"There's no substitute for field work and no other way to find out about a market than to visit it," claims Larry E. Carlson, vice president of the company's Area Research & Planning. AR&P provides research and site analysis support for all new stores built by the company. Besides Dayton's and Hudson's department stores, these include Target discount stores, Branden's, Lechmere and Mervyn's stores.
Since a lot of analysts' time is involved visiting a market and surrounding community long before the decision is ever made to break ground and build, Carlson says his department is frequently referred to as “the first in and the first out.”
"We provide all front-end information from where to locate and how many stores to build, to sales estimates and total market strategies." From there it's the real estate people's responsibility to clear zoning requirements and negotiate with the developer. Then store planners and construction people figure out the store's placement and layout. Finally, preparations are made for its opening.
2 1/2 years ahead
"Typically, we are in the market looking at a store site 2 1/2 years ahead of the time the store actually opens," explains Carlson. "It's also typically the only time the department will deal with that site again, at least from a research standpoint."
Over the past 20 years since the research arm of the company went in-house - so as to build the quality of the staff, create a strong database and respond more quickly to management-over 600 stores have been built. In 1987, sales topped $10 billion.
Dayton-Hudson allocates a substantial portion of its capital budget to annually researching and planning new store sites. Market research, says Carlson, helps the company make "good business decisions" because "we can't go on instincts alone."
"We invest a significant amount of capital in each store we build. We simply can't afford to spend that much money without the facts."
The facts' the department uses before making such costly decisions are numerous and all necessary in achieving a profitable return on investment and to survive in the market over the long run.
From a local standpoint, the department uses the Twin Cities' area Metropolitan Council which gives population and growth characteristics, demographic and income data, as well as restrictions on sewer and water uses, and any transportation systems being planned.
Local planning departments of Minneapolis and St. Paul frequently conduct population studies of neighborhoods which show the growth potential of an area or its expansion demographically.
The Minneapolis Stat Tribune and the St. Paul Pioneer Press Dispatch, the Twin Cities' two largest newspapers, provide retailing information regarding what stores are in a market. Such information can tell AR&P what share of the market a discount store like Kmart may have, what kind of demographic group the store appeals to, what products they buy, and what kind of lifestyle is characteristic of this demographic group.
Other data AR&P uses are regional and national in scope. One source it subscribes to is an economic forecaster called "WEFA," Wharton Econometrics Forecasting Associates. WEFA provides an economic analysis and other information like incomes of people by region and how much they spend.
Geodemographic data
Like many other retail development firms, AR&P uses a geodemographic service provided by a target marketing company. CONQUEST, a database from Donnelley Marketing Information Services, Stamford, Conn., associates consumer demographics to Census tracts, block groups, zip codes and trade areas. The Donnelley system can also be merged with another database AR&P uses called VOS, the Vehicle Origin study from R.L. Polk & Co. By combining the demographic capabilities of Donnelley and the geographic services of Polk, AR&P can do mapping which management likes, says Carlson, because maps are easy to read and understand.
With the VOS survey, license plates can be matched to addresses and then clustered by zip code and census tract. A trade area can be defined and then individual addresses can be plotted in printed form.
AR&P has also developed an internal data file which records information on its own stores and competitors' stores. The system provides information on the trade area for all its stores as well as their sales data and growth. Competitors' trade area information is also available.
Competitor directories
In addition to this type of competitive information, AR&P subscribes to directories of their competitors' shopping centers, specialty stores and discount stores. AR&P analysts also routinely visit competitor store sites and "size" them to find out such things as what types of customers they're reaching, the stores' volume of traffic, and to estimate sales.
While part of AR&P's function used to involve consumer research, that function has over the past six to eight years been handled by two outside vendors, Campbell & Associates and Consumer Research Corp. Typically, these firms conduct exclusive studies on particular stores that request a study, for example, to find out how the customer base has changed, or to examine a store's service component. Once in awhile, AR&P needs consumer research to do some work, says Carlson.
"If we're going into a new market, we want to find out where people shop, or if a particular strategy will work, or to see if we're under-penetrating a certain market."
To find that out, the vendor will develop a demographic and lifestyle profile and plot the trade area and then match that profile with the profile of the shoppers in the area.
Another support function AR&P assumes, however far more limiting than site analysis support, is strategic planning. While the major responsibility of this function is left up to Dayton-Hudson's chairman, AR&P will assist the company in analyzing the size of a market, help decide whether it's feasible to go after it, and to advise in general on broad strategic planning issues.
The whole picture
Examining and forecasting long-term developments of a market are critical for Dayton-Hudson Corp. because millions of dollars are at stake. That's why it's important that its analysts understand more than a market's regional setting or physical environment. They must be attuned to the broader issues relating to a market's economy.
In the case of a city like Detroit, for example, the analysts must ask themselves, how volatile is its economy? What's going to happen to the auto industry and how will it affect the long-term scenario in terms of the city's income growth?
"We might spend hundreds of millions of dollars putting up stores in Detroit or other key markets," comments Carlson. "Without examining the economy and without the proper research support, we can't afford to invest."