It’s been 17 years since I started the company that became geoVue. That’s a lot of 70 hour weeks with not enough vacation.
It’s been 17 weeks since geoVue was sold to a new owner. That’s a lot of time to think about the last 17 years and gain some perspective on the quest for good practices in real estate planning and site selection.
I’ve decided to spend the foreseeable future using what I’ve learned to help guide chain store operators in making better real estate investment decisions. The focus of this work will be “connecting art and science,” which sums up the greatest need that I have seen among retailers, restaurants, and service companies in building a profitable network of stores. There are many good people and many good technologies being used by companies today. However, they often fail to deliver their potential because they are not integrated properly.
This is true in all areas of real estate planning and site selection: market selection, market planning, and sales forecasting. The nature of these decisions is very different, but they all require the right mix of “art and science.”
It is unfortunate that mathematical models can’t be used in real estate decisions in the same way that they are used in engineering or chemistry. Even sophisticated engineering problems such as bridge design and space travel can be reduced to equations based on materials and scientific principles with repeatable results. The retail marketplace (including any customer-facing business) is a “complex system” which means that cause and effect relationships cannot be precisely defined. The factors that drive sales are constantly changing in unpredictable ways: quality of store managers, consumer preferences, traffic patterns, stores opening and closing, renovations, and with social media becoming an important factor, reviews and recommendations by consumers.
When I started in this business the dream of simulating the marketplace with GIS and mathematical models seemed to be limited only by the availability of geo-referenced data and faster computers. In the past decade, these constraints have fallen away and the problem turns out to be the fundamental complexity of the marketplace itself! Many chain operators have become disillusioned after spending $100K or more on predictive models (especially sales forecasting) because the results are only marginally better than what they were doing before.
The modelers themselves are also becoming less optimistic and are reverting to approaches that place greater emphasis on the role of human beings in the analysis of sites (for a great example read Dr. Richard Fenker’s book “How Retailers Find Their Place,” a free download at http://www.theretailplanet.com/BrandScoreBook.aspx).
So, should we stop spending money on analytical tools and bring all the retired dirt-kickers back to the investment committee meetings?
Of course not (although we might want to apologize to the many seasoned professionals whom we booted out to make room for a freshly minted MBA with mapping and statistics programs). The new frontier is to evolve the way all successful businesses and industries evolve: by learning from mistakes, keeping what works, and finding new ways to use both “art” and “science” to increase profits and reduce capital losses.
Here are some of the changes that we can expect during this evolution:
- Business Processes – decision-making built around human dialog supported by analytical tools rather than excessive use of one or the other
- Human resources – Using local market expertise with clear objectives and controls rather than exclusive brokers or centralized analyst teams
- Analytical tools – Greater use of analogs vs mathematical models, and interactive visualization and query tools vs canned maps and reports
Every business has a unique set of factors that influence the best decision-making techniques for real estate planning and site selection. Although high level profiles can be described, there is no single recipe for success based on processes, people, and analytical tools.
The purpose of this blog is to stimulate discussion and ideas that will help chain operators of all types be more successful in the years to come: retailers, restaurants, service businesses, franchisors, franchisees, and even the providers of space and capital – landlords, brokers, and lenders.
It would be great if the next recession could have a few less store closings than the last one!