Closing locations: should profitability take precedence?

With the high street flagging, new pressures from business rates and waning consumer confidence, many brands have begun closing locations in an attempt to optimise profitability.

However, too often companies make this decision based on financial factors alone. Here, we’ll explore whether this approach is sufficient, or whether a more scientific approach could offer additional long-term benefits.

How do most companies decide which locations to close?

In most cases, companies are closing locations based on a comparison of profitability projections and the value attached to closing them.

This typically involves identifying underperforming locations, then modelling out their potential future cash flow. This cash flow calculation is likely to include sales/returns, and potentially property values.

This would then be set against costs of closing the location to work out the total potential value of taking this action.

What other factors should companies consider when closing locations?

This approach only gives brands a partial picture. With so much data and insight now conveniently available, calculating financial factors alone represents an over-simplified approach.

Here are some of the other factors you should analyse:

1) Market coverage

Gain a complete picture of how closing locations will impact your overall market coverage.

Adopt a macro perspective to visualise whether shutting a specific location would leave too large a hole in your network. Do this by calculating drive times and the value of maintaining a visual presence in high footfall locations.

2) Changing demographics

Find out if local demographics have changed; whether the customers you were targeting have moved away or have undergone a change in purchasing preferences.

Establish whether changing your product, location type or service offering, or switching to an adapted branch in a nearby location, would be more advantageous than closing locations altogether.

3) Local competition

Identify how the interrelation between your business and other nearby companies has affected your location’s profitability, then integrate this knowledge into your overall strategy.

Track whether new competitors have moved into the area and, if so, how this has altered your sales. Take account of what these companies do differently and why this has more appeal for your target audience.

Also, find out how complementary businesses affect your profitability, and whether their actions have impacted your recent performance.

4) New developments

Look at whether performance could change over time with the introduction of new customers or amenities.

Log all planned housing developments (including numbers of your target customer types) and transport infrastructure hubs. Calculate how such factors might increase your profitability based on real-world examples in other locations.

5) Previous examples

Review examples of times when a similar range of factors impacted you, or a competitor with a similar business model.

Then, look at how they reacted in these circumstances, and whether these actions had the desired effect. This could involve closing locations, moving them to somewhere nearby, or diversifying services.

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Gain the location intelligence your company needs to make data-backed decisions about your locations and optimise long-term profitability with Periscope®.