When there are multiple stores in a market, the case for closing an under-performing store increases. Why?
Well, when there are five stores in a market and you close one store, retail sales are less likely to simply disappear. It's much more common for half of the sales to reallocate to existing stores, while some of the sales reallocate to the online channel.
The Market-Level Profit-And-Loss Statement looks something like this.
The $800,000 store is generating $300,000 of true incremental net sales value - and is in reality a wildly unprofitable store.
So again, this prompts discussions at an Executive Level.
- Can we defend generating $300,000 of incremental sales that lose $84,000 profit?
In our modern world, there are more experts who would defend $300,000 of sales that lose $84,000 then there are financial folks who are there to defend company profitability.
In most cases, Executives / Directors / Managers earn annual bonuses dependent upon net sales increases and earnings before taxes increases. There is literally an equation that helps the Executive make this decision.
Forecasting becomes critically important. If we forecast retail sales to continue to decline, then the exercise becomes irrelevant - the store needs to be closed.
Smart retailers have market-level profit-and-loss statements for every market. They hire analytics gurus to forecast what will happen in the future, and the analytics gurus figure out what is likely to happen in the future if a store is closed. Again, forecasting becomes critically important. Without credible forecasts, there's just a lot of shouting and thought leadership.
Contact me (firstname.lastname@example.org) for your own forecasting solution.