October 24, 2017

Hillstrom's Optimizer: Productivity

We have our base case:

If we optimize for year one performance and then invest that way going forward (which is what almost all of you indirectly try to accomplish), we get this solution.

The business isn't going anywhere by the end of year five, is it? It's optimized, but it is optimized on to a local maxima. There are many other ways to get better results, but you have to sub-optimize early on in order to get optimal results later.

But that's not the topic of our post today.

Can I show you something?

What happens if we increase Merchandise Productivity by 10%, and hold Merchandise Productivity at +10% for five years?

Over the course of five years, cumulative Earnings Before Taxes increased by +/- 60% ... all from a 10% increase in Merchandise Productivity.

Now you know why I continually harp on Merchandise Productivity!

P.S.: Gap launches a subscription program for Baby Gap (click here). You keep telling me you love customer loyalty ... more than customer acquisition ... so why not Try Something!!

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