail chain to new locations in a well-considered way? Contact the specialists at KroesePaternotte for a tailored location analysis.

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