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A Five-Year Forecast Methodology To
Determine Which Stores To Close
Kevin Hillstrom
President, MineThatData
http://blog.mi...
An Omnichannel Approach Sounded Good …
“The secret to retail success is to digitize the
whole business. Customers demand a...
Instead, Omnichannel Strategy Backfired
While we focused on creating an omnichannel experience, Amazon
focused on pleasing...
The “Best” Omnichannel Brands Do Not
Correlate With Increases In Share Price
Source = Company Stock Prices on April 17, 20...
Then We Made Matters Worse
We invested in systems to execute strategies across channels. While
we did this, we missed the ...
What Happens When A Store Closes?
Digital tactics DO NOT allow the brand to recoup all that is lost. They
don’t. Retail st...
Ready For An Example?
Store Closes In A Single-Store Market
With Strong Online Penetration
Online customer acquisition improves,
as customers ar...
Store Closes In A Single-Store Market
With Strong Online Penetration
Rebuy Rates … the percentage of last
year’s buyers wh...
Store Closes In A Single-Store Market
With Strong Online Penetration
Spend Per Rebuy measures how much
those who elect to ...
Store Closes In A Single-Store Market
With Strong Online Penetration
Customer Value = Rebuy Rates * Spend
Per Rebuy.
We qu...
Summary Of Our Example
Customer Acquisition is hurt because the store is no longer recruiting
new customers.
Rebuy Rates a...
What Is The Long-Term Impact Of Closing A
Store? Let’s Run A 5-Year Simulation /
Forecast To Find Out!
Methodology
Measure repurchase trends and spend trends and subsequent
customer migration across the eight segments illustr...
The Outcome For The Store In Question?
Impact On Online Sales
Our simulation suggests that in
the short-term, customers
migrate over to the online
channel, causi...
Impact On Retail Sales
Our simulation suggests that
retail sales crash by 80% (not
100%), as a minority of
customers elect...
Incremental Value
Our simulation shows that of
the $6.2 million forecast by this
store next year, $3.7 million will
be los...
Talk To Your CFO
Do not run the profit and loss
statement on a store with $6.2
million in annual sales.
Instead, work with...
What Did We Learn?
The store recruits enough customers to fuel online growth – without
the store, online sales in the mark...
What Do The Best Retailers Do?
Every existing store is “scored” based on a five-year simulation of
what is likely to happe...
Store Closure Outline
1 – Measure rebuy rates and spend amounts by channel for stores that
stay open. Then measure rebuy r...
Need A Simulation Run For
Each Store In Your Portfolio?
Kevin Hillstrom
President, MineThatData
kevinh@minethatdata.com
20...
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A Five-Year Forecast Methodology To Determine Which Stores To Close

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In this presentation, Kevin Hillstrom (President of MineThatData) discusses a methodology used to help retail brands determine which stores should be closed. The methodology features a five-year simulated forecast for a store trade area, quantifying what might happen if the store remains open, or if the store is closed. Online and in-store sales forecasts are generated, as are customer segment counts by channel.

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A Five-Year Forecast Methodology To Determine Which Stores To Close

