Retail Business Analysis and Optimization Guide

1
Retail for Business Analysts and
Management Consultants
Practical guide how to improve retail business

2
Retail has become extremely competitive.
Therefore, you have to become very analytical and
innovative to survive and develop your business

3
Thanks to this presentation you
will learn how in practice to
improve the profits of a Retailer

4
How the presentation is
organized?

5
This presentation is organized into 7 sections that will show
you different aspect of Retail business. You will also find
movies with examples.
Basic analyses that
you should perform
Modeling Retail
Business in Excel
Optimization of in-
store processes –
case study
Business Hacks used
by Retailers
In-store engagement
and productivity
analysis
MultichannelExpansion Strategy

6
This is part of my on-line course where I show step by step
improve results of a Retailer. You will find there additional
Excels with calculations
$90
$15
Click to check my course

7
Basic analyzes that you
should perform

8
Introduction to Basic Analyses

9
In this section I will show you the basic analyses that you
should perform during your first week in a new retail business.
You should start with creating issue tree
Issue tree for
retail
Analyses by
cohorts
Product Range
Analysis
Sales and margin
efficiency of
retail
Store checks
Inventory
analysis

11
Issue tree is an interesting concept that helps you go from a
suspected problem to potential resasons and analyses that
you have to carry out
Area of analysis
Area 1
Problem 1
Problem 2
Possible Reason 1
Possible Reason 2
Possible Reason 3
Possible Reason 4
Possible reasonsSuspected problems
Analysis to be
performed
Analysis 1
Analysis 2
Analysis 3
Analysis 4

12
Have a look at an issue tree of a chicken meat producer
Area of analysis
Transport
High costs of transport per ton of
goods
Big level of waste and breakage in
transport
Analysis to be
performed
Analysis of correlation between type of
packaging and percentage of damaged
Analysis of time spent on the way and
kilometers covered in that time
Analysis of designed routes, their length
and the influence of possible changes
Analysis of fuel usage and kilometers
covered by vehicles
Analysis of load carried on the way back
Badly designed routes
Too big fuel usage
No shipments on the way back
Low usage of resources
Badly designed method of packaging
which makes the product prone to
damage
Speed not adjusted to the product
Badly organized work and schedule of
deliveries
Limitation on delivery time of finished
goods
Analysis of level of overtime, daily
organization of drivers work
Analysis of Clients’ preferences on delivery
time

13
Issue tree in Retail -
examples

14
When you are talking about retail you should have a look a
the following areas
Retail chain development
Product Range / Category
Range Management
Pricing
Logistic / Supply Chain
Expansion model
In-store process
HR especially trainings

15
Below you can see example of issue tree in Retail Chain
Development
Area of analysis
Retail chain
development
Low growth in sales
Decreasing EBITDA of new stores
Analysis to be
performed
Analysis of rents vs comparable
competition
Salaries growth vs rotation – comparison
with competition
Analyze the change in sales after opening
new stores / on-line introduction
Analysis of number of openings vs
availability of new places
Low LFL due to cannibalization (on-
line, new stores in old locations)
Few new openings in locations
Increasing rents due not proper usage
of purchasing power
Growing salaries to keep low rotation
High cost of building new stores
No support from the shopping malls
Not optimized formats, expensive
fixtures
Analysis of contracts with shopping malls
Analysis of cost per 1 sq. m, number of
fixtures, cost per fixtures

16
Areas you should pay
attention to in Retail

17
There are number of areas of Retailer activities you should
look at during consulting projects
Value Proposition
and formats of the
stores
Retail business model
logic
Product Range
Management
Private Labels
MultichannelExpansion Model
Supply ChainIn-store Processes
In-store engagement
and productivity
analysis
Automation Pricing

18
Analyses of stores by
cohorts - Introduction

19
You can analyze a retail chain by following cohorts / segments
Vintage (which year it was
open)
Format type
Format evolution phases
Location
Type of city
Type of traffic
Others

20
You usually show for specific cohort / segment the following
metrics
Sales density (Sales per sq. m)
Margin density (Sales per sq. m)
Number of stores
Total sales generated by the
cohort
Total margin generated by the
cohort
% in total sales generated
% in total margin generated

21
Product range analyses -
Introduction

22
In Retail you have space that you divide among different
product groups
Group A
Group B
Group E
Group C
Group D
Group F

23
For every group you should calculate the total margin using sales
density, % Gross Margin and space allocated to specific group
% Gross Margin
Sales density
Margin density Space in sq. m
x
Total margin
x

24
You have to analyze their performance and decide how to
split the space
4 250
3 000
2 500
2 000
2 400
4 000
Group A Group B Group C Group D Group E Group F
Sales density
In USD/ sq. m
40%
55%
44%
60%
40%
60%
% Margin
In %
1 700 1 650
1 100 1 200
960
2 400
Margin density
In USD/ sq. m
400
200
50
300
200
100
Space allocation
In sq. m
Total margin
generated by the
store

