Network planning can avoid shuttered stores

By Peter Buckingham

In high growth markets like those we experience across most Asian countries, Strategic Network Planning is an essential part of the process to ensure a great retail chain. If you are investing vast sums on new stores, surely you need a long term plan on where you wish to end up.

Strategic Network Planning can start at the very beginning of network development, or if you have stores open and operating, then it becomes important to plan your future development.

The Strategic Network Planning Process

The Strategic Network Planning Process follows a series of steps from the macro level to the site-specific level.

Here is how the process works:

1. A company needs to decide to have a long-term presence in a Country (Global issue) or a specific geographic area within Asia. This can be decided by anticipated returns, political climate or priority of funding.

2. Once the long-term position is established, a macro plan is required to look at which areas to expand into. This can be achieved by looking at the total number of sites, total potential market and how to divide allocation possibly at a regional level.

3. Next, a plan is required to look at which localised areas (maybe towns or suburbs) the company wishes to locate in and in which priority. In an established market, this evolves to a network purification process as we look for improved new opportunities while we cull out the lowest performers in our network.

4. Specific site selection is the next step as individual opportunities are sought, then evaluated using an agreed process which should include some form of sales prediction modelling

5. Continual review or post audit should be undertaken to improve on the decision making process. This involves benchmarking and comparison to the original forecasts. Once a site has operated three to five years, little else can be learnt from the original prediction, so we then need to keep a less strenuous review program to ensure it is economically viable to continue.

Once you see this as a Strategic Network Planning Process that you are either consciously or unconsciously following, you can begin to break down the steps and work on them. You need to understand where you are in the Network Planning Process before considering individual sites. It is no good picking and opening a few random sites and then trying to fit a Network Strategy around them later on.

How do we make this happen?

The first issue a company needs to do is gather all the information it has and ensure it is heading in the same direction. It is no good if the property managers are heading one way, while the marketing and franchising departments are seeking a different type of store.

The first issue is how many stores should we aim for long term in various cities?

To start, we need to map the existing network and ensure we understand the basic demographics we are working with (population). For example, if we have 12 stores in one city of 1.2 million people, do we aim for 50 stores in a city of 5 million people and three stores in a city of 300,000 people?

Once we agree on the macro issues, we can begin to look at the smaller issues of where to place new stores in the various cities.

Demographic analysis of an area.

Information exists in all countries that can assist us in identifying the demographic characteristics of an area. All countries have a Census, and a cadastral (mapping) layer that allows us to understand the demographics. Some are more detailed than others, but the most important point is to try and understand the customers and where to find them.

Once we can combine the demographics and mapping layer, we can start to map the market to look for the hottest areas for our stores

TMI Melbourne

This map gives us an idea of where to look in the future for sites we can expect to do the strongest sales – the red areas.

Sales prediction modelling

In many cases we already have an existing network to learn from. We can then develop a suite of tools using statistical modelling to forecast future sales. Many large businesses leave it to the property managers to give the sales expectations for a new store and it is essential they have a logical process on which to base their predictions.

Depending on the number of stores in the network, you may have the choice of:

  • Creating models using Neural Networks, as is used by some of the oil industry. (The writer worked for Caltex and was responsible for the original development of NeuroLocator, a highly sophisticated sales prediction modelling tool).
  • Building regression models, which is similar to many of the larger retail companies and fast food companies.
  • Building a simple check chart that ensures the same comparative process is used on all new stores. This normally applies for networks of between 10 and 40 stores.

The advantage of following a fixed “process” in all new site selection decisions gives a level of validity to your decision. In some countries you could be challenged in court on the issue of poor site selection being responsible for a franchisee’s failure. Hopefully you are then in a position to produce the material that was relevant to the site decision and the process and logic that was undertaken in the decision.

Many businesses are finding themselves with challenges due to poor site selection. Compared to the cost of closing a store, investing in a proper Strategic Network Planning & Site Selection process in place is a valuable and wise move.

Nothing is foolproof, however having a proper process should minimise the chance of failure.

Peter Buckingham is the Managing Director of Spectrum Analysis Australia, the leading Geodemographic, Strategic Network Planning and Retail Sales Modelling Company in Australia. Spectrum assists many large retailers and Franchisors in better understanding the retail market from a site and area selection view. Peter can be contacted on +61-3-9815 0800 or [email protected] or online at www.spectrumanalysis.com.au

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