Journal of
Corporate
Renewal
March
2017
savings will require proactive
measures that reduce corporate
or regional support functions.
The main cost the authors see with
MVCs is that of advertising. Eliminating
one store in a designated market area
serves to only shift that burden to the
remaining stores, which could lead to
a decision to exit a whole market or
to keep certain stores if the marketing
burden cannot be eliminated.
Fixed costs, in general, are the easiest
to isolate. They include contractual
obligations such as leases covering a
specific store. These costs are revisited
in step 4 on lease negotiations,
because there are even techniques
to influence so-called fixed costs.
Step 3: Segment Stores
to Take Action
Once a store’s true cash contribution
has been determined, it’s time to start
making closure decisions. But rather
than simply rank-ordering stores and
closing those below a certain threshold,
it’s usually helpful to segment stores.
The main reasons for segmenting
have to do with commitment and
psychology. Typically, partners in a
closure analysis are teams from store
operators and real estate—the very
people most personally or emotionally
invested in each store. They could have
deep relationships with the staff. They
might have transferred a manager
to the store in question. They might
even have chosen the site. The closer
these people are to the decision, the
more likely they could find one-off
excuses to keep certain stores open.
The rationale for segmentation calls
to mind the old adage, “When eating
an elephant, take one bite at a time.”
In this case, it means big projects and
bad news are often best digested in
smaller pieces. Retailers should try
to gain commitment on segments
that are harder to refute, leaving
fewer decisions up for debate.
While segmentations never look
the same, typically the authors
develop a matrix with profitability
bands along the top and decision or
consideration bands along the side.
Figure 2 is an indicative chart on how
this segmentation might occur.
continued on page 30
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FIGURE 2: STORE CLOSURE SEGMENTATION (FICTIONAL – FOR DEMONSTRATION PURPOSES ONLY)
S TORES FOR CLOSURE
A – Close ASAP 8 18 - 7 1 2 - 5 41 - - - 41
B – Close at Lease Expiration 9 3 - - 9 1 2 - 24 - - - 24
C – Close at YE 2-1-844-19 --- 19
19 21 1 7 18 7 6 5 84 - - - 84
OTHER CATEGORIES
D – Marginal - Monitor Competiton 1 2 3 39 6 4 22 159 236 - - 18 254
E – Lease Mitigation Before Closure 2 - - - 1 1 - 6 10 - - - 10
F – Market Closure Decisions 4 - 5 - 4 - 30 15 58 - - 24 82
G – Further Analysis Required - - - - - - - - - - - - -
26 23 9 46 29 12 58 185 388 - - 42 430
CLOSE OR NOT FOR DISCUSSION
H – Approved for Closure (Develop Plan) - - - - - - - - - - 217 - 217
I – Do Not Close; Remove From List 1 2 1 2 2 3 2 6 19 3 - 10 32
J – No Closure Category Yet - - - 1 - - - 5 6 24 - 2,6022,632
27 25 10 49 31 15 60 196 413 27 217 2,6543,311
G
RO
U
P1
G
RO
U
P2
G
RO
U
P3
G
RO
U
P4
G
RO
U
P5
G
RO
U
P6
G
RO
U
P7
G
RO
U
P8
SU
BT
OTAL
EXC
LUDE
C
LOS
URE
APPROVED IRECTOP.PROFIT>$150K TOTAL
Profitability & Return on Investment Bands Other Decision Groups