Consultancy: Science in stores ousts guesswork: A Leeds-based company has brought an academic approach to business outlets

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The Independent Online
W H SMITH was considering opening a branch in Farnborough, Hampshire. The town looked an ideal candidate with the size of its population and the right demographic pattern. But the company was unsure about the potential impact on its stores in surrounding towns.

To measure that, it went to GMap, a geographic analysis and predictive modelling company based in Leeds.

Set up three years ago by a group of former academics from Leeds University, GMap claims to have a unique mathematical model that can predict sales in a given area. Running the Farnborough data through its model, GMap discovered that a W H Smith store in Farnborough, while successful in isolation, would take 40 per cent of its sales from existing Smith stores in nearby towns such as Godalming and Aldershot. The store opening was shelved.

'The risk of opening a new store or supermarket can mean an investment of several millions,' says Martin Clarke, GMap's managing director. 'What we do is improve the quality of that investment decision.'

Predictive sales forecasting is far from new. An American company, CACI, opened in Britain in the late 1970s and has a UK turnover of pounds 9m. Others in the sector include the Nottingham-based CCN and Pinpoint of London.

GMap's is different in its academic background and the sophistication of its mathematical model. The company was formed in 1990 after the two founders, Dr Clarke, a geographer, and Professor Alan Wilson, a mathematician, had spent 20 years researching mathematical models that explain how markets work. Their model uses census information about population but also takes into account the reasons people in a particular area decide to visit a certain store and the interaction between demand and supply.

The result, according to GMap, is greater accuracy in the sales forecasts. Dr Clarke expects to be able to forecast likely revenues for a new store, or for a branch of a bank or building society, to an accuracy level of plus or minus 10 per cent.

GMap (the name stands for Geographical Modelling and Planning) now has a turnover of pounds 2.5m and recently sold the US rights for its model for dollars 6m. The American buyer, R L Polk of Detroit, bought the rights after witnessing a system, developed by GMap for Ford in Britain, that can tell car manufacturers where to locate their dealerships so that they can maximise their market share and cause as much damage as possible to their competitors.

For larger companies such forecasts are becoming increasingly important. Small companies with 10 or 20 outlets could almost decide a store opening on the basis of an entrepreneurial hunch and a few calculations on the back of an envelope. But for major retailers such as Sainsbury, with over 300 stores, or W H Smith, which has 500 Smith stores plus the Our Price Records and Waterstone's book chains, location planning becomes a complex science.

As John Barrett, head of W H Smith's site development division comments: 'We used to look at the catchment population and its demographic profile but it wasn't as sophisticated as it might be. It relied very heavily on judgement and we didn't think that was adequate.'

The results using the model can be surprising. In Wimbledon, south-west London, W H Smith was able to open a branch of Waterstone's next door to a branch of Smith's which had opened only two months earlier. The two were found to be complementary.

The recession has sharpened minds too. As Dr Clarke says:'During the 1980s retailers could open virtually anywhere, now they can't'

Indeed, the recession has seen companies such as GMap and CACI spend more time helping companies to decide which stores they should close than where they might open. 'People are looking much more closely at their network,' says Mike Jennings, GMap's marketing director.

'They are not just looking at the sales figures and saying 'Right, that store is under-performing; let's close it'. They want to understand why some stores are doing better than others.'

Phil Durban, head of CACI's retail division agrees. 'Most companies are looking to cut costs but they want to make sure they cut them in the right way. They are asking whether it is the management of a store that is wrong, or whether it is the product on offer.'

But CACI sees better news on the economic horizon. While the rationalisation work continues, the number of inquiries about store opening programmes is increasing. 'We're beginning to see the turn,' Mr Durban says.

(Photograph omitted)