Most retailers generally plan their targets, or budgets, based on the actual
sales of the previous year. As the saying goes ‘past performance is a great
indicator of future performance’.
But every wise retailer will also carefully look at external conditions before
committing a target or budget to paper; before using the numbers as a basis for
buying merchandise and setting expense budgets.
If you were to do some analysis of a few retail stores from different chains and
from different geographic locations you would see how sales tend to cycle based
• Number of potential target customers surrounding (trade area) the location,
• Mall or shopping centre management and marketing programs,
• Town or city development,
• Age or physical condition of the building(s),
• Other tenants,
• Access and parking
When initially selecting a location all of these things are taken into
consideration along with many more. The problem is that they are not necessarily
revisited. Establishing revenue targets without taking these external factors
into account is simply incomplete and no business plan should be based on those
We should mention, at this point, that the manager of a retail store is almost
always the person who can/will make it happen, or not. We have seen many, many
examples of stores that are not performing until taken over by a new manager and
suddenly sales go through the roof and vice versa. And it is not our intent to
imply that store managers should be able to use any little change in the
community or mall as an excuse for a lack of performance. However, we are
discussing things that store management has little or no control over;
significant things that change traffic patterns and consumer spending habits and
things that are not temporary. That’s why we call them external
conditions/factors – these are not things that are happening inside the store
that can be ‘fixed’.
Here is an example of one such story:
The retail store was located in a small but very busy mall as it was the only
mall for miles around and it served not only the small community it was located
in but many other small communities in surrounding areas. For this particular
retail chain, this store was considered high volume for that type of market.
Management and staff were experienced and performing at a level that met all
company standards. For several years this store performed admirably; well within
Over a period of a few years this store gradually went into decline. For a few
of those years it continued to produce a small amount of profit but, eventually,
it started to lose more and more money.
There is no mystery. Here is what happened….
Wal Mart built a huge store at the opposite end of town from the mall. Then
other retailers joined Wal Mart because the traffic pattern had changed so
significantly. At one time ‘all roads’ lead to the mall but things changed and,
now, you would be going out of your way to go to the mall. So, new retailers
could not be attracted to lease space in the mall and retailers whose leases
came up for renewal opted to move out. At one point the little community mall
was approximately 60% vacant. There was really nothing to attract customers
anymore – they could enjoy their shopping experience better elsewhere.
During this decline the mall management insisted that they were not going
through rough times; they would not negotiate better terms to attract retailers
in. In addition, because their revenues were falling they failed to do any
marketing to help the remaining retailers.
Basically, it was a disaster.
Some retailers stayed and weathered the bad times. And about five years later, a
big furniture retailer took over a huge space in the mall. As odd as it sounds,
it worked. Some retailers had to move to new locations to accommodate the new
furniture store and this brought formerly deserted areas back to life. As a
result, some more retailers came in and, today, the stores that were able to
‘hang in there’ are trending up again.
It is doubtful that those stores will ever return to their previous levels of
performance, but they will likely be able to grow their business back to
reasonable levels and maintain most of their market share.
Through all of this, the stores in the mall simply could not be expected to make
big gains year over year and if they had targets set like that, they would have
experienced several years of misery and management changes. Indeed, most of them
There are other examples such as the mall whose surrounding demographics changed
significantly over a course of a few years. What had been a very established
‘well to do’ area became home to many low wage earners; luxury high rise
apartments surrounding the mall were turned into low income housing projects.
This kind of change cannot be overlooked.
So, when you are establishing revenue targets, make it your business to find out
all you can about the location and all of the external conditions and factors
affecting it. If you do the homework and set the targets accordingly you can be
absolutely certain that your stores performance is all within the control of
your organization and the people you employ. If you don’t, you may waste a lot
of precious time and energy and very likely lose some very good people as well.
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