A Five-Year Forecast Methodology To Determine Which Stores To Close

Below is a brief presentation (23 slides) outlining the methodology I use to determine which stores should be closed.

A Five-Year Forecast Methodology To Determine Which Stores To Close from MineThatData

If you are reading this via email and cannot navigate the presentation, click this link to view the presentation.

And when you need help determining which stores should remain open or be closed, please contact me (kevinh@minethatdata.com) for assistance.

Simple Metrics Tell Us What We Have To Do

There's a reason we need to forecast what happens to our business when customer acquisition tactics are not working.

Here's the first reason.

Here's the second reason.

I shared these two facts at a recent conference ... I then asked the audience to raise hands if they spent half or more of their marketing hours focused on customer acquisition strategy?

• Maybe 10 of 200 hands were raised.

So that's a mistake ... the vast majority of us need to spend far more time focusing on customer acquisition than on customer loyalty. Because we do the exact opposite, we sub-optimize business performance. On purpose.

When you forecast what happens to your business over the course of the next five years, you know exactly what happens if you generate 59 new + reactivated buyers instead of 63 new + reactivated buyers.

You know what your annual repurchase rate is, don't you?

Of course you do!

And because you know this metric, you know exactly what you have to spend your time on, regardless whether you've run a five year forecast for your business or not.




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

Omnichannel Index Shows No Correlation Between Omnichannel Brilliance And Stock Price Increases

An industry trade journal partnered with an omnichannel vendor to rank 100 publicly traded retailers on their ability to deliver against seven key omnichannel tactics.

The index yielded perfect scores (100) and horrible scores (0).

The article suggests that the customer "demands" an omnichannel experience ... strongly suggesting that a omnichannel brilliance is critical to compete against Amazon.

The article did not correlate omnichannel brilliance with sales growth, profit growth, or stock price.

So I correlated the index with stock price.

For the retailers who are not privately held ... I calculated change in stock price year-over-year ... this borders the timeframe when the study was conducted (Q4-2016 and Q1-2017). If omnichannel brilliance led to sales gains and profit gains, then we might at least be able to surmise that stock prices increased and the significant investment in omnichannel strategy yields increases in shareholder value. Right?

Ready for the graph?

Uh oh.

There is essentially no relationship between the omnichannel index and change in stock price, year-over-year. None.

The goal here, of course, is to get you to focus on what matters most.

1. Merchandise Productivity.
2. Customer Acquisition.
3. Customer Service / Customer Satisfaction / Entertainment.

We have Trade Journalists and Vendors who are demanding that you execute tactics/strategies that generate money for their businesses.

Your shareholders are demanding that you execute tactics/strategies that generate money for them ... allowing you to keep your job and potentially earn raises/promotions.

Please focus on the latter.

Forecasting - Knowing The Future

We are going to spend some time discussing the future?

Why?

Here's why ... when I attend a conference, professionals tell me that various tactics aren't working anymore. Especially customer acquisition tactics.

• "The co-ops don't work anymore, performance is down 15% per year for each of the past three years."
• "Our stores are not generating new customers."
• "Google and Facebook have become too expensive. What should I do?"

I wait ... patiently anticipating "the hammer" ...

• "We have to cut back on marketing expense in an effort to optimize performance".

That's where I feel sad. I'll ask a simple question ...

• "What happens to your business in 2-5 years if you cut back today to 'optimize' performance?"

The answer is almost always the same ...

• "I don't know."

The reason we receive a reasonable salary plus health benefits plus 401K and five weeks of paid time off is because it is our job to know what will happen in the future. Yes. It is OUR job.

Have you ever used Google Analytics to produce a five year forecast of where your business is likely to head if you have to cut back on paid search spend by 30%? Or Adobe/Omniture? Or IBM/Coremetrics? Do you use "R" to produce a five year forecast based on paid search spend changes?

The forecasting discipline has been utterly abandoned in our world of "digital" analytics.

So let's spend some time talking about why it is critical to forecast where your business is headed, given your merchandising and marketing tactics, ok?

And keep this sentence in mind as we progress ...

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

In other words, if you don't have a five year forecast for your business, you don't have enough analytics/marketing knowledge.

More on the topic tomorrow.

Business Simulation On-Site?

A week ago you read about the business simulation run at the VT/NH event on March 30. Remember the winning outcome?

How about we try something?

I have a new version of the simulation ... one that is more customer-centric ... one less product/staffing centric. I plan on presenting the new version in London at the DCA Annual Summit on June 15 (click here). If you would like to have your staff try the simulation, I will run the simulation for the FIRST COMPANY who responds to this blog post.

What do you get?

• Three Hour Simulation Run with up to 20 members/teams.
• Two Hour Afternoon Session on Customer Acquisition Tactics and Merchandise Forensics.
• Three Hours Discussing Your Current Business Challenges.

Cost = $4,000 plus travel expenses.

If interested (and if you are interested, hurry the heck up because only the FIRST COMPANY TO RESPOND gets this opportunity at this low price), email me right now (kevinh@minethatdata.com).

Which Image Was Clicked On The Most This Week?

Your choices are ...

(a) The Prophet.

(b) This table.

(c) This table.

(d) Or this table.

You already know the answer, don't you?

I #measure how readers interact with images, and for good reason ... I get to see what readers are interested in.

Now, if I wanted to #optimize my blog in order to generate the most #engagement, I'd stuff images of the prophet on every post, wouldn't I? I wouldn't focus on #content that actually helped you run a more profitable business.

And before long, I'd be out of business ... fully optimized of course, but out of business.

Might there be a comparable story surrounding your brand?

Multiple Stores in a Market

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 (kevinh@minethatdata.com) for your own forecasting solution.