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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