25
Product range analyses -
Example

26
Let see how we can allocate the space differently for our
example
4 250
3 000
2 500
2 000
2 400
4 000
Sales density
In USD/ sq. m
40%
55%
44%
60%
40%
60%
% Margin
In %
1 700 1 650
1 100 1 200
960
2 400
Margin density
In USD/ sq. m
400
200
50
300
200
100
Space allocation
In sq. m
Total margin
generated by the
store

27
Different split of space among categories enabled us to increase
the Gross Margin by USD 227 K
680 744
330
413
360 210
192
120
240
570
Margin generated Basic Option
In thousands of USD
Margin generated - Modified Option
In thousands of USD
Total margin generated by the shop
In sq. m
1 857 2 084

28
Sales and margin
efficiency of retail

29
Imagine that you were asked to have a look at the efficiency of
retailer with many concepts in cities in Poland
Gdańsk
Szcecin
Bydgoszcz
Poznań
Wrocław
Katowice
Łódź
Kraków Rzeszów
Kielce
Lublin
Warszawa
Białystok
Gdynia-Sopot
Gliwice
Olsztyn
Opole
Zielona
Góra
Current number of stores

30
In the case of efficiency there are to main KPIs retailers use
Sales density Margin density

31
You want to see which format and city are the most efficient
Formants / Concepts City
▪ What is the sales density per
format? Which one is the best
▪ What is the margin density
per format? Which one is the
best
▪ What is the sales density per
city? Which one is the best
▪ What is the margin density
per city? Which one is the
best

33
In our example of single store when we look at the sales and
inventory level it is clear that there is too much stock
1 700
600
125
600
480 400
Sales in the store
In thousands of USD
200
300
50
150
200
100
Inventory level in retail prices
In thousands of USD
42
180
144
90
150
90
Inventory turnover
In Days of Sales

34
There could be plenty of reason for the inventory too be so
high in Days of Sales
High share of push vs pull
Low responsiveness of supply
chain
Bad allocation
Bad segmentation of the store –
wrong customer profile
High level of dead stock that
does not rotate
Problems with the format /
layout
Problems with execution (i.e.
Not right VM of goods, keeping
the stock in the backroom)

35
For every store you can present the potential to reduce the
inventory using the waterfall
Inventory level in a store A
In thousands USD
1 000
304
696
Inventory before Potential Reduction Inventory after

36
If you have more stores than you can also show how you get
to the total inventory reduction by showing contribution of
specific stores
Inventory reduction potential by stores
In thousands USD
304
400
200
500
900
100
200
200
100
200
3 104
Store 1 Store 2 Store 3 Store 4 Store 5 Store 6 Store 7 Store 8 Store 9 Store 10 Total

37
This is part of my on-line course where. To see how to carry out
all analyses in Excel and get ready-made Excels use the
discount offered below
$90
$15

38
Store checks in Retail -
examples

39
5 10 15 5 35
Number of SKU
Location:
Number of salesmen:
Competition: Saturn, Karen Notebook, iSpot
Size:
Number of SKU
Presented products
Structure of the exposition (%)
=100
PC Laptop Printers Phones Monitors Photos Others
-
3
E
+
Knowledge of
the product
offer
Sales skills
How active
salesmen are
Behavior
Usage of
marketing
materials
Level of service
• Salesman was able to respond to the request placed by the customer and it seemed that he had deep
knowledge of the products
• Salesman did not try to figure out what price level I was interested in. Surprisingly was proposing always the
cheapest products
• Salesman did not show the full potential range of benefits coming from the purchase (price of the software was
for some models incl. in the price, possibility to buy in installment)
• Salesman was very enthusiastic during the talk
• Salesman did not try to convince that the price is good and did not try to understand why I leave without the
purchase
• Salesmen did not try to do some cross selling or up-selling to other customers who purchased the base
products
Shopping mall
70 sq m
2
Other observations
Here you can see an example of store check for B2C – a shop selling
computers
Laptops:
Pendrives: Firm No. of pieces
Cool drive
Kingston
Toshiba
6
1
1
Brand No. of pieces
HP
Toshiba
Asus
Sony
Samsung
Lenovo
Fujitsu
10
11
5
3
2
1
1

