Solving The Retail Investment Puzzle
You own a bunch of stores all varying in size and age. Over the years, product assortments and sets have come and gone and you have ridden certain designs into the ground. Each of your stores needs capital infusion – a refresher – but you do not know where to start. How does a multi-unit operator approach this?
This is how … by stepping back and viewing their chain with a fresh set of eyes. Trouble is, that is much easier said than done. In order to move forward with a store-by-store plan of attack, the multi-unit operator needs to take a few steps back. Think of this as a division-and-conquer strategy in retail before you deploy any capital investments!
Retail stores can be thought of as a series of puzzle pieces and parts that can be combined together to establish the best retail offering for their specific demographic and trade area. Factoring into the selection of the best puzzle pieces for each site are demographics, store size, competition and product assortment. Developing a series of store characteristics helps guide which puzzle pieces are most suitable for each retail store.
Here is how to approach this:
Store Segmentation: Not all stores are alike, but many stores are similar in attributes. The first step in developing a store segmentation matrix that groups like stores together. Many retailers group their stores with an Urban, Suburban and Rural classification. They will assign certain product assortments to each of these segments.
Store Size: Next on the list is the size of each of the stores. Product assortments and product offerings are greatly determined but how much square footage can be given to each. In my history, I have worked with chains that have had stores ranging from 300 square feet to 10,000 square feet. Obviously, that's an absurdly wide range to contend with. Creating product assortment modules that can grow or contract in size provides the retailer with an infinite assortment of puzzle pieces.
Develop Store Modules: Depending on your type of retail, you may want to develop certain product assortment modules that can be modified to fit the store size or demographic. Module development can also refer to a particular service that is offered at one location and not at another (ie, if you are a food retailer, offering a drive-through or not an an example of this). Modules should also refer to the merchandising mix of the store. In some cases, product assortment puzzle pieces are 4-foot, 6-foot or 10-foot versions, for example, of a particular merchandising set.
Product Assortment: Product assortments with the different modules may also vary by store segmentation. For instance, you may have stores that are in multiple ethnic areas and your product assortment may be built accordingly. Image markets, daytime worker populations or heavily skewed demographic areas all can yield a product assortment set that not only delineates the assortment, but the size of the targeted assortment.
Capital Investment Constraints: Of course, with every puzzle, there are other constraints in your ability to complete the puzzle. In this case, sometimes one of the largest constraints is available capital – and the time to execute your plan . It is one thing to know how you want your stores to look and feel, it can be completely a different thing when it comes to having the time and money to execute on it. My father always used to tell me, "sometimes it's like painting the Mackinaw Bridge, once you get to the end of it, you have to start all over again."
Multi-unit operators, in order to continue to grow, have to consistently re-invest in their chain. Understanding that their chain was not built overnight, often dictates how they approach future investment. Creating a series of puzzle pieces through a disciplined segmentation analysis of their chain often is a smart way of approaching a daunting overhaul of their assets. With a "walk before you run" mentality, prudent operators can make the correct strategic capital investments in their stores adding years to their lives.
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