Monthly Archives: January 2012

Confused? Ponder This

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In a recent study by Deloitte, retailers were asked about their expectations for the retail store of the future.  Their response is a good indication of the fact that real estate planning is quickly evolving:

“In fact, three out of five respondents said they have no
idea what the store will look like in five years. Additionally,
nearly one in five believe that 15% of their sales will be
generated from channels that have not even been thought
of yet.”

Source: Deloitte’s Store 3.0TM Survey: The Next Evolution, September 2011

To get the link to download the report visit http://re-lytics.com/2012/01/deloite-study-store-3-0-the-future-of-retail/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Re-lytics+%28Re-Lytics+Updates%29

Chain Store Planning: The Missing Link

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The 4 P’s of Marketing (Product, Price, Promotion, Place) have been around since the 1950’s.  For chain store operators, PLACE is more critical than for other types of businesses.

A better term for PLACE is DISTRIBUTION, but of course it starts with “D,” so it never made it into the 4 P’s.  DISTRIBUTION is a term used to describe what is commonly called “the supply chain” and the facilities involved in distribution are “the supply chain network.”  These facilities include factories, distribution centers, and retail stores. Continue reading →

Breakthrough in Market Planning

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I attended a franchise trade show recently and visited with a company that was selling multi-unit territories that had been pre-defined based on the expected number of development opportunities and their approximate locations.  The map they had on display looked something like the diagram on the left below, where the green and orange boundaries represent territory boundaries and the black dots are target locations for stores.  The franchise rep said that the target locations had been generated by a sophisticated modeling program and then field-validated by the real estate team.

A more traditional territory plan is shown on the right, where each target store location is a point representing the ideal center of the trade area which is a polygon showing the primary trade area.

I certainly commend this operator for using “best practices” in market planning by laying out their territories in advance and proactively offering them to prospective franchisees. 

What’s interesting about the map one the left is the way that the boundaries are just large enough to surround the points.  This means that a franchisee can select locations up to the edge of the boundary without worrying about encroaching on the stores in the adjacent territory because there is a “buffer” between the stores built into the market plan.  If the buffer is based on the appropriate level of spacing between stores based on the density of the area (e.g. urban, suburban), then it’s a great planning tool.

The problem with the traditional approach shown on the right is that franchisees in adjacent territories might select a location closer to the same edge of the territory and have significantly overlapping trade areas.  One solution to this problem is tocreate a second zone within each trade area that limits the range of choices for a site and creates a buffer similar to the one built into the map on the left.

This is the first time I’ve actually seen a map like the one on the left in a live sales situation and I believe it’s an important step forward in the state-of-the-art in market planning.  It certainly doesn’t eliminate every issue that can arise between franchisees in adjacent territories, but it establishes some clear expectations at the beginning of the process that reduces the chances of conflict at some point in the future.

2012 Predictions for the Chain Store Real Estate Industry

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I guess it’s a good time to do a “2012 Predictions” post.

I’ve been talking to a lot of people about best practices in real estate planning and site selection during the past year.  Many of my observations and insights have appeared in this blog since May 2011.  Looking ahead to the next year, there is evidence that some of the “forward looking” comments from last year will begin to appear in the practices of leading companies in 2012.

Retail store sales during the 2011 holiday season were flat compared to last year (there are so many stats I don’t even want to quote one).  The bigger news was the increase in online sales, and the biggest news of all was the increase in purchases from mobile devices such as smartphones and tablets.  This puts “teeth” in the trend toward “omnichannel retailing” that signals a new paradigm in consumer behavior and requires a new approach to retail real estate planning.

Here are two general predictions about the chain store real estate business for 2012:

#1 Betting on Clicks or Bricks

Given the continuing weakness in the economy, capital investment in store development will be more carefully scrutinized by senior management than ever before.  Given the growing success of the online and mobile channels, there will be more conversations between The CEO, CFO, CMO (Chief Marketing Officer), and CDO (Chief Development Officer or VP Real Estate in most companies).

New questions will be on everyone’s minds and lips.  Instead of “how many stores should we add this year net of closings,” people will be asking “how much can we grow sales without adding stores?”  Another way to ask the same question might be “what’s the ROI on store development compared to promotion and discounting through other channels?”

These questions will lead to some innovative planning and business models that will look very different from the traditional approaches that have not changed much in the past few decades.

#2 Performance Improvement

Investments in technology to improve real estate planning and site selection have grown dramatically in the past five to ten years.  Most of the larger chains and many smaller ones have a Real Estate Research Director or Senior Analyst who is responsible for delivering strategic plans and sales performance estimates to the decision-makers.  They have armed themselves with mapping and demographic programs, databases, and analytical tools based on everything from excel to sophisticated statistical models.  Almost everyone agrees that research can improve performance and that the investment in analysts and their tools is worthwhile.

The question remains:  how much of the potential value from research activities is being realized?  Is there room for improvement?

My prediction for 2012 is that investments in analysts and technology will continue, especially for companies that have been slower to get on the analytics bandwagon.  However, the new focus will be improving the “people” side of research.  This starts with benchmarking business processes against best practices in the industry and extends to consistent training programs to align the deliverables from research with the decision requirements of everyone in the real estate process including senior management, dealmakers in the field, and people in other departments such as marketing and merchandising. 

There’s been a lot of talk about “enterprise GIS” and “localized assortment planning” in the past few years.  The reason this is on my list of predictions is that all of the prerequisites to actually implement such performance improvements are now in place.

a)       The technology is good and has become affordable, especially with “cloud computing” which allows companies to build a platform gradually with variable costs instead of committing to a huge IT infrastructure investment to get started.

b)       The need to integrate real estate planning with other channels at the highest level is crystal clear based on the growth in online and mobile sales and the social media phenomenon

c)        The large capital investment required for bricks and mortar stores has become harder to justify in a weak economy that shows no signs of bouncing back quickly as in past cycles.

By this time next year there will be some great case studies of companies that are actually doing these things and reaping the financial benefits (although it might take another year to quantify this in a convincing manner).

In the interest of accountability, I have marked my calendar to follow up on these predictions one year from now.  I hope I can find some good cases to talk about then or we may not have a very happy new year in 2013 and beyond!