40
10 5 85 00000
Store profile
Location:
Rating of the location:
No. of salesmen
Competition level:
Size:
Number of SKU
Presented products
Structure of the exposition (%)
OSB Others
=100
-
3
E
+
Ability to adjust the product to the customer
Technical knowledge and knowledge
on the application of the products
Ocena pracowników składu
Center
1
500 m2
4
Service level
3
Plywood
Chipboard
MDF i HDF
OSB
Plank
Veneer
Countertops
Furniture fronts
Fittings
Other
0
0
0
2
0
0
0
0
1
1
Number of competitors in
radius of 3 km
3
Fittings
No. of SKU
Lead time
Home delivery
Other services offered
Shop with fittings
Limit on receivables
Payment terms
Other non standard products
immediate
n/a
no
Yes
n/a
n/a
Building materials
Here you can see an example of store check in B2B sector for a
company selling wooden semi-products
Sales skills
How active
salesmen are
Knowledge of the
product offer

41
Store checks - examples
in restaurants

42
Let’s have a look at the store check done at a Bobby Burger – a
slow burger concept
Country of origin ▪ Poland
Typical size
In sq m
▪ 60-120
Investment needed
In thousands of USD
▪ 50
Average price
In USD
▪ 6.5
Production of food ▪ Produce
to order
Staff
In people per shift
▪ 1+ 2 cook
Monthly revenues
In thousands of USD
▪ 45
Number of open restaurants
In pieces
▪ 38
Food Main competitors
Basic Data

43
Let’s have a look at the store check done at a Café Vincent – a
french cafe and bakery
Country of origin ▪ Poland
Typical size
In sq m
▪ 130
Investment needed
In thousands of USD
▪ 200
Average price
In USD
▪ 3.5
Production of food ▪ Produce
to shelf
Staff
In people per shift
▪ 2+3 baker
Monthly revenues
In thousands of USD
▪ 100
Number of open restaurants
In pieces
▪ 4
Food Main competitors
Basic Data

44
How to use store checks to
check a specific location?

45
You should do store-checks at similar concepts and at the
location where you want to open the restaurant
Passing by
Engaged / stopping
Leaving
Taking away
In store

46
Have a look at the location related KPIs for Bobby Burger
concept
# of visitors ▪ 29
Conversion in-store
In %
▪ 90%
Conversion take-away
In %
▪ 3%
Engagement rate
In %
▪ 10%
Estimated revenues
In K USD
▪ 45
Location Data

47
Have a look at the location related KPIs for Vincent concept
# of visitors ▪ 44
Conversion in-store
In %
▪ 7%
Conversion take-away
In %
▪ 73%
Engagement rate
In %
▪ 3%
Estimated revenues
In K USD
▪ 100
Location Data

49
Introduction to retailer
business model

50
Retail sounds very simple. You have to get the right stock in
front of the right customers at the right moment

51
Yet there are some issues that simple make it difficult in
execution
You have many
segments of
customers
Their come with
different
missions
Product Range is
huge
Demand is very
erratic /
seasonal
Your supply
chain is very
complex

52
Let’s have a look at the example of a home improvement /DIY
store
You have many
segments of
customers
Their come with
different
missions
Product Range is
huge
Demand is very
erratic /
seasonal
Your supply
chain is very
complex
▪ Regular people
that do
renovation
infrequently
▪ Fans of
renovation you
are constantly
doing something
▪ B2B customers
▪ Building new
house
▪ Preparing the
apartment to
move in
▪ Renovation
▪ Small
improvements
▪ Small refill
purchases
▪ 60 K SKUs regular
▪ 15 K SKUs
seasonal
▪ Peaks in the
Spring and
summer
▪ Low season in
winter
▪ You have local
suppliers of
heavy things (i.e.
bricks),
▪ National
suppliers
▪ Foreign regional
suppliers (i.e.
European)
▪ Asian suppliers
(especially China)

53
Let’s have a look at another example of a kids’ ware retail
chain
You have many
segments of
customers
Their come with
different
missions
Product Range is
huge
Demand is very
erratic /
seasonal
Your supply
chain is very
complex
▪ Parents
▪ Non-parents
▪ Pre-born
purchase
▪ Regular
purchases
▪ Gifting
▪ Education and
Development
▪ 40 K SKUs regular
▪ 10 K SKUs
seasonal
▪ Short life of SKUs
– Toys last in
most cases up to
1 year; Fashion –
6 months
▪ Peaks in the
Christmas and
around special
gifting days
▪ Low season in
Summer and
after Christmas
▪ Regional brand
suppliers
▪ Asian suppliers
(especially China,
India,
Bandgladesh)

55
Let’s have a look at the main challenges in Retail
Margin Management
Stock / Inventory
Management
Multichannel
Strategy
Managing price
across channels
Expansion to new
markets
Saturation of existing
markets
New product
development
Managing customer
experience across
channels
Format evolution
(possible death)
People rotation and
knowledge
management
Disruption esp. from
external forces /
business models
Automation

