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Is the omni-challenge a move too far for location planning?

22nd Nov, 2012 by Ian Thurman

Ian Thurman, Vice President, Location Planning

As retail outlets have become just one element of an omni-channel world is it time for a rethink in the world of location planning? Is it all just too difficult to comprehend or does the vast array of customer data now give us the key to unlock the latest challenge in store planning?

Essentially location planners have sought to understand consumers’ spatial responses to retail locations on offer now and in the future. Over time we’ve coped with a move from a ‘one nation’ view of shoppers to an understanding of the complexities of geodemographics and the transport modes available to shoppers.

Customer guesswork?

 Store performance models for retailers now routinely include bespoke catchment models and a precise understanding of the spending potential for each consumer group. We even pat ourselves on the back for thinking about the impact of online on store performance and cheer when we have knowledge of the likely online uplift in a virgin area when a new store opens.

However as we look to meet the omni-challenge we need to re-assess how we analyse consumer behaviour and their spatial interactions with retail outlets. We need to appraise existing methods to give ourselves a realistic chance of understanding the omni-channel world. The challenge has intensified as online has become the top performing ‘store’ in most retailers’ portfolios.

Understand the ‘whole’ customer, know the trading potential

 The opportunity for a new approach lies with our understanding of the individual customer. The customer centric focus of many retailers offers the capability to solve the omni conundrum. If we are to understand the spatial behaviour of consumers we need to drill deeply into the customer data held by retailers. We have to examine each customer and their relationship with the retailer across all digital and physical touchpoints.

At best it means we know from a single customer account which store a customer uses and where the shopper accesses online for browse and purchase and by what means both physical and mobile. And above all else we need to see the colour of their money. This all presents a massive challenge for many retailers as they seek to link up customers across all channels and connect multiple accounts for the same person and household.  

A precise knowledge of individual customers, their spending and touchpoints will provide a clear picture to understand the retailer’s business from the ‘whole’ customer perspective. This approach delivers an opportunity to create individual customer models, bespoke and actionable customer segments (at CACI it’s my.acorn) together with an assessment of spend, opportunity and interaction across all touchpoints. The benefit to the business in respect of existing customers is the opportunity to target those customers whose actual spend by touchpoint is below segment expectations.

Evaluating the opportunities, valuing the prospects

 Of course, increasing spend is only one part of the picture. The other challenge for any national retailer is to identify the potential from non-customers by channel. The development of a bespoke my.acorn segmentation using customer data can be used to match to the wider population. As a result prospects can be valued by channel leading to improved return on marketing spend and new store opening and rationalisation scenarios can be accurately tested.                

Facing the omni challenge   

Omni-channel is now leading to reviews of every business process in retailing and location planning faces the same pressures. The old ways are in need of substantial re-engineering and analysts will increasingly be examining the activities of individual customers before they embark on the development of spatial models.    

On the subject of ‘omni’, a quick Google search reveals the bizarre fact that the Omni International Mall in Miami closed down in 1999 due to decreasing sales 23 years after it opened. Perhaps it’s an omen foretelling of the need to get location planning from an omni-channel perspective sorted out before it’s too late. Making the right property decision is now all about consumer, consumer, consumer. Fail to understand the omni-channel consumer and you’ll fail on location, location, location.

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Is your international expansion founded on good location decisions?

13th Mar, 2012 by Ian Thurman

Ian Thurman, Vice President, Location Planning

As established players from the USA and Western Europe look to open retail outlets in the growth markets it’s worth considering the implications of those early openings in new countries.

With many retailers recognising the benefits of opening with local partners or through franchisees there is a danger that location decisions will be left to the local operator. If the franchisor retailer receives a slice of net sales without contributing to property costs there can seem little incentive to play a major role in location decisions. As a UK retailer said recently, “if we get our 15% why should we care about the location decisions of our partners”.

Similarly for those opening fully-owned stores a new country can tempt the business down the route of ‘let’s open stores and see what happens’. Particularly if property costs are lower than in the western markets.  

Can you afford to open the wrong location?

Such an approach ignores the main point about location decisions – they can’t be easily discarded. Whether it’s a purpose built store or a shopping centre lease, it’s a long term decision. Location choices result in significant long-term investment and carry important cannibalisation implications for the future network.

Even Tesco who have led the way in selecting supermarket locations have faced problems in choosing store locations. In the USA they have closed over 10% of their Fresh & Easy stores principally because of location selection issues. 

Don’t be a cannibal  

Using a UK example, opening a major store in London Kensington creates a block on a more profitable opening at Westfield London less than 2 miles away. In this example the stores operating under the same fascia would divide trade to such an extent that neither would be profitable.

Similarly, in Moscow with 6 major shopping centres to choose from it’s unlikely that a department store would want to open in more than 4 centres to avoid excessive catchment overlap. The initial selections could preclude a successful opening in the most appropriate shopping centres. Making the wrong decisions could create a sub-optimal network for the Moscow market for years to come.  

A failure to create a ‘road map’ for store openings will result in an initial chase for space, the wrong location decisions, and loss of the best locations in the future. Poor early decisions can also result in early withdrawal from a market that should have been profitable. Why is it important to make the right decision – because even if the brand owner is only getting 15% of sales – 15% of $10m is much more interesting than 15% of $5m.

Can you afford to get it wrong?

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Falling Bricks: Retail disaster movie coming to a town near you?

28th Nov, 2011 by Ian Thurman

 
 

Ian Thurman, Vice President, Location Planning

TIME FOR HARD HATS?

