Capital Plan Formation
Category killer uses the APT Suite to develop optimal store capital spending
The Company
Leading big-box "category killer" retailer with
several hundred locations across the U.S.
The Challenge
The client needed to invest significant capital into its chain to revitalize its store base and brand image. It needed to decide which stores to remodel and how extensively to do so. It also needed to identify which stores it should relocate, which stores should close, and where to open incremental locations.
The client had conducted some previous remodels and had a history of relocating and opening stores. Although it had some anecdotal evidence of the impact of these actions, it did not have an analytically-driven understanding of what drives success in remodels or relocations, what store types were best suited for different types of remodels, or what makes a store a better candidate for a remodel instead of a relocation.
The company also had limited insight as to which of its currently unprofitable stores had the potential to improve performance and which should be closed. Full understanding of all of these issues was critical deploying a large capital budget with maximum ROI.
The Solution
The client used the APT Suite to specify where and how to spend capital with the best odds of success. The APT Suite was used to carefully isolate the incremental attributable impact that was caused by each type of remodel and relocation that had been conducted. It further identified store environments and competitive conditions under which these actions provided higher return to capital and which circumstances resulted in lower returns.
These models were then applied to identify the best remodel and relocation opportunities in the national store network. Further, automated APT Suite models were used to “value engineer” the capital upgrade program and reduce the capital requirements of each store upgrade with very limited reductions in sales and profit increases. Finally, models were automatically constructed within the APT Suite that predicted new site performance, and these were used to automatically scan all markets to identify and filter the best opportunities for new store openings.
Results
These analyses led to a very different capital strategy that includes a heavier emphasis on upgrading existing capital stock and a different set of criteria for locating new stores. The client is now using the APT Suite as the analytical platform to execute this capital plan and has significantly increased returns to new invested capital.
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