56
Business model of
Retailer in Excel

57
We start by estimating the total sales of Stores. That depend on
average transaction value (ATV) and the number of transactions
# Transactions
Average Value
Transaction
Total store revenue
x

58
We can estimate the number of transaction using the number of
visits and conversion rate
# Transactions
Average Value
Transaction
Total store revenue
x
# of Visitors % Conversion
x

59
Average Transaction Value depends on the average value of basic
purchase as well as some suggested purchases (i.e. suggested
products)
# Transactions
Average Value
Transaction
Total store revenue
x
Average Value
Transaction of basic
purchase
Average Value
Transaction of
additional purchase
+
x

60
If we have the % Gross margin we can use it to estimate the total
gross margin generated by stores
# Transactions
Average Value
Transaction
Total store revenue
x
Average Value
purchase
Average Value
Transaction of
additional purchase
+
x
% Gross Margin
Gross Margin generated
by the store
x

61
The last piece is getting the fixed costs (esp. rent and people
# Transactions
Average Value
Transaction
Total store revenue Total store costs
x
Store EBITDA
Average Value
purchase
Average Value
Transaction of
additional purchase
Rent
People
+
x
Others
+
% Gross Margin
by the store
x -

62
We can also show what drives rent and salaries costs
# Transactions
Average Value
Transaction
Total store revenue Total store costs
x
Store EBITDA
Average Value
purchase
Average Value
Transaction of
additional purchase
Rent
People
# of People
Average wages
+
x
x
Others
+
# of sq. m
Fee per sq. m x
% Gross Margin
by the store
x -

63
To see how to transfer it into Excel go to my on-line course.
Below link with great discount
$90
$15

65
In e-commerce you will have 3 types of players depending on
their presence in off-line and their approach to both channels
E-commerce
Pure players
Off-line players with
separate on-line presence
Multichannel /Omni
players

66
Customer behaviors has huge impact on the business model and
on what the e-commerce should concentrate on
▪ Less than 40% of the buyers will buy this year
▪ Focus is on customer acquisition
▪ Loyalty program are not good investment
▪ 70% of e-commerce businesses are in this model
Acquisition
mode
Description of the business model Examples
▪ E-commerce selling only 1 type of Slow Moving
Consumer Goods (SMCG) bought infrequently i.e.
vacuum cleaner, scuba diving, furniture
▪ E-commerce for 1-time in the life event: strollers,
▪ 40%-60% of the buyers will buy this year
▪ You have a nice mix of new and returning customers
▪ Focus is on customer acquisition as well increasing the
value of the customer (increased frequency and
increased purchase per visit)
Hybrid mode
▪ E-commerce that sells SMCG with relatively big
frequency of purchase(1.0-2.5 times a year ) i.e.
shoes (Zappos)
▪ More than 60% of the buyers will buy this year
▪ Focus is on increasing the value of the customer
(increased frequency and increased purchase per visit)
▪ 10% of businesses are in this modelLoyalty mode
▪ Very strong brands with high frequency of
purchase (i.e. Zara, Amazon)
▪ Marketplaces i.e. Udemy, Uber
Source: Lean Analytics: Use Data to Build a Better Startup Faster; A. Croll, B. Yoskovitz

67
Just to remind you some examples of well known e-commerce
businesses
Products sold On-line / Off-line situation
▪ Virtually everything esp.
books, toys, fashion
Mode
▪ Pure on-line player ▪ Loyalty mode
▪ Fashion ▪ Multichannel player ▪ Loyalty mode
▪ Tickets for events ▪ Pure on-line player ▪ Acquisition mode
▪ Groceries ▪ Multichannel player ▪ Hybrid mode
▪ Razors and cosmetics
for men
▪ Pure on-line player ▪ Loyalty mode
▪ Fashion ▪ Pure on-line player ▪ Hybrid mode

68
VISIT
PAID DIRECT SEARCH
To understand the logic of e-commerce business model have a look at the
visualization of how it works
RECO ENGINENAVIGATION
BOUNCED
NOT INTERESTED
ABANDONED
UNSATISFIED
ONE-TIME BUYER UNSOCIAL BUYERCALL TO ACTION
OPEN RATE
SEARCH
CART
ADDITIONS
CONVERSION
LOGISTICS, DELAYS
VIRALRETURNING
CAC PageRank
Bounce rate
Sharing rate
Abandonment,
conversion rates
Ratings, delivery issues
Signups
Mail/RSS/TwitterReturning rate
Customer Lifetime Value Transaction size
Emphasis on repurchase rate,
frequency, click-through rate,
lifetime value
Emphasis on
maximizing cart
value, minimizing
acquisition costs
DELIVERY
SHARINGENROLLMENT
Source: Lean Analytics: Use Data to Build a Better Startup Faster; A. Croll, B. Yoskovitz

