January 05, 2023

Yeah, Open Some Stores!!

That's what you are reading these days ... the pundits enjoy lauding "digitally native" brands for opening stores. "It's proof positive that retail matters and that an omnichannel approach is a smart bet in a confusing customer landscape".

Alright.

If you've ever worked in retail, you know that when you open a store a cascading series of events happens, resulting in the store not performing at the level your reporting tells you it performs at.

Here's what happens, especially when you already have a store in a market.


Let's evaluate what happened.

  1. When a new store was opened, the existing store suffered. Some customers from the existing store (actually, many customers) switched store preference, causing the existing store to perform considerably worse.
  2. When a new store was opened, online sales declined. This is a common outcome in year one of a store opening. Customers who used to shop online find the new store convenient, and they switch allegiance. Again, this is a year one phenomenon. After year one, the store begins sending customers online at rates that cause online sales to increase. Your mileage will vary.

Before the store opening, the original store did $1.6 million in sales.

After the store opens, the original store now does $1.15 million in sales.

Oops.

Before the store opening, online sales were $493,000.

After the store opening, online sales were $343,000.

The new store does $1,500,000 in sales ... it looks like a huge success, now outperforming the original sale. Somebody will say that a renovated store, with modern/clean presentation outperforms the tired old store. That somebody "might" be right. That somebody "likely" is wrong.

Look at incremental sales ... instead of generating $1,500,000, the new store truly added $900,000 in sales to the market. Not $1,500,000. The store is 60% incremental, with 40% being cannibalized from other stores/online.

Your job is to run a p&l on the $900,000 total, not the $1,500,000 that is reported on your company dashboards. Hint - that's not going to be a pleasant exercise.

Pundits love it when you open stores.

Run a p&l on incremental sales to see if the pundits are right.



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