FINANCE

Retail: Ending the Guesswork in Store Development Planning

July 12, 2006

Store development is a priority for all types of retailers that operate stores. But it can mean high costs. Retailers on average spend more on store construction, expansion, and upgrades than other capital expenditures. And for larger or fast-growing chains, it can add up to hundreds of millions of dollars each year.

To optimize investments, retailers need to model and quantify the financial impact of these projects-to see which ones will deliver the greatest business benefits and provide the best return.

Silo-based planning

Budgeting and planning is critical for successful store development. But most retailers still use spreadsheets. Spreadsheet-based planning creates islands of financial data and is prone to errors. It's designed to project annual revenues and expenses, not to provide the more frequent insight needed to model strategic decisions. And disconnected plans make it difficult for store operations to adjust to new development initiatives or tie to corporate objectives.

Given the high costs and financial risks of store construction, retailers need a better way to plan and manage their capital projects. Enter the Cognos Store Development Planning Blueprint. It was built using IBM Cognos 8 Planning-software that integrates corporate finance, store operations, marketing and merchandising through top-down planning and bottom-up budgets and forecasts.

IBM Cognos Performance Blueprints provide preconfigured data models to help retailers plan, reforecast, communicate, and measure the financial impact of store development initiatives. Through better planning, companies can build and remodel more stores and do it cost-effectively. They are built usingIBM Cognos 8 Planning.

Collaborative, enterprise planning

IBM Cognos 8 Planning is a Web-based, high-participation solution for modeling, planning, budgeting, and forecasting in retail organizations. It lets management define the process, models, and content required, and then distribute pre-populated templates to contributors across the organization. It helps retailers achieve consistent operating performance through collaborative, real-time planning.

By integrating with Cognos business intelligence, the planning solution also lets retailers publish reports and conduct analysis based on store attributes, capital investments in stores, sales, gross margins, item movement, labor cost, controllable expenses, and shopping patterns.

A blueprint for success

The Store Development Planning Blueprint offers simplified, chainwide planning and forecasting functionality. Corporate can determine the revenue impact, return on investment, and costs associated with new construction, remodels or store upgrades such as adding new fixtures, equipment, departments, or services.

A simple point-and-click interface lets managers easily model capital initiatives. For example, a project manager in charge of a store upgrade program selects resources from a dropdown list by function, resource type, and time period. The blueprint calculates the cost of the resources over the appropriate timeframe.

Through scorecarding and reports, planners can also measure and communicate the impact of development projects such as by store, region, initiative, and type.

"With Cognos, retailers gain 'right-time' visibility into their store development projects, enabling them to define, manage and measure financial performance for multiple initiatives across the organization in an efficient and timely manner," says Patricia Waldron, retail industry director at Cognos, an IBM company.

The benefits of what-if

What-if analysis allows planners to model different scenarios. They can determine how many new outlets to open, when to remodel, and what types of upgrade programs to implement.

Should all stores in region 1 be remodeled or just the highest volume stores? Will the addition of new beverage centers build traffic? Will home theater viewing areas help promote plasma TV sales? What-if modeling empowers retailers to identify the most profitable store initiatives in line with corporate strategies.

Aligning corporate and the storefront

The Store Development Blueprint integrates with the IBM Cognos Store (P&L) Operations Blueprint to close the loop on capital expense planning. It allows Finance to update corporate P&L and budgets based on store project expenses and results. And it allows corporate to communicate development initiatives and timelines to the field so store managers can update and reforecast their operational plans. For example, during a remodel, sales would likely decrease, so stores could adjust their staff or inventory accordingly.

Summary

IBM Cognos Performance Blueprints take the guesswork out of store development planning. Retailers gain the ability to plan accurately and cost-effectively to make the most of capital investments. And they can reforecast as circumstances evolve-to stay on top of everything from rising property and construction costs to changing economic or marketing priorities.