69
Business model of e-
commerce in Excel

70
Before we go to Excel let’s talk about the logic we used to
build the e-commerce Excel model
▪ Conversion rate
Visits
# of
transactions
Revenues
Gross
Margin
Net Margin
Operating
Profit
▪ ATV
▪ Cost of traffic
▪ Cost of logistics
▪ Transaction fees
▪ Fixed Costs
▪ % Gross
Margin

71
Optimization of in-store
processes – case study

72
1,8
6,0
3,9
1,5
3,8
3,3
8,4
28,8
In Retail you can achieve a lot by optimizing the operations in the store.
Below example of a store were we carried out optimization and the
saving we achieved per 1 store
12,7
17,3
6,1
2,6
6,2
15,7
27,1
87,7
Direct deliveries
Deliveries from Central
Warehouse (CW)
Price change
Price monitoring
Cash till operations
Advices at the selling
store area
Total monthly costs
In ‘000 USD
Potential savings
In ‘000 USD
Total
▪ Potential savings are USD
29K (32% of all addressable
costs)
▪ We assume that 50% of
those savings can be
achieved we can reduce the
number of FTE in the store
by 4
Others

73
You will see an example of optimizing 1 process. It was carried out in
home improvement store. The test store was 4 000 sq. m big (43 000 sq.
ft.)
Warehouse
Offices
Warehouse /store racks
(shelving)
Cash Till
Employee
Customer

74
Price change – example of
how we optimized 1 process
in the store

75
Price change is the process of changing the price tags. It
generated for our customer 7% of costs in the test store but
generated 16% of all savings
CC: Wikimedia

76
Let’s have a look how the price change process looks
Printing and
preparation of new
price tags
Price tag distribution Change of price tags
▪ Done by an Office
Specialist
▪ Around 300-400
changes per day
▪ Office Specialist calls 4-
7 Sales Reps to the
Office and hands them
over the price tags
▪ Sales Reps change
prices in their
departments
▪ A lot of problems were
caused by lack of tools
and infrastructure
(scissors, ladder, pallet
truck, dustbin etc.)
CC: Wikimedia

77
We have increased the number of tools an infrastructure

78
292
107
Before After
The change in the process was giving quite big potential savings
Cost of 1 price change
In USD per change
6 124
2 249
Before After
Change in monthly cost in the test store
In USD
▪ Given the number of stores
(70) this could give potential
savings of USD 3.3 M

79
How to optimize all other processes and to get downloadable
Excels go to my on-line course
$90
$15

80
Business Hacks used by
retailers

82
IKEA has been very successful in implementing low cost
model in furniture
Model „big box” built outside the city
center
Design
Consistent message
Diversified revenue streams
Operational excellence
Business scale
Retail
Acquisition
Activation
Retention
Revenue
Referral

83
Model „big box” built outside the city center

85
Communication cheap, convenient solutions

86
Diversified revenue streams

87
Very efficient operations management at every level

88
The scale of activity is so high that orders for the same chair are
apportioned between the various production plants, because one would
not be able to execute orders

90
Biedronka keeps it simple on the operational side
Retail
Acquisition
Activation
Retention
Revenue
Referral
Narrow range – they used to have just 1000
SKUs
1 retail format
Optimize supply chain and in-store process
Scale
Expansion model similar to Walmart and
Starbucks

91
They went deep into product management
Retail
Acquisition
Activation
Retention
Revenue
Referral
Gradual move from discounter to
supermarket
Quality and origin obsessed
Own brands & selected premium brands
(often powered by)
No e-commerce
For long time excepting only cash

93
Cinema City has used number of techniques to sell the unused space
Acquisition
Activation
Retention
Revenue
Referral
B2B
Ladies night
Unlimited Card Every Wednesday half price
Halloween party
Birthday party
Lower price in the low season
Group events
New needs
Getting the heavy users to visit more

96
Once your business model is right you will want to expand
and grow. There are some options to do that
Increase size in current
locations
Enter new locations but still
the cities were you are
already
Enter new cities in your
country
Enter new countries
Add new brands but within
the same concept
Create new concepts in
Retail
Enter totally new business
models

97
Expansion of current model -
options

98
When it comes to expanding of current business models there are 2
aspect at which you should look: management and type of format
Own Stores
Franchising
Joint Management
Stand alone store
Store in Store /
Corner

99
Saturating existing markets -
intro

100
If you are present on specific market you want to know when you will
reach a saturation market – the maximal number of shops that will not
cause much cannibalization
1 000
1 500
800
2 000
# of stores Saturation 1 Saturation 2 Saturation 3

101
Are you much below it?
1 000
1 500
800
2 000

102
Or maybe you have already crossed it over and you should
actually start closing down stores?
1 000
1 500
800
2 000

103
You may also discover that the saturation point is far away and
you have nothing to worry about
1 000
1 500
800
2 000

