The Mysterious Origin of New Stores

In 2002 I was on a panel at the Retail Systems Show in Chicago which was a technology showcase for the retail industry.  The panel was focused on analytics and my topic was the use of predictive analytics in real estate planning and site selection.  I had already been at the show for a couple of days and after speaking with many CIOs, CTOs, and merchandising executives it became apparent that there was little interaction between the real estate department and the other areas of the business.

I started my presentation by telling the audience that I had come to the conclusion that “everyone outside of the real estate department thinks that stores just magically appear.”

I was relieved to get a chuckle from the crowd that amounted to acknowledgment of the truth of what I had said.  I spent the next 20 minutes talking about market optimization, trade area analysis, and sales forecasting, and I’m sure that none of it was retained by anyone.

As online sales continue to grow at the expense of store sales, there is more communication between real estate and other business units.  The CFO or VP Strategy is usually the catalyst for these discussions because they don’t occur naturally any more than cats and mice frolic in the garage as playmates.  The cultures of real estate people and merchandising people are often very different, which is not to say that one is better than the other; just different.

Real estate people are more relationship driven and their best research heavily depends on conversations with industry peers.  That’s one reason that the International Council of Shopping Centers has so many events and attendees compared to the National Retail Federation and other retail organizations that focus on areas other than real estate.

Merchants and marketers spend more time with numbers and trends, because their decisions are frequent and fixable, whereas real estate decisions are fewer and very difficult to change.

Merchants are concerned about “what” people buy.  Real estate is concerned with “where” people buy.  This simple distinction explains why you almost never see real estate executives at “The Big Show” (National Retail Federations annual conference in New York), and you rarely see merchandising executives at “RECON”(ICSC’s annual convention in Vegas).  Now that I think about it, the venues actually make sense given the cultures of the attendees!

But wait:  does e-commerce change this? e-commerce is the intersection of “what” and “where” at the speed of light.  Without stores, customers would not connect with the brand as they drive around the world and shop and touch and see (in 3D) and smell the merchandise.  But the convenience of online comparison shopping combined with the ability to return products in physical stores is a powerful combination that transforms the customer experience.  Add to that the ability to find out about a new offer on my smart phone and get driving directions the nearest store, and the convenience is too much to resist.  In case I’m afraid that I’m being impulsive, I can post a quick Facebook or twitter message and get all the feedback I need about the product I’m thinking of buying.

This is not only true in retail.  It’s just as important in restaurant and service businesses, although it’s a little different.  Most restaurants and muffler shops don’t make house calls.  However, promotional offers, loyalty cards, comparison shopping, social media, and driving directions offer plenty of reasons for these businesses to get their real estate teams integrated with the product and marketing teams.

On a practical level, real estate research teams are typically skilled in geospatial (GIS) analysis and can offer a HUGE amount of value to their brethren in merchandising and marketing, who typically have larger budgets and visibility across the enterprise.  It’s a “win-win” that is starting to happen in forward-thinking companies.  It often starts informally at the analyst level but it can also be the result of a “top down” initiative from senior executives that value analytics and know that they can become more competitive by cross-pollinating the skills and analytical tools of different business units.

The next time you can come up from air from your daily workload to think about career development, go to lunch with a counterpart in merchandising or marketing.  Find out how geospatial factors might be important in their work and offer some specific ideas how your group could help.  You might be saving your own job and a lot of others if the ideas get adopted by the company!

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