As even the mighty M&S struggle to achieve sales growth in their UK stores, executives in British retailers are heading for the most difficult decisions of their corporate lives. Those retailers still achieving success are being underpinned by growth in their online business. Increased sales per sq ft in pure ‘bricks’ operations are becoming a retail rarity.

Across the patch, large store portfolios seem like they belong to history. And chances are that bricks’ performance will get worse under the double whammy of falling consumer confidence and a move towards more online activity.

For many UK retailers it’s now time for serious pruning of the store portfolio. But where do they start? And what are the implications of injudicious cuts? The most difficult decisions often carry the greatest risks and rationalising the store portfolio will be fraught with difficulty. The right choices will minimise the retailer’s overall turnover losses and the wrong decisions will have a much greater impact than expected.

CLICK & CLOSURE OR CLICK AND CHAOS?

Some will think the decision is easy. Open up the spreadsheet, click on data sort and close down the stores with poor sales against allocated costs. And expect that customers will transfer to their nearest store. However with multi-channel retailing and the complexities of UK consumer geography this is no time for back of the envelope calculations. Successful rationalisation will only happen by undertaking a detailed review of the UK portfolio and a thorough assessment of the place of bricks in the multi-channel equation.

FOCUSING ON THE CUSTOMER, NOT THE STORE

Store rationalisation runs the risk of focussing on the store rather than the customer. It’s important to remember that the store is merely a transaction point for customers. It can’t be assumed that the store (and by association the retailer) owns its existing customers. Particularly when retailers often know more about their online customers acquired in recent times compared to store customers who have been nameless shoppers over a number of years.

Store closures will not force changes in customers shopping patterns and so it’s vital to model the resultant loss in trade and identify stores and channels to capture displaced shoppers.

FLYING THE HIGH STREET FLAG

The internal relationship between stores and online is now much more than the operational issues over click and collect facilities. Any closure process needs to take into account the effect of closure on online trade from local shoppers.

Our consultancy work has shown a ‘brand anchor’ online benefit for many retailers in terms of existing stores and new openings. We’ve seen uplifts of up to 15% in online business in a new store’s catchment area (see Paul Langston’s earlier blog).

On the flip side, whilst store closures might not have a substantial and immediate effect on online business, scenarios need to include online decline as brand anchors are removed from the gaze of local consumers. The warning is clear – close a store and you may lose online business in the area, never mind struggling to hold on to existing bricks-based customers.

TRANSFERRING THE BUSINESS

Time was when the height of CRM in relation to store closures was the hand-written notice in the window instructing customers to go to the nearest store. With closures across the UK it will be vital to minimise the effect of closure on shopper’s spending. Reliance on staff on threat of redundancy to market the replacement stores and online channels will be asking turkeys to vote for Christmas.

It’s never too late to start collecting customer data from store customers and without that data retailers run the risk of losing their customers’ spending following closure of their local store.

Whilst closing stores may be soundly based in financial reality it’s also worth remembering the need to counter local PR issues. The fickle British consumer had abandoned branch based banking in droves but never failed to support the fight against their local closures. Marketing offers to displaced shoppers needs to be in place as soon as closures are announced. And at a national level don’t forget that loyalty can be focussed on the individual store as much as the retailer brand.

MAKING IT HAPPEN

The rationalisation process needs to be both strategically sound, tested and carefully actioned. In addition to the operational and logistical issues, our process follows the following 10 steps for a successful rationalisation process.

10 steps for rationalisation

1. Review customer shopping patterns around stores (and collect customer data if required)

2. Identify stores with highest customer overlap

3. Predict level of brick-based trading after initial rationalisation scenario

4. Identify stores still likely to fail to achieve satisfactory performance

5. Agree closure & re-size list (subject to lease issues)

6. Assess impact on online sales in closure areas

7. Identify customers (on & off-line) affected by the closures

8. Create multi-channel customer retention strategies for displaced shoppers

9. Close & re-size stores & act on retention

10. Review store performance, online sales and customer shopping patterns against predictions

Rationalisation for UK store portfolios is on the way. The only question is how you do it. Will you be the next retail disaster movie or a reputation enhanced by a carefully executed plan to focus stores on their local demographic?

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Are Stores Going Out of Fashion?

15th Jul, 2011 by Paul Langston

Paul Langston, Consulting Partner, Location Strategy

Despite some major headlines in recent months that have cited the Internet as a factor behind store consolidations, retail stores are not going out of fashion!  Yes, some retailers are struggling, but others are still very much on the growth trail, even when they have high and growing levels of online sales.

Yes, online sales can have a major impact on store viability.

We’ve seen in our work with a number of clients that this relationship can be positive, and that a store presence can improve online sales.  This is especially the case for retailers with a strong brand, clear online proposition and supporting links between their on and off-line offers.

We have seen some big-name casualties where the Internet was a major factor.  But, in my view, the impact of the Internet can be a convenient excuse, when in reality there are other pressures bearing down on retailers’ expensive store networks.

For many retailers the threat from the Internet and new technologies is no worse than the many other retail dynamics that are impacting on every store – ranging from shifting store pitch to changes in the national economy.

So that retailers are not caught out by these shifts, I believe that ongoing Network Management is essential to ensuring the long-term viability of all store networks.  This involves; regularly monitoring the unique factors at play on each store, alongside traditional metrics like profit and like-for-likes.  Only by understanding the Store Potential, Network Interaction, Store Position and level of Online Interaction acting on each individual store can retailers make truly informed decisions about their estate.

There is no shame in closing stores in a managed way in response to these shifting dynamics, and an ongoing pruning of the estate is an essential part of maintaining a healthy and vibrant store network.

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