May 02, 2017

What Is Likely To Happen When A Store Closes?

Take a look at a simulation I recently ran ... look at sales by channel for the next five years ... if the store stays open ... or if the store closes.


Aren't forecasts / simulations fun? I mean, my goodness, all of the knowledge your analytical / marketing folks possess come to fruition in just this table alone!!

Begin by reading across the retail sales / close store row. All retail sales were at about $6.7 million in the trade area. Then the store was closed, and sales dropped to $1.3 million ... and a year later sales dropped to $0.9 million. So we close the store ... some sales flow into other stores in nearby markets ... and then there is another year of "adjustment" until customers stabilize around $0.9 million per year.

Now read across the online sales / close store row. There is a brief increase in sales when the store closes and customers migrate online. But then the overall trend apparent in the "keep store open" portion of the simulation (online sales declines) continues. This market is dying - closing the store only helps short-term financials before the market continues to contract.

If we keep the store open in year one, we generate $17.8 million in sales across all channels.

If we close the store, then we generate $14.2 million in sales across all channels.

This means that the store is ultimately responsible for $17.8 - $14.2  = $3.6 million in incremental sales.

Here, you partner with your CFO and you find out if $3.6 million today (and $3.2 million in year five) is profitable. If you need $3.4 million for the store to be profitable, then you know that you are probably 2-3 years out before needing to close this store.

When you have complete mastery over marketing strategy and analytics techniques and customer knowledge, you can do amazing work that greatly impacts the future of your business. If all you do is analyze campaign performance, then you can still do amazing work, no doubt about it. But you won't have forecast / simulation tools at your exposure, you won't be invited into important meetings, and you won't get to play a disproportionate role in the future of your business.