This article appeared in the 1996 Spring edition of The Strategic Solution, the newsletter of The Strategic Edge.
LOOKING TO EXPAND?
The Strategic Edge develops a comprehensive expansion strategy.
Too often in retail today, new store locations are being chosen without the necessary preliminary research. While there are many problems that can plague a retailer, poor site selection is a major reason why we see so many vacant buildings once occupied by a retailer. To avoid these problems, many retailers are now adopting comprehensive market research strategies to optimize chain performance. Whether you need to rely entirely on an outside consultant or supplement your in-house expertise, The Strategic Edge aids retailers in this process.
A good market research strategy begins with an evaluation of existing stores. Questions such as the following need to be addressed:
The first step in answering these questions is developing a database of existing stores. This database should include sales data and any relevant demographic and lifestyle data.
Developing a database begins with The Strategic Edge defining trade areas for all stores. Then, demographic, lifestyle, and other factors (e.g. distance from customers, competition etc.) are compiled. To best evaluate store performance, data should be based on as small a geography as possible, down to the census designated block group if the sales data is available. Typically, however, retailers capture sales data only on a zip code level. Development of the database is facilitated by the use of Geographic Information Systems (GIS) and other database management software.
Once the database is compiled, The Strategic Edge analyzes those factors which affect sales. This analysis identifies which of the demographic and lifestyle factors compiled earlier are statistically significant in affecting sales performance. Once these factors are identified, they can be used to estimate sales performance.
The Strategic Edge predicts sales using either a statistical model such as regression or an analog model, and in some cases a combination. A regression model inputs the demographic, lifestyle, and/or competitive characteristics found significant in the database analysis and uses them to derive a sales estimate. An analog approach identifies stores with similar trade area characteristics upon which a sales figure is estimated. The analog method can be at either the trade area level or zip code level, or both. Ideally, the regression model and analog methodology are used simultaneously as a way to check and refine predictions.
The Strategic Edge believes that while a regression or analog sales model can be insightful in predicting store sales, it is important to incorporate actual site data. First, a field study is necessary to help define the trade area for a new store. Actual site evaluation may identify a physical boundary otherwise unaccounted for in a statistical model. Specifics of the site, e.g. visibility and location relative to a strong retail node, may also affect performance. These qualitative factors need to be integrated to insure that a model does not overlook these less quantitative factors.
Once a database, forecasting, and site evaluation system is in place, it is possible for a retailer to incorporate this system into their own real estate or strategic planning department. With the continued evolution of GIS, these analyses are more accessible to people not involved with Geographic Information Systems on a daily basis. The Strategic Edge works with its clients to develop market research strategies that provide effective solutions on a consulting basis and meet their in-house research needs.
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