The strategy of location. What makes the retail sector tick.

Technology is changing rapidly and affects various industries. Given the current state of e-commerce and its potential, retail brands with physical stores constantly need to prioritise how they should be directing effort, time and resources to stay relevant and continue engaging with their customers in others words delve into the strategy of location.

Changing Gear

It can be easy to forget just how important the retail sector is to the UK. With over 300,000 retail businesses driving some £400 billion sales, the sector contributes over 5% of the UK’s economic output.

It’s not so easy to ignore the massive structural changes impacting the sector. Retail is seldom out of the business pages, as stores close, others innovate, and internet retailing and smart technology fundamentally change the way we shop.

Change is and always has been the norm in retail, but in recent years the pace has most definitely quickened.

Store retailers do battle in an ultra-competitive and highly unpredictable environment, on a field-of-play that extends across multiple consumer channels.  To say businesses now operate in a climate of extreme uncertainty is an understatement.

This uncertainty means that now more than ever leaders are seeking to fully understand the exact set of circumstances that drive their business’ performance. They need to know how certain types of customers, products/services, competitors, locations, channels, prices and promotions, move the profit needle in their business, be it up or down.

As they say, to be forewarned is to be forearmed, and this level of detailed performance insight can provide the ‘levers’ to respond to market challenges and opportunities.

Through the lens of location

Consumers live in the real world, not in channels. Stores operate in high streets and shopping centres, seldom in uniform physical units. Ecommerce retailers distribute products across local markets. Consequently, geography is a huge influence on how and why businesses perform in certain ways.

Applying a location lens to a business is critical to understanding how it ticks. Location offers a way to reveal the relationships between multiple data sets, providing a ground truth for a brand.

In location planning we often call this exercise a performance audit. An exercise that seeks to identify the local market factors that determine higher revenue.

From a data science perspective, the aim is to correlate specific factors with sales variability. These factors may include the volume and value of specific demographic groups within the catchment area of stores, the exact location of key competitors or even the specific location of a store on a street.

Our experience tells us that for many retail chains up to 80% of sales performance can usually be explained by less than 5 location factors.

Delivering the goods

We have recently showed a client that their best stores are those that operate in markets where there are higher volumes of two specific customer segments and where competitors are at least 1 mile away. We looked into the Starcount Audiences platform that allows us to identity drivers and motivations of consumers and map them to postcodes across the UK and discovered that 43% of our client’s failing stores are in places where their customer groups are largely absent and competitors leave too slim a share for successful operation.

These are simple insights laid bare by the location lens. Yet, they provide the critical intelligence to know exactly what drives good performance, as well as the forewarning to prioritise only local markets that meet these criteria.

Location insight provides the means for retailers to develop a blueprint for success. It can tell you, with a high degree of confidence, which market characteristics are good for a business and which most definitely are not.

In this ever-changing sector, optimising their location decision-making will enable retail brands to invest in places with the greatest return as well as tailor their communications and strategies to achieve optimum engagement with their customers. After all a degree of certainty in a torrid climate is a tactical advantage that could make the difference between success and failure.

To learn more about Starcount Audiences, please get in touch here.