October 29, 2014

Retail Inflection Point

If you want to know how important your store is to your "omnichannel mix", perform this very simple analysis:
  • Segment Annual Demand (Retail, Website+Phone+Mobile) by Store Distance.
  • Calculate the Percentage of Demand Within Store Distance Band Attributed to Stores.
Here's an example:
  • 0 to 5 Miles = 77% Retail.
  • 6 to 10 Miles = 62% Retail.
  • 11 to 15 Miles = 51% Retail.
  • 16 to 25 Miles = 46% Retail.
  • 26 to 50 Miles = 40% Retail.
  • 51 to 75 Miles = 30% Retail.
  • 76 to 100 Miles = 25% Retail.
  • 101 to 150 Miles = 22% Retail.
  • 151+ Miles = 20% Retail.
Here, the inflection point is at 16-25 miles from a store. That's where the customer switches from retail purchase preference to e-commerce purchase preference. 

There are three important pieces to this analysis.
  1. The retail businesses with the best long-term potential generate 50% or more demand in retail as far out as 100 miles from a store.
  2. The best retail businesses maintain a constant ratio over time ... meaning that if 40% of sales come from retail at 26-50 miles from a store, the ratio generally stays near 40% over a 2-3 year period of time. If the ratio skews wildly toward retail, or toward e-commerce, then one of the channels is having a problem.
  3. The best retail businesses generate 90% or more of sales in-store for customers within five miles of a store. If a customer lives 2 miles from a store and chooses not to visit the store, how compelling can the in-store experience be?
What is your retail inflection point?