As part of its property and store development planning process, the client – a leading Southeast Asian retailer – needed to determine the optimal sizes for its hypermarket stores.
By comparing the marginal net profit from increased space with the marginal costs – such as rent and utilities – incurred through provision of the space, we were able to identify optimal store sizes at each location.
Adding additional value to our analysis, we also identified the optimal category mix to enhance the profitability of all space to be retained.
Our analysis provided scenarios both where space allocation decision-making is unrestricted and where decisions are constrained by the location of fixtures and other building features.
A range of conservative and aggressive scenarios were developed for senior leadership to incorporate into strategic planning.
Averaged across all stores, we found approximately 30 percent of existing floorspace could be removed. The combination of store size reduction and optimisation of category space allocations for the retained store floorspace amounted to a forecast profit opportunity of approximately SG$6m.