  1. 1. A Five-Year Forecast Methodology To Determine Which Stores To Close Kevin Hillstrom President, MineThatData http://blog.minethatdata.com kevinh@minethatdata.com @minethatdata
  2. 2. An Omnichannel Approach Sounded Good … “The secret to retail success is to digitize the whole business. Customers demand a seamless shopping experience across channels. In fact, there aren’t any channels anymore … there’s just the brand and the consumer. By integrating the entire business, we give customers the opportunity to interact however they want, whenever they want. Brands who do not digitize the customer experience and tear down internal silos move into the future at their own peril.”
  3. 3. Instead, Omnichannel Strategy Backfired While we focused on creating an omnichannel experience, Amazon focused on pleasing the customer (without stores, mind you). Guess who won that battle? Worse, we moved our customers online … trading a retail visit with a 1-in-7 chance of a purchase for an online visit with a 1-in-35 chance of purchase. And as an entire industry followed the prescription, store traffic dwindled, which hurt our ability to generate new customers in stores. Today, store traffic is meager compared to 2010. And our financials are worse off because of it. But online grew. Not good.
  4. 4. The “Best” Omnichannel Brands Do Not Correlate With Increases In Share Price Source = Company Stock Prices on April 17, 2017 … and Total Retail’s Top 100 Omnichannel Retailers of 2017
  5. 5. Then We Made Matters Worse We invested in systems to execute strategies across channels. While we did this, we missed the long-term trends, causing us to purchase too much inventory. To liquidate inventory, we offered discounts/promotions, causing profitability to implode and causing a loss of pricing integrity which yielded a large assortment of marginally unprofitable stores. For the next five years, we are going to unwind our assortment of stores as we seek to find a modern “equilibrium” between online and stores. Make no mistake, sales will shrink even more.
  6. 6. What Happens When A Store Closes? Digital tactics DO NOT allow the brand to recoup all that is lost. They don’t. Retail stores serve a purpose that “digital” cannot compete with. As a result, sales will be lost … sometimes 75% of sales in a market with one store will be lost, sometimes 50%. In markets with multiple stores, sales can be recouped by the stores that are still open. Sometimes, 75% of sales can be recouped by the remaining stores as long as remaining stores are strong-performing stores. This fact accelerates the closure of underperforming stores. In-Store Customer Acquisition dries up, which eventually hurts growth in online sales (no retail customers fueling online growth).
  7. 7. Ready For An Example?
  8. 8. Store Closes In A Single-Store Market With Strong Online Penetration Online customer acquisition improves, as customers are forced to shop online instead of in the store. Of course, retail customer acquisition immediately dries up. In the short-term, this might yield a profitable outcome. Long-term?
  9. 9. Store Closes In A Single-Store Market With Strong Online Penetration Rebuy Rates … the percentage of last year’s buyers who repurchase again this year … are hurt by the store closure. Online-Only buyers are modestly impacted. Online + Retail customers take a +/- 15% hit. Retail- Only buyers take +/- 35% hit. Clearly, the store served a purpose, and “digital” strategies cannot make up the difference.
  10. 10. Store Closes In A Single-Store Market With Strong Online Penetration Spend Per Rebuy measures how much those who elect to repurchase spend on an annual basis, across all channels. You can easily see that the elimination of a store reduces how much Retail- Only buyers spend (across all channels). Online-Only buyers are generally not impacted.
  11. 11. Store Closes In A Single-Store Market With Strong Online Penetration Customer Value = Rebuy Rates * Spend Per Rebuy. We quickly observe that the most loyal Online-Only buyers are not impacted. However, Online + Retail customer spend drops by +/- 25% … and Retail- Only customer spend drops by +/- 50%. We now know that sales will not be made up by “digital” tactics.
  12. 12. Summary Of Our Example Customer Acquisition is hurt because the store is no longer recruiting new customers. Rebuy Rates are hurt (significantly) among prior retail customers, meaning that these customers do not shift their loyalty online. Spend Per Rebuy is hurt (significantly) among prior retail customers, meaning that these customers spend less with one fewer channel available. Customer Value is hurt (significantly) among prior retail customers, for obvious reasons.
  13. 13. What Is The Long-Term Impact Of Closing A Store? Let’s Run A 5-Year Simulation / Forecast To Find Out!
  14. 14. Methodology Measure repurchase trends and spend trends and subsequent customer migration across the eight segments illustrated earlier … measure the trends for one year prior to the store closing. Then measure the same trends and customer migration in the year after a store closes. The two measurement periods form the “baseline” for our simulation / forecast. We then apply those trends to the store we would like to close, applying the trends and migration patterns to the unique customers who shop in the trade area impacted by the store.
  15. 15. The Outcome For The Store In Question?
  16. 16. Impact On Online Sales Our simulation suggests that in the short-term, customers migrate over to the online channel, causing a modest increase in online sales. But without the store to recruit new customers who then shop online, online sales begin to decline. Online sales increase by +/- 14% over our baseline case, after the store closes.
  17. 17. Impact On Retail Sales Our simulation suggests that retail sales crash by 80% (not 100%), as a minority of customers elect to shop at stores outside of the trade area owned by this store. Notice that retail sales were forecast to continue to decline every year if the store were to remain open. This store was/is dying.
  18. 18. Incremental Value Our simulation shows that of the $6.2 million forecast by this store next year, $3.7 million will be lost if the store is closed. In other words, 40% of the sales at this store will happen even after the store is closed. This is a really important finding … one that retailers must know in order to decide when to close a store.
  19. 19. Talk To Your CFO Do not run the profit and loss statement on a store with $6.2 million in annual sales. Instead, work with your CFO and ask her to run the profit and loss statement on a store with $3.7 million in incremental sales. Does the P&L work on a $3.7 million dollar store?
  20. 20. What Did We Learn? The store recruits enough customers to fuel online growth – without the store, online sales in the market / trade area briefly grow before slumping. Sales will decline when the store is closed. The “digital” channel cannot offset sales lost by the closure. 40% of the sales generated by the store will still exist after the store is closed. Your CFO must run a profit and loss statement on the 60% of sales that disappear. Are these sales profitable? It’s unlikely that a marginal performing store is profitable after removing the 40% of sales that will still happen after the store is closed.
  21. 21. What Do The Best Retailers Do? Every existing store is “scored” based on a five-year simulation of what is likely to happen if the store is closed. A “portfolio” of potential closures is maintained – based on modeled incremental sales losses. When a store is closed, it is critical for the digital marketing team to have a plan for that specific market for the next two years. There must be a plan to move sales online … if the plan does not exist, the outcome is likely to be less profitable than forecast. It becomes critical for the digital marketing team to immediately figure out how to acquire new customers and convert as many existing retail customers to the online channel as is possible. This is job #1 for the digital marketer.
  22. 22. Store Closure Outline 1 – Measure rebuy rates and spend amounts by channel for stores that stay open. Then measure rebuy rates and spend amounts by channel for the year immediately following a store closure. 2 – Simulate store closures for every single store in your portfolio. 3 – Calculate the incremental amount of sales that still exist. 4 – Have your CFO calculate the profitability of the sales that are lost, make closure decisions based on incremental profitability. 5 – Require your digital marketing team to “Have A Plan” to save sales.
  23. 23. Need A Simulation Run For Each Store In Your Portfolio? Kevin Hillstrom President, MineThatData kevinh@minethatdata.com 206-853-8278 http://blog.minethatdata.com @minethatdata

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