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Do We Have Industry Standard Practices in Retail Real Estate?

Sunday, November 25th 2012
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Summary:

There are five major areas in chain store real estate practices where industry standards can lead to more efficient decisions and better financial performance. Chain Store Advisor Principal Jim Stone explains why the companies that adopt appropriate industry standard practices as a foundation for real estate planning and site selection will succeed.

Why does any industry have standard practices?  Every business is different, even within an industry, so what’s the point of trying to standardize?

Industry standard practices are a lot like the rules in a game.  They provide a systematic, consistent and proven framework within which the players develop their strategies and exercise their skills.  Having rules doesn’t make you a winner, but those rules make it possible to become a winner by promoting the following competitive strengths:

Efficiency

When everyone knows the process, tasks can be completed the same way every time with a minimum of rework, delay and confusion.

There are five major areas in chain store real estate practices where industry standards can lead to more efficient decisions and better financial performance:

  1. Data management – industry standard practices in market selection, market planning and site selection involve the acquisition, storage, maintenance, analysis and reporting of a wide range of data.  Some data are generated internally (customer transactions, store locations and attributes) and others are provided by third parties (demographics, competitors, traffic volumes).  Companies that define and document their data management practices will reduce the time for processing and avoid deadline crunches when decision-makers need answers to get deals done.
  2. Analytics – real estate decisions can be very complex.  Standard practices don’t reduce the complexity, but they can provide a consistent approach to decision-making that allows greater focus on key issues and less time wasted understanding the data that are being presented.
  3. Training – one of the biggest challenges in many chain store real estate organizations is the wide range of management and decision-making styles of team members.  Some prefer to use experience and judgment (art) to assess opportunities, and others feel more comfortable using data and analytics (science). Training the team on standard practices provides a common ground for different styles to meet and complement one another without creating friction, animosity, and chaos during decision-making.  It also accelerates the learning curve for new employees who can quickly be trained on the company’s processes while learning the nuances through “on the job training.”
  4. Reporting – standard practices include standard ways of reporting.  Interactive maps and reports, standard investment committee packages and other tools can have formats that become familiar and allow users to condition their brains to a consistent set of metrics over time that leads to faster, better decisions.
  5. Time Management – we have seen that good standard practices generate efficiencies in data management, analytics, training and reporting.  A major byproduct of these is yet another efficiency:  time management in site selection.  Many companies view each proposed site as a unique opportunity that requires a hand-crafted review.  Companies that have well-established standard practices can see a “dog” site coming from a mile away, barking its head off!  Bad deals get killed more quickly and more time is available for deeper research on the ones that require additional field work or deliberation.

Creativity and Critical Thinking

When the basics are under control and performed in a consistent manner, people have more time to compare alternatives and make better decisions.

Some “free spirits” believe that standard practices suppress creativity and prevent experts from applying their experience and judgment in the real estate planning and site selection process.
Are you one of these people?  Do you know some of these folks in your organization?
Good industry standard practices, by definition, do not stifle creativity or they would not be “good practices”!  In fact, good standard practices enhance creativity and encourage critical thinking in the following ways:

  1. The efficiencies that we just reviewed lead to a consistent framework for the creative contributions of experts in the decision-making process.  One former chain store client of mine provided a good example: The research group had a standardized process for forecasting sales at a proposed site.  The real estate dealmakers claimed that research was killing every deal they submitted and began calling the senior analyst “the angel of death.”  After a number of meetings they adopted a process whereby research made their recommendation first and real estate could accept it or challenge it.  If they challenged, the “burden of proof” was on them to put together a business case that demonstrated the deficiencies in the standard analysis or showed that there were positive factors beyond the scope of the standard analysis that made the deal worth approving.  Mutual respect was regained between research and real estate and they have had solid growth in units and sales ever since.
  2. When there are few or no standard practices in place, a huge amount of energy and effort is required to assemble a basic analysis of markets or proposed sites.  By the time critical issues have been identified, the decision-makers may have run out of time or patience to do their best work as critical or creative thinkers.

There is no question in my mind that the most successful chain store operators, regardless of size, will be those who adopt an appropriate level of industry standard practices as a foundation for real estate planning and site selection.

Reprinted with permission, Chain Store Advisors
 


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