What Gets Measured Gets Done

Everyone knows the value proposition for chain store real estate research:

“If you avoid closing one or two stores it pays for itself.”

So why are people so hesitant to invest in analysts, predictive analytics, and information systems to support better real estate planning and site selection?

I’ve been asking this question for nearly 20 years, and I think I’m finally beginning to see the answer.

It’s about measurement.

Here’s how the argument goes:

Summary (simplified):  If we invest in better research, we can use a predictive model to estimate sales performance for proposed sites.  If we know the population and income of the trade area, the distance to our competitors, and the quality of the site, we can use the weighting factors in the model to calculate the sales potential.  We’ve heard that it’s possible to have a model where the estimate will be +/-  20% reliable at least 80% of the time.  In the past we have only been +/- 20% correct 65% of the time.

Therefore, the avoidance of bad stores alone will more than cover the investment in people and tools to build and use the predictive model. Continue reading

Here We Go Again

The economy is showing signs of perking up.

Although retail store closings are expected to continue at a strong pace in 2012 (see http://www.forbes.com/sites/erikamorphy/2011/12/31/2012-another-bad-year-for-store-closings/), many retailers and restaurants are staffing up for growth and looking for deals.

Is this the pregame warm-up for the next cycle of boom and bust?  Or maybe, just maybe, there’s a smarter, more disciplined group of decision-makers running the chain store companies today.

As I mentioned in an earlier post, the chain store industry doesn’t have well-defined best practices in real estate planning and site selection.  In order to begin a dialog on this subject I have created a “rubric” that describes various practices at different levels of effectiveness that can be used as a self-assessment tool for people in the chain store industry (click here for the Best Practices Rubric).

There are only nine items on the rubric, so you should be able to complete it in 5-10 minutes unless it causes you to think hard about what you’re doing, which would be a good thing!  Simply circle the description of the practice that best describes your business and when you’re done, add up the points as indicated at the top of each column.

The total points will range from 9 to 36, assuming you complete the rubric.  Based on my experience and exposure to chain store companies over the past 18 years, I would interpret the scores as follows:

0-15 points:  If you are still in business, it’s because you have smart, street-wise people              and probably aren’t doing very many deals each year.

16-20 points:  You are about average for the industry, which is OK if you don’t mind being average.  However, you won’t be able to stay average without improving, given the the struggling economy, growth of “omni-channel retailing” and the new breed of tech-savvy competitors.

21-27 points:  You know that you’re doing a good job because you have made a conscious decision to create good decision-making processes supported by good people and good tools.  You are already thinking about how to stay ahead of the game and work smart, not just hard.

28-36 points:  The business practices of your company are truly “best practices” and you represent the elite of the industry.  You might be reluctant to share what you do because you know that you have a serious competitive advantage.  However, you will probably talk about it anyway because of the positive energy that market leaders generate with employees, investors, customers, and partners.  We thank you for your leadership!

I look forward to your public and private comments on the rubric and the general subject of best practices in real estate planning and site selection.