What do Wall Street, Saville Row, Silicon Valley, Hollywood and Sandton City all have in common?

Clustering.

Each of these areas is renowned for just one specific type of business or industry. Be it banking, tailoring, technology, films or every conceivable fashion retailer.  If you say the name of one of these places, people know what goes on there.

It might feel counterintuitive to have a number of businesses grouped together that all offer the same service or product. But in fact, it makes perfect business sense.

Let’s look at it practically.

The main reason many customers prefer online shopping is because you can easily and quickly compare items. A whole bunch of different businesses are available, by simply opening a new tab. Choice and convenience are one click away.

How does this translate to the physical DIY and building supply retail industry?

If you sell tiles, timber, paint, or any other hardware or building supplies, you need to get customers into your physical brick-and-mortar store. This way they can choose the product they need. They might do their research online and come in with a Pinterest board full of ideas. But buying the actual piece of wood or bathroom tile still takes place in person.

Now think of the online convenience that customers are used to and realise the benefit of offering them this same choice, in a real-world context.

Three or four businesses that offer similar products, grouped together, will attract more customers looking for the same product.

Yes, they might not buy from you today, but the pendulum swings and tomorrow it may very well be your turn.

Another benefit of clustering or proximity to competitors is that it allows you to see what your competitors are up to. Use this to your advantage. If you see that the shop next door is running a special on kitchen floor tiles, why not advertise your grout and tile cement at discount?

By clustering, businesses can inadvertently also pool their resources. Less advertising is needed if your area becomes known for one specific industry. Even logistics can become easier, as you and your neighbours might use the same companies to handle your deliveries.

Having a monopoly in a certain area can benefit you sometimes. But being a well-established business within an area that’s building a reputation for being the hub of a certain industry will benefit you more in the long run.

For a more in-depth discussion of the benefits of clustering, read more here:

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