Recreational Equipment, Inc.

REI Accelerates New Store Openings with PopStats and LandScape

It would be somewhat easier for Recreational Equipment Inc. to use another data provider’s dataset because the company that creates their sales forecast models uses it. However, Curt Newsome, REI’s real estate research and strategy manager, said, “I don’t care. I want to use PopStats and LandScape.”

He prefers STI: PopStats and the STI: LandScape neighborhood segmentation dataset for two main reasons: “PopStats is high-quality data and the company is accessible. If I have a question about the data, I can call and get an answer. The team there is very accessible and supportive. I don’t get shuffled to people who don’t have answers. In fact, they often give me more detail than I can absorb.”

“That’s important to me because I’ve worked with lesser quality data and it’s a case of ‘you get what you pay for.’” Curt added: “… data isn’t just a sideline for them. It’s their core. They know their methodology inside and out. That’s why they have the best reputation in the business.”

Quality data that he can depend on is critical to Curt’s research success, in particular, because REI only opens a few new stores each year. As a result, they have to be the exact right locations.

“Our store location history has gone through many phases, including having no strategy whatsoever and letting real estate brokers decide where we’ll open stores. Now, we’re in the ‘age of enlightenment,’ where we open new stores based on both the science of analyzing revenue potential and the art of our real-world experience.”

In particular, one of the organization’s goals is to make REI better known outside of the West Coast, where it originated. More than a third of REI stores are in California, Oregon, and Washington. However, the company has since expanded into new markets like Jacksonville, Fla., Kansas City, Mo., and Columbus, Ohio. Along with new locations, the company also began considering new store concepts and a separate strategy for more flagship locations.

LandScape Correlats with REI Customers

Today, Curt relies on both PopStats and LandScape to scout new territories for new stores and assess the status of existing stores. “Our process begins with segmenting our target markets using LandScape, so we can create our forecast models. It’s our critical first step because REI’s customer profiles are extremely segmented in comparison to most other retailers.”

“LandScape segments do an incredible job of correlating to our ideal customer segments,” said Curt. “In fact, the 72 segments’ correlations are so meaningful to REI that the company will ignore a lower population count in a market if it finds a large enough population of its ideal segments.

“LandScape allows us to perform a unique calculation to understand a market with different demographic qualities,” notes Curt. “That’s why it’s become one of the key building blocks in our models when we are researching trade areas where we don’t already have stores.”

Before applying LandScape data to its research, REI processed a year’s worth of transactional data — about one million records — including every sale and every return. It geo-tagged each data point. That showed them where members live, where members shop, and what they buy.

By mapping that data against the retailer’s dominant cluster data, REI was able to assign a score for all 72 segments in LandScape on the segments’ propensity to shop at REI. That allows the company to, simply stated, assign a score to any geographic area and gauge how likely REI is to be successful there. “It’s just as important to know all the segments that score low as to know all of the segments that score high.”

About 15 segments in LandScape deliver the highest probability of being REI customers. However, Curt stresses: “That doesn’t mean that we’ll only put stores where those consumers live. There are many other factors that we consider as well.”

Among the other factors, we are looking at alternative sites where there is no residential customer base. Instead, it’s a place that people travel to for outdoor recreation, like Conway, New Hampshire, and Dylan, Colorado. “Since we’re running out of standard places to open new stores, we’re expanding our search into alternative store locations and types,” explained Curt.

Applying Art and Sciene to Trade Area Analysis

After forecasting its customer segments, Curt moves onto trade area analysis, relying on PopStats to compile relevant data on each trade area’s demographic characteristics. “The purpose of this analysis is to determine if a strategically validated relationship exists between the site’s attributes and our ideal store performance.”

REI’s site analysis includes three typical scenarios:

1. Model Validation - In a normal trade area, “we track the prediction using variables such as trade area capture rates, sales per population, and total sales per household.”
2. Increase Forecase - Some markets need a manual boost in estimates for a variety of reason, such Burlington, Vermont. “Not surprisingly, REI’s capture rate is very high there,” noted Newsome. “Almost everyone is a potential customer. Plus, we get a bump from the local university.”
3. Decrease Forecast - If a market looks different demographically or has a lower population, Newsome will manually lower the forecast. “For example, in Salem, Oregon we decided to open a smaller store. Today, it’s a good steady performer.”

So how accurate is REI’s new market analysis processes? “We haven’t measured the raw model yet, but we’ve opened about 30 new stores using this methodology. We’ve only under predicted by about three percent of the time, which is great compared to the industry standard of 15 percent.”

Interestingly, in REI’s over 80-year history the company has rarely closed a store. But in 2015 the company closed its first one and has relocated a couple of stores since then. Newsome is so confident with his current research process that he says: “If we had the model we have now when he opened that now-closed store, we never would have opened it in the first place.”

Backed by trade area research it can trust, REI plans to continue opening new stores at a pace of anywhere from two to 12 per year.

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