Solutions by Industry

Maximizing ROI on Capital Expenditure: A Case Study

A leading big-box "category killer" retailer with several hundred locations across the U.S. needed to invest significant capital into its chain to revitalize its store base and brand image.

  • A big-box retailer needed to decide which stores to remodel, which stores it should relocate, which stores to close, and where to open incremental locations.
  • APT's Test & Learn for Sites™ was used to carefully isolate the incremental attributable impact that was caused by each type of remodel and relocation that had been conducted by the client in the past.
  • APT's Network Planner Solution was used to automatically scan all markets to identify and filter the best opportunities for new store openings.
  • 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 Company:

Large North American big-box retailer with several hundred stores

The Challenge:

The retailer wanted to understand which stores to remodel, which stores to relocate, which stores to close, and where to open incremental locations.

The retailer had conducted some previous remodels and had a history of relocating and opening stores. Although there was 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 made a store a better candidate for a remodel as opposed to a relocation.

In addition, the retailer 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 in deploying a large capital budget with maximum ROI.

The Solution:

The client used APT's Test & Learn™ Management System to specify where and how to spend capital with the best odds of success. APT's Test & Learn for Sites™ 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. Furthermore, automated Test & Learn™ 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 Test & Learn™ solution that predicted new site performance, and these were used by APT's Network Planner Solution to automatically scan all markets to identify and filter the best opportunities for new store openings.

The Results:

These analyses led to a very different capital strategy that included 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.