104
You should also carry out such analyses by
provinces
Gdańsk
Szcecin
Bydgoszcz
Poznań
Wrocław
Katowice
Łódź
Kraków Rzeszów
Kielce
Lublin
Warszawa
Białystok
Gdynia-Sopot
Gliwice
Olsztyn
Opole
Zielona
Góra

105
In some provinces you may already reached the
saturation point
Gdańsk
Szcecin
Bydgoszcz
Poznań
Wrocław
Katowice
Łódź
Kraków Rzeszów
Kielce
Lublin
Warszawa
Białystok
Gdynia-Sopot
Gliwice
Olsztyn
Opole
Zielona
Góra
Targeted number of stores

106
Expansion strategy into other
countries - Introduction

107
Creating an expansion strategy requires you to do a number
of things
Define criteria and
weights for the
criteria
Gather data on the
markets
Create the ranking
of markets to enter
Define limits that
you have
Set priorities
▪ 4-6 criteria on the
basis of which you
will value specific
markets
▪ Ranking on the
basis of criteria and
weights created
▪ Money for
expansion
▪ People for
expansion
▪ Logistics
▪ Lead time due to
your supply chain
▪ Limitation in stock

108
Expansion strategy into other
countries - Example

109
Let’s imagine that you were to create an expansion plan for
expansion into new countries for a fashion brand

110
As you remember we have create a ranking of countries
Define criteria and
weights for the
criteria
Gather data on the
markets
Create the ranking
of markets to enter
Define limits that
you have
Set priorities
▪ 4-6 criteria on the
basis of which you
will value specific
markets
▪ Ranking on the
basis of criteria and
weights created
▪ Money for
expansion
▪ People for
expansion
▪ Logistics
▪ Lead time due to
your supply chain
▪ Limitation in stock

111
For this we will use 4 criteria and we will estimate the size of
the markets in standard stores
▪ GDP per capita PPP
▪ Similarity in product range
▪ Competition level
▪ Franchising infrastructure and the
Criteria for
measuring the
attractiveness of
the market
Potential of the
market
▪ Potential was measured using the size of the markets in terms of
potential number of standard stores

112
Potential markets for expansion – Ranking vs Potential – region
2,2
2,3
2,5
2,6
2,7
2,7
2,9
3,0
3,3
3,3
3,4
3,4
3,5
3,6
3,9
4,3
Philipines
North America
Australia
Turkey
South America
Indonesia
China
Africa
ex USRR
Western Europe
India
Middle East
Malaysia
Thailand
Eastern Europe
Poland
Ranking of market attractiveness
(1-low; 6-High)
Potential of countries / regions to capture
assuming achieving share like in Poland
In standard stores
579
2 215
76
324
1 870
1 255
4 287
4 944
534
1 136
6 288
208
134
209
215
100
Philipines
North America
Australia
Turkey
South America
Indonesia
China
Africa
ex USRR
Western Europe
India
Middle East
Malaysia
Thailand
Eastern Europe
Poland

113
Potential markets for franchise – Ranking vs Potential – region
0
500
1 000
1 500
2 000
2 500
0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0
Poland
Middle East
Philippines
Eastern Europe
Russia + Asian
ex USRR
Thailand
Malaysia
Indonesia
Australia
North America
South America
Turkey
Western Europe
Potential
In number of standard stores
Attractiveness
(1-Low;6-High)

114
$90
$15

115
Example of expansion into
other business models

116
There are 12 business models that you can consider. Some
Retailers enter other business models
SaaS
E-commerce
Media site
2-sided market
User Generated
Content
Mobile Applications
B2B Service
Retail
B2C Service
B2C Products
B2B Products
Freelancing

117
Interesting examples is Amazon that started as e-commerce
and entered many different business models including Retail
SaaS
E-commerce Media site2-sided market
UGC
B2B Service
B2C ServiceRetailer

120
For the customer your off-line and on-line presence are the
same brand and he expect the on-line experience to be at
least as good as off-line
On-line belonging to retail
chain
Off-line retail chain
One brand

121
This means that certain things should be managed across
both channels
Products
Price
Customer Data
Relations with the
customers
Customer Experience
Marketing
communication

122
Main problems with
multichannel

123
Let’s have a look at the main problems with multichannel
Cannibalization with
off-line
Different customer
experience
Operational
problems coming
from on-line
Pricing Management
Competition with
pure players
Big data unified
approach
Segmentation
Marketing
communication
People and firms take
advantage of lower
on-line pricing
Falling traffic in off-
line

124
Pricing dilemma - case study

125
Imagine that you have a chain of physical stores and on-line store.
What pricing would you use
chain
?$ 100 $ 90
On-line market

126
Before you try to solve the case on your own you should
answer the following questions
Establish what is the
structure of the market?
▪ What is the current share of on-line in the market ?
▪ Is it growing?
Decide what you want to
have in terms of share of
on-line in your sales?
What price difference
between on-line and off-
line is acceptable
What price difference is
noticeable?
▪ What is the current share of on-line in your sales ?
▪ Do you want to be above or below the market?
▪ What price difference between on-line and off-line customer treat as fair?
▪ Do we want to be fair?
▪ What price difference is noticeable?
▪ Do we want to stay unnoticed?

