Analytics vs Modeling: “Democratizing” Decision Support

Mistakes are expensive.  Everyone wants a model to help them avoid mistakes and repeat successes.

We want a good business model that provides a framework for success.  If the business model works and we stick with it, we will make money.

In the chain store business, we want to make good site selection decisions.  Avoid bad real estate; pay the right price for good real estate.  We want a sales forecasting model that will help us estimate the top line number to plug into our pro forma operating model for a store (which is based on our business model, of course). Continue reading

Anatomy of a Coffee Purchase

A mathematician is a device for turning coffee into theorems.  -Paul Erdos

We have a natural tendency to oversimplify things because it’s easier to make sense of simple things than complex things.  The map on the right represents the simplest view of the relationship between a store and its customers.  The two-mile radius around the store is a reasonable estimate of the trade area for the store, which means that most of the customers will be inside the circle.  If this is true 90% of the time, we don’t care about the details of how customers make their choices.  But what if only 70% of the customers actually are in the circle? 60%? 40%? At some point we have to consider a more complex set of factors that determine our true trade area and whether it contains enough potential customers to make a store successful. Continue reading

Real Estate Research Knows the Score!

I just got back from the annual research conference of ICSC (International Council of Shopping Centers) in San Diego.  It was the same bunch of people with a few new faces, but the topics and conversations were very different!

Three years ago everyone was sighing with relief that online sales were not completely replacing bricks and mortar stores.  Social media was the personal ads in the local underground newspaper.  Web-based demographics and reporting were designed for running trade area reports in your hotel room.

This conference is clear evidence that the real estate research profession is keeping up with the changes in the marketplace!  First of all, hats off to the program committee that developed the topics and arranged the presenters.  I found myself having a morning conversation with one viewpoint and an evening conversation with a very different viewpoint!

There were three major takeaways from this conference:

  1. Most companies are trying to move real estate research tools to the web and provide access to dealmakers.  This was clear in the “Best Practices” session and the game plan is not just to provide maps and demographics, but analytics as well!  The need for “a single version of the truth” in data management was a recurring theme.
  2. Social media are generating critical data about the “voice of the customer” and changing the way we look at customer profiling, marketing, and merchandising.
  3. The bricks and mortar store is no longer the only way that shoppers can have a powerful shopping experience with the merchandise.  High bandwidth on computers and mobile devices (including tablets) are making it possible to create rich virtual applications such as Me-tail (http://metail.co.uk/how-it-works/) that will continue to feed the growth and market share of online sales.
It’s amazing to look at the last 20 years in the real estate research profession and compare the rate of change in practices and trends in the past three years to the previous 17 years.  However, I’m very pleased to see that the more senior members of the group are not being stubborn and sentimental about the past, but embracing the exciting changes and reinventing their practices to be useful and relevant.  Maybe it’s driven by concerns about job security, since many of us will be working into our 70’s to pay off college loans.  Or maybe we realize that technology may change the way we do things at an unprecedented pace, but the “art” of real estate planning and site selection is based on experience, and we will all have more of that as we get older!
Stay thirsty, my friends.

Will “Big Data” lead to “Big Answers” for Chain Store Operators?

One of the hottest topics in business analytics today is “big data,” defined by Wikipedia as “a term applied to data sets whose size is beyond the ability of commonly used software tools to capture, manage, and process the data within a tolerable elapsed time.”

How big is “big data?”

Last year, consumers and businesses around the world are estimated to have stored more than 13 exabytes of information on PCs, laptops and other devices — the equivalent of more than 52,000 times the information housed in the Library of Congress. An exabyte is 1 followed by 18 zeros, or a billion gigabytes.  And the amount of data stored in such “technological memories” is growing 25 percent a year, said Martin Hilbert, a researcher at the University of Southern California.  These were some of the estimates shared at the The Economist Big Data Conference last June in Santa Clara, CA. (for complete story see http://pittsburghlive.com/x/pittsburghtrib/business/s_745039.html). Continue reading

Effective Training: If It Was Easy Everyone Would Be Doing It

I have become obsessed with the realization that chain store operators are leaving billions of dollars of sales on the table by failing to properly train and develop their talent in the real estate teams (total sales of US retail establishments is around $4 trillion according to the 2007 Economic Census published in 2009).

Why is this?  Laziness?  Ignorance?  I don’t think so.  Some of the most clever AND street-wise people I’ve ever met are senior executives in chain store companies.  I think that the training challenge is relatively new and requires adapting to new market conditions.  It’s the natural evolution of the chain store business.  Sears built an empire with selection (“Sears Has Everything”).  Wal-Mart revolutionized retailing with their supply chain management.  Apple has seemingly cornered the market on “cool” and “easy.”  Here are some of the driving factors that have increased the priority of training from low-moderate to high: Continue reading

Field Report: Training for Chain Store Real Estate Analysts

We have some preliminary information about the state of training for analysts based on several different types of chain store operators:  apparel retailer, casual dining restaurant, shopping center developer, and a quick serve restaurant. Continue reading

Better Stores Through Better People

Ray Kroc once said, “If we are going to go anywhere, we’ve got to have talent. And, I’m going to put my money in talent.”  McDonald’s Hamburger University graduates about 5,000 people per year.

Benjamin Franklin said, “If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.”

Training is recognized as essential in many areas of chain store operations.  The National Restaurant Association conducted its one millionth training class last month.  The NRA has been running its ServSafe Food Safety, ServSafe Alcohol,  ProStart curriculum,  ManageFirst, and other programs for the last 25 years.  (http://www.restaurant.org/pressroom/pressrelease/?ID=2137). Continue reading

Doers and Viewers: Division of Labor in Real Estate Research

After 3 ½ weeks, my blog page called “Site Selection Surprises:  Stories from the Field,” has more than twice the average page views of the other blog articles.  What’s so compelling about this article?  The stated purpose of the page is to provide a forum for chain store real estate dealmakers and analysts to share stories of success and failure in order to build our experience base for evaluating future deals.  Makes sense, who wouldn’t want that?

Continue reading

A Vision for Profitable Chain Store Development

I have had the good fortune to get a close up view of many chain store operators in action over the past 20 years.  It’s amazing to see the wide variety of approaches used to find, open, relocate, and sometimes close stores.  There are many different org charts and reporting structures that sometimes place the real estate function directly below the CEO and in other cases reporting to the CFO or VP Marketing.  There are Real Estate Research Directors who have large staffs and tight controls over deal approval as well as companies who give the dealmakers responsibility for research. Continue reading

Different Problems Different Questions – The Challenge of Context

Years ago I was trying to sell site evaluation software to the commercial lending group at Freddie Mac.  They had fifteen underwriters around the country with huge piles of loan requests on their desks and very little time to analyze each deal.  The person I was working with described his problem like this:

“There are only about ten criteria we need to evaluate in order to approve or reject the loan.  Unfortunately the ten criteria are usually different for each deal!” Continue reading