Turning a Negative Into a Positive

With fewer new stores opening, retailers are hard-pressed to build additional sales and profits through existing stores—a difficult task for chains that are not in touch with local factors that influence gun-shy shoppers. By digging deep into consumer and macroeconomic data, chains can protect and even build business across their existing locations.

This was the message delivered during the “Diagnose the Health of Your Store Portfolio” webinar, hosted by Chain Store Age in April. (An archive of this session can be found here.

Describing 2009 as a challenging year is an understatement. Retailers are operating on razor-thin margins. Tight credit is forcing companies to pull back capital spending and even pushing some struggling chains deeper in debt.

“It is financially impossible to keep up with the fast pace of new-store development encountered industry-wide over the last decade, but chains still need to survive,” Devon Wolfe, managing director of strategy and analysis services for the Americas, Pitney Bowes Business Insight, Stamford, Conn., said at the event. “Now retailers need to look inward.”

The economic climate has forced all chains to re-evaluate their store portfolios. Retailers are scrambling to understand how to determine which new store openings and remodels should be deferred, as well as whether some stores should be shuttered altogether. The only way to do this, Wolfe said, is to understand what is going on in each of your consumer markets and how these factors are influencing consumers’ needs.

When consumer demand is high, retailers can learn about a store’s “health” by analyzing site characteristics, trade area demographic fit, competitive positioning and coverage of sister stores in surrounding locations. As the economy tightens, these factors are not enough. Rather, retailers need to consider the power of macroeconomic data.

Macroeconomic trends focus on movement in the economy as a whole, such as the current level of unemployment. By merging this data with retailers’ own consumer data, chains can learn much more about how to run their business and possibly build sales in these troubled times.

While using macroeconomic data requires a bit of a culture shift, Wolfe suggested that retailers combine this new information with tried-and-true practices to predict same-store sales growth. Retailers should continue analyzing same-store sales histories and applying key performance indicators wherever they can further influence sales. The next step in building the most accurate predictive sales model requires the addition of macroeconomic data.

Wolfe reported that these new details will help chains better understand macroeconomic trends affecting shoppers, learn which struggling stores are likely to recover quickest, and even increase sales through other channels.

By leveraging Pitney Bowes’ market-analysis service, retailers can get a firmer grasp on how to use the data, according to the company. The service provides chains with updated information for specific markets, including population changes, bankruptcies, median home prices and housing turnover, employment and unemployment rates, income growth and household wealth.

“These are the factors that retailers need in hand to understand store sales, and anticipate and capitalize on changing market conditions,” Wolfe said.

Retailers using macroeconomic data are sure to see a return on investment, even in a shaky economy, said Wolfe.