SALES FORECASTING
The Strategic Edge has over fifty years experience in forecasting sales for retailers, and developers. When forecasting sales, The Strategic Edge would typically employ the following (or similar) methodology:
1. Gather Data for Proposed Site and Market. The Strategic Edge would gather data on the proposed store location and market, including precise site location (latitude/longitude), sister stores, and competitors' locations.
2. Define Trade Area. We would define a trade area for the potential store based on sister store locations, competition, access patterns, physical and psychological barriers, our expertise, any prior knowledge of the market, and the knowledge gained from the database. This can be completed on an in-office basis but for the best accuracy, detailed fieldwork is required.
3. Develop Trade Area Population, Demographic, and Business Characteristics. For the defined trade area, The Strategic Edge would estimate and project population, selected demographic characteristics, and employment data. The specific characteristics would include, at a minimum, the variables determined to be important from the correlation analysis and which are inputs to the forecasting models.
4. Forecast Sales. We would forecast sales for potential locations using a combination of the forecasting models. This could include normal curves, regression models, and the analog database. The Strategic Edge, Inc. would use its experience and judgement in its final sales forecast, i.e. how the various forecasts resulting from the several models are integrated and the final forecast derived. Transfer sales ranges or cannibalization from existing stores would also be estimated for in-fill locations, in order to estimate incremental sales gain ranges.
MODELING
The Strategic Edge can develop a forecasting model for your retail business which can be implemented by our staff on a site by site basis. Forecasting models can also be developed for your research, finance, or real estate department to implement on an as needed basis. The Strategic Edge might develop a model for your firm by conducting the following (or similar) multi-step methodology:
1. Perform Correlation Analysis. The Strategic Edge and its associates would create and analyze a store database of population, demographics, business data, store sales information, competitive measurements, and distance measurements. The statistical correlation analysis would measure the relationship between each variable in the database and store sales and performance measurements. Testing all variables against an array of store performance measures, while controlling for the differences in population and business density and documenting the distances between customer and store, allows variables that significantly impact store performance to be identified. The basic premise of this approach is that the performance of new stores can be predicted based upon the documented performance of existing stores and past customer shopping behavior that operate in comparable situations.
2. Develop Models. Sales data would be analyzed against
customer demographics and business data to further understand
their relationships and how they might drive sales. The forecasting
models may take the form of normal curves, regression or CHAID
models, and/or analog comparisons at both the zip code and trade
area level. The model development process is a very creative
and iterative process whereby The Strategic Edge staff and associates
would meet regularly to refine the output. The management of
your business would also be very involved in the process to provide
guidance, insights, and direction.
TURNKEY MODELS
Forecasting models are typically developed for internal use by The Strategic Edge and trained analysts. In the event that a retailer desires to prepare sales forecasts internally, there would be additional computer programming to simplify the use of the models for those not trained in GIS (Geographic Information Systems), site location analysis, market research, and sales forecasting.
The Strategic Edge would provide sufficient resources and training so that a company could develop sales forecasts in-house. Specifically, The Strategic Edge and its associates would develop a more user-friendly forecasting system with the models programmed and somewhat automated. The Strategic Edge would conduct the training necessary for a non-researcher to use the automated models. The Strategic Edge could also provide a "Users' Manual" for referencing trade area definition procedures in a GIS platform and the basic forecasting techniques.
