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Saving money through better sales forecasting

You might be wondering whether it is possible to perfectly predict the sales of a retail chain? To know for sure whether you should or should not open that branch. My answer will be short: Yes.

Large retail chains have incredibly efficient processes when it comes to purchasing, inventory management and logistics. How do they do that? By collecting and analyzing a lot of data, and then continuing to monitor this information.

But to my surprise, the bridge to location research is often not crossed. If you consider how new locations are selected and evaluated, you’d rightly be scared. There’s vast room for improvement when making this decision.

Often, a location decision starts with an entrepreneur’s gut feeling:
I see many bags, so it’s certainly okay. Or…
Our competitor is there too, so I want to be there
.

That’s probably what happened with Bijou Brigitte and Accessorize: opening mainly where the competitor is already present. But recent reports show that this is absolutely not the right strategy:

“Bijou Brigitte is making cuts in its Dutch outlet portfolio”[1]

As part of a consolidation, last year Bijou Brigitte closed a total of 106 branches in the weaker regions. Together with Spain, our country was hit hardest.

This year, Bijou Brigitte saw competitor Accessorize also leave the Netherlands. The British accessory chain, which once had about twenty branches, recently shut all its outlets in our country and in Belgium.

The most striking element of this news: they close mainly in weaker regions. Apparently, the market potential of a region was not part of the opening criteria. Or the estimation of the sales potential was completely wrong. Before making a location decision, have the following criteria been analyzed:

  • Purchase power in the area?
  • Size of the service area?
  • Evolution of the shopping public in terms of age?
  • Situation in terms of pedestrian traffic?
  • Best neighbours (based on surveys instead of general feeling)?
  • E-commerce penetration?
  • Evolution in terms of vacant outlets?
  • Revenue cannibalization of new branches for current branches?
  • Number of shops with a high/low probability of closure within 12 months?
  • Etc.…

Of course, this kind of analysis is not free, just like analyses of logistics processes. And if you want to do them well, they are complex. But the return on investment can be huge.

And anyway, what does it cost to set up Bijou Brigitte stores? Then the cost of having to write them off prematurely while still having to pay rent for a number of years? Many millions, obviously. And these are relatively small stores.

The cost of setting up a supermarket is easily 1.2 million (for a gross area of 1,500 square meters), with an annual rent of € 250,000. If you have to stop after four years, then the total additional depreciation is 480 000 for the layout and 1.0 million for the rent….

A thorough analysis beforehand can prevent many forced closures. For example, because beforehand it was already clear that there was not enough potential in the region. Or because there was only room for one market accessory store or supermarket, and not two.

Now, let’s imagine a tool that could make accurate turnover forecast. Taking into account the specificities of the sector concerned, the environmental factors, the cannibalization and all those elements that I mentioned above. With the ability to view all kinds of what-if scenarios.

[1] (source: http://www.retailnews.nl/nieuws/ZLJJoGOESamyhCBQFp87ng-1/bijou-brigitte-zet-mes-in-nederlands-winkelbestand.html

Gerard Zandbergen

Gerard Zandbergen is CEO of Locatus and frequently brainstorms with players on the retail market about the chances for the future. Locatus’ goal is to clarify the retail market, so that her clients have a candid overview of their risks and opportunities. Over 20 years of information forms the basis for this process.