Magazine Article | August 22, 2007

Improve Retail Real Estate Decisions

Source: Innovative Retail Technologies

What tools are you using to make your decisions about site locations and store capital allocation?

Integrated Solutions For Retailers, September 2007

Enhanced analytics and optimization have led to significant sales and efficiency increases in several industry sectors. The consumer package goods (CPG) industry adopted analytics in the 1960s and 1970s. The supermarket industry followed in the 1980s with the UPC revolution. Analytic tools provided by third-party software and information firms helped transform marketing, operations, logistics, and finance. Later, optimization came of age in the 1990s in supply chain management, before expanding in this decade to retail pricing, promotion, and merchandising.

Indeed, real estate remains most retailers' largest capital investment and plays a critical role in customer-centric business strategies. However, not enough decisions about market development priorities and store capital allocation are backed by the same kind of fact-based management science now commonplace in other critical retail business processes. Real estate asset planning is saddled by outdated methods, relying on maps and reports, old-school analytics, and consultants' reports — expensive snapshots. Broker-led developments react to available sites rather than creating optimal store networks. Executive involvement is limited to reviewing sites at the end of the process.

Analytics Provide Valuable Insight To Your Retail Development Plans
The truth is, real estate can be on the same fact-based, analytic footing as the rest of your business. The current state of retail real estate ignores a 'quadruple play' now underway involving spatial science embedded in business software, massive computational power and data storage, a myriad of new data sources, and new software architectures and deployment options that began with the Internet.

Unique analytic approaches, such as location optimization, are bringing new insight to development decisions. By tackling site selection within holistic store network design, retailers employing these approaches are seeing desirable increases in return on invested capital (ROIC).
  • After building a 20-unit market presence the old way, one retailer believed it was finished in that area. Fact-based analytics and optimization showed the units were in the wrong place. Twenty in the right locations would have delivered 43% more revenue. In addition, it showed the market could support 25 units, resulting in 68% more revenue.
  • In a market where it was number one with a 22% share, a grocer reduced its 93-store fleet to 87, maintained its share and top spot, improved sales, and increased ROIC by 19%.
  • A communications services retailer increased its ROIC in one market, already at a healthy 29%, by four points, by closing one store and relocating another in that 11-unit network.

Retailers are already taking advantage of advanced science in markdown optimization. Those tools help retailers get out of bad inventory positions five, six, maybe eight times per year. With location optimization, retailers can avoid dire locations they can't get out of for 5, 10, or 15 years. They put capital to better use in superior store portfolios. They master where customers and merchandise meet, with localized assortments and marketing, a very customer-centric focus. And, they drive significant ROIC improvement. For perhaps the first time, they are in a position to not leave square footage on the table.

Rudy Nadilo is CEO of geoVue.
He can be reached through the company's Web site at