127
The prices we want to set for the on-line business that belongs to
Retailer should be considered and still competitive for on-line
market
chain
?$ 100 $ 90
On-line market
▪ The difference in prices is fair it is not
bigger than 6%
▪ The customer notices / cares if the
difference in prices is up to 3%

128
Out of this we get the following brackets that we can consider
$ 90 $ 100$ 93
Fair prices
$ 97
Practically the same prices Practically the same prices
Here you are not on-line competitive
$ 94

129
If you have the answer to the questions from the beginning you
can decide on the set of prices to use in online and offline
$ 93
Do you want the
on-line to have
bigger share in
your sales than it
has in the whole
market?
Yes
No
Do you want the
difference
between on-line
and off-line to be
fair?
Do you want the
difference
between on-line
and off-line to be
fair?
Yes
No
Yes
No
$ 93<
> $ 94
$ 98
$ 100
$ 100
$ 93- $ 100 $ 100

130
Cannibalization of sales -
Introduction

131
When you start building more stores you are bound to cause
a lot of cannibalization

132
You can minimize the cannibalization by picking the right
locations. Just remember that cannibalization may be there
by design

133
There are plenty of reasons why you could be still ok with
cannibalization
You are reaching new
customers
You are taking away more
from competitors than your
own chain
You are killing competition
More visibility = equivalent
on marketing money
Increased purchasing power
especially when it comes to
rent

134
Cannibalization of sales
by on-line

135
On-line is a different story as it can cannibalize any store at
your chain and it is beyond your control. You actually more
likely to hurt yourself than your competition

136
Still there are some reasons why as a multichannel you would
be ok with some level of cannibalization
Market is going on-line – if you
don’t have on-line customer
they may altogether leave you
Some customers will pick-up
the things at the store and buy
additional products
You may start managing your
stock differently – i.e. long tail
only on-line
You can improve the customer
experience without hiring a lot
of people

137
Cannibalization of sales - case
study

138
Imagine that you have to estimate the impact of
cannibalization of off-line channel by on-line on margins.

139
The Retailer has 400 shops in the whole Europe and sells 3
types of goods
Toys Fashion Hardware

140
You have to check which effect is bigger
Margin loss due to
cannibalization
▪ For most products you will have
lower margins for the same
products in on-line sales than in
off-line
▪ Difference in margin will be
different for different groups
Margin gain from additional
purchases generated by on-line
▪ If the product is picked-up at the
off-line store you can sell
additional products to some of the
customers

141
To estimate the cannibalization effect we will have to look at 2 things
Total on-line sales
Difference in
Margins
Margin Lost
Additional Margin
Gained
Net impact of on-line on
off-line P&L
-
Off-line margin On-line margin
Average additional
value bought
Number of transaction
picked at the off-line
store
-
% generated by
cannibalizing off-
line sales
x
% Gross Margin on
additional things bough
x

142
$90
$15

143
Private labels - introduction

144
Private labels are products created for the Retailer and sold under
a brand belonging to him (can be named different than Retailer
brand)
Retailer
brand

145
There are plenty of reasons why it makes sense for retailer to
have private labels
You can use it to kill low
price brands
Unique products – no way to
compare with other channels
Higher margins
Bigger influence on product
Shorter lead time

146
How to analyze private labels?

147
In order to get candidates for private labels you have to map product groups
against price intervals. Find competitors to in each segment to know whom
you take your sales from
Group 1
Group 2
Group Z
Price
Interval 1
Price
Interval 2
Price
Interval X
….
….

