April 27, 2017

Forecasting Skills Applied To Trade Areas

If you ever want to get the blood flowing, sit down in a meeting with your Real Estate Team and your Finance Team and a handful of Executives looking to either open a new store or close an existing store.

Do you remember that scene in Moneyball when the scouts are all talking about the intangibles regarding a potential player and the Brad Pitt character appears to be having intestinal cramps? That's what a lot of these meetings are like. Of course nobody is spittin' tobacco juice into plastic cups. But you get the picture. A Real Estate Director thinks that Penn Square Mall has the "potential" to flourish given the changes that are happening next door at J. Jill. Somebody in Finance is completely against the mall ... "Oklahoma City is not an aspirational market" ... even though the Finance Director has never been to Oklahoma. An EVP responsible for stores doesn't want to get hit over the head by the Board of Directors for opening yet another store that never meets the sales projections authored by the Real Estate Team.

The big topic in 2017 is store closures. Y'all recall my omnichannel arguments of 2010 - 2014 ... arguments suggesting that store closures were the logical outcome of a strategy of creating channel sameness in an effort to compete against Amazon. Turns out the customer doesn't "demand" a one-brand approach to channels. Turns out the customer demands more from Amazon!

There's no better place to apply your forecasting chops than in forecasting what happens to a trade area when a store closes. It's work that is nearly impossible to get right. Each market behaves just a bit different than a comparable market. If you are off by 10% or 15%, you might close a store that is actually profitable.

Next week, we'll talk about the approach I use. The approach is not fundamentally different than the approach smart catalogers used 5-10 years ago to dramatically scale back unprofitable pages to online buyers. Most important - the approach is FUN! You get to see outcomes that are uniquely different than you'd expect. And you'll be armed with the ammo to be like Brad Pitt heading into a meeting with scouts on Moneyball!!

"Forecasting outcomes are the sum of all analytics and marketing knowledge possessed by your company."

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