The idea of ‘right-sizing’ your real estate portfolio can be a drastically different conversation among organizations. For many mature, well-established brands, right-sizing might be code for store consolidation or transitioning away from a legacy prototype. For others it might mean high store growth in new markets or strategic in-fill with an eye on ecommerce growth.
Whatever the situation, the decision-making process will likely be influenced by data and some due diligence analysis. Market optimization analyses, especially those which involve the potential renewal, relocation or closure of established units is typically more nuanced and requires a more dynamic solution.
In working with our clients through these types of strategic portfolio assessments, we’ve identified some helpful guidelines designed to reduce the risk associated with the process:
- Understand the concerns and goals of the key stakeholders. Network optimization is almost always a directive established at the board or executive level and driven by a perceived risk or significant growth opportunity. Prior to the framing of any analysis, it is imperative that you have a clear understanding of the strategy in order to deliver results in alignment with the objective.
- Proactively manage lease expirations. Unfortunately, some of the strategic actions that you’d prefer to make won’t be feasible. When it comes to renewals or relocation options, prioritize analysis on units that can be addressed in the near term. We’ve found it helpful to run simulations on the preferred (no consideration to lease terms) actions and compare them to the results of the most realistic (based on lease terms) to quantify the delta.
- When considering which locations might be closure candidates, you need to understand the longer-term impact of the closure on your remaining network. While it seems obvious, the goal should always be to impact as few of your existing customers as possible. We see quite often that two locations with some trade area overlap both underperform, however once the proximate location is closed, the other meets or exceeds expectation. These types of decisions should not be made in a vacuum, but rather consider the broader market implications and spacing to ensure you pick the right location to consolidate.
- The establishment of omni-channel strategies have been a huge driver in the need for market optimization assessments. It is so important to consider the value and role that physical stores play in driving strong digital performance. We have consistently found that the highest value customers are those which shop across channels. Therefore, it is vital to ensure that the physical network accommodates omni-channel options such as buy online, pick up in store, ship from store, and curbside pickup services.
- Collaboration across functional teams makes the decision process much easier and drives successful execution. By means of example – if you determine to close a store and have determined that a high proportion of customers should be serviced by a proximate location, having a proactive marketing campaign or outreach to encourage that action will almost certainly enhance the likelihood of achieving the anticipated result.
We’ve been working closely with clients over the past several years to help refine their approaches for market optimization assessments. From helping a traditional mall-based retailer move into a more freestanding footprint to producing lists or prioritized closure candidates, our approach includes conducting iterative simulations rather than static one-off assessments.
Interested in learning more about our approach to right-sizing a portfolio? Reach out to us today.