148
In-store engagement and
productivity analysis

149
Introduction to in-store
engagement

150
You wan to track the behavior of customers. Below example in
the case of a restaurant business
Passing by
Engaged / stopping
Leaving /Not entering
Take away
Inside the restaurant

151
For a Retailer we would define the specific categories a little
bit differently
Passing by
Visitors (entered the
store)
Visitors that left
without stopping
Buyers
Visitors that stopped
but did not buy
Did not enter the store

152
You want to do it on the level of specific department so you have to
define the physical boundaries of departments
Warehouse
Offices
Warehouse /store racks
(shelving)
Cash Till
Employee
Customer

153
Main rules according to which
people behave

154
It is worth remembering some universal laws about customer
engagement
1-lane lead is the best solution
It’s important to lead fast the
customer to first purchase
Bestsellers should be in top locations
Replenishments trips are the most
frequent
Inspirational Visual Merchandising
works

155
KPIs that you should follow

156
Dwells shows you want attracts customer to enter the store
Number of dwells per
department =
▪ number of shoppers who stop in a given zone for longer than
defined time

157
Engagement shows you whether specific department has the stopping
power
Engagement Rate by
departments =
▪ percentage of shoppers walking by a location who stopped at
that location
40,0%
38,0%
36,0%
34,0%
32,0%
30,0%
28,0%
26,0%
24,0%
22,0%
20,0%
18,0%
16,0%
14,0%
A B C D E F G H I J K L M N

158
Overall conversion shows you what they came to really buy
Overall conversion
= ▪ percentage of people visiting the store
that are buying from given department
8,0%
7,0%
6,5%
6,0%
5,5%
5,0%
4,5%
4,0%
3,5%
3,0%
2,8%
2,6%
2,4%
2,2%
A B C D E F G H I J K L M N
# of transactions in
specific department
# of people that
visited the store

159
Exposure rate shows you to what extent they reach the product
Exposure Rate by
departments =
▪ percentage of shoppers who reach specific
location as compared to the total store
traffic
# Entries to specific
department
# of people that
visited the store
=

160
Local conversion tell you how good you are in closing the deal
Local conversion
=
▪ Number of people that bought from a
specific department divided by the
number o people who stopped there
# of transactions in
specific department
# of dwells in a
specific departments
25,0%
23,0%
21,0%
19,0%
17,0%
15,0%
13,0%
11,0%
9,0%
7,0%
5,0%
3,0%
1,0%
A B C D E F G H I J K L M

161
Shopper Yield shows you the value of visitor expressed in sales
Shopper Yield
=
▪ Average sale amount for each shopper
visiting the store within a specified
period
Total revenues
# of visitors
0,80 0,80
0,77 0,75 0,77
0,81 0,83 0,81
0,74
0,80 0,78
0,74
0,77 0,75
0,80 0,78
0,84 0,86
0,50
0,79
0,76 0,74
0,80 0,78
0,74 0,75 0,73
0,80
0,74
0,77 0,75
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
0,7

162
On top of that you should look at other interesting metrics
Average visit duration
Average Dwell Time
Structure of visitors by age
groups
Breakdown of customers by
gender
Number of transactions per
sq. m by departments
Sales density departments
Average value of item by
department
Number of products per 1
transaction by departments

163
Format - designing new ones

165
When we talk about format there are plenty of issues that
have to be set
Look & FeelBrandValue proposition
Customer
Experience
Product range
Push vs PullReplenishment
Service Level
Pricing
Customer
Experience
Customer Groups
Mission served
Capex Capacity Inventory level

166
$90
$15

167
You can also find useful some tips on Excel
Essential Excel for Business
Analysts and Consultants
A practical guide
presentation

168
Check my presentation other presentations
Essential Lean Manufacturing for
Practical guide how to cut costs
presentation

169
Check my presentation that will help you get into consulting
How to get into consulting
Practical guide how to pass the case part
presentation

170
I recommend also looking at some techniques to improve
your business. Click on the cover below to go to the
presentation
How to become world class
analyst
A practical guide
presentation

171
Check also my other presentaions
Management Consulting
Presentations
Practical guide how to prepare a great presentation
presentation

172
Check also my other presentations
Production for Management
Consultants
Practical guide
presentation

173
Check also business modeling in Excel
Business models
Practical guide for startups and entrepreneurs
presentation

174
Subscribe to our channels:
www

175
….and how to perform market research
Market research
Practical guide for startups and entrepreneurs
presentation

176
Check my presentation on starting and running consulting
company
How to create management
consulting presentations?
A practical guide
presentation

177
Check my extensive presentation on productivity hacks to see
how you can me 10x more productive
Management consultant
productivity hacks
How to be lazy and still get things done
presentation

178
If you need more detailed version on productivity hacks you
can check our course on productivity hacks
Management Consulting
Productivity Hacks
$45
$15

179
Check my presentation on restaurant business model to
understand it properly
How to open a successful
restaurant
A practical guide
presentation

180
Check my presentation on on-line models to understand
them properly
On-line Business Modesl
A practical guide
presentation

181
For more check also my on-line course
On-line Business Models in Excel –
Practical Guide
$45
$15

182
Check my presentation on starting and running consulting
company
Start and run consulting
company
A practical guide
presentation

183
There is an interesting summary of ways to test cheaply
businesses
MVP – how to test your business
idea without building the
product
A practical guide
presentation

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