Quality (time) over quantity: putting metrics to your pipeline
When timely deals can matter more than deal count
The tl;dr
Real estate team goals shouldn’t be solely focused on a store opening count
If the goal is actually to unlock new store sales, you can more easily exceed those goals by opening fewer stores earlier vs more stores later (and more capital efficiently)
Real estate teams should be focusing on sales weeks as much as new stores signed/opened
Finance teams should be discounting those sales weeks based on deal stages and probabilities
Download a simple Pipeline Summary template below, which includes a pipeline dashboard and basic calendar visualizations
Time is money
When you’re investing in cash generating assets, there are two elements of a business case to consider:
The general business case, agnostic to timing: is this an efficient use of capital?
The timing of cash flows for this particular investment: is now the right time to invest?
For example, you may have an amazing opportunity in hand for a store investment, but your company may not have the funds on-hand for another 6 months.
This complicates retail expansion strategies for startups with limited cash on hand, and who carefully plan each store’s overall investment across investment capital, inventory, and human capital: from the point of wanting to open a store to actually opening it, that timeline can range from 3 to 12+ months depending on a range of factors — many of which are external and uncontrollable (eg a city’s permit timing).
When you’re coordinating a sometimes years-long project on which you will be relying for cash flows, it’s imperative to (1) have an understanding of critical milestones, their durations, and their probabilities of reaching the finish line; (2) understand the timelines and how they might change over the course of the project; and (3) tie your team/company goals to those estimates.
Limiting your forecasting to store count/deals signed is not enough
Many brands forecast, model, and communicate new store opening (NSO) goals incorrectly. This is usually how it goes:
Finance team communicates a store opening goal, such as “5 new stores this year”
Real estate team (or whoever owns that output) simply chases 5 new stores
At various times throughout the year, the Finance team checks in to see if the Real Estate team is on target
The real estate team confirms (or doesn’t) but provides no quantifiable reason to support their response
That’s it. Sometimes the Finance team will ask “why can’t you do more,” and the real estate team doesn’t provide much of a timeline-centric response
This simplified forecasting and communication will likely lead to three things:
The real estate team is focused solely on a store count; quality of opportunities are less important than simply hitting the number
Hitting the store count number doesn’t mean you’ll hit the timing; you’ll still miss your sales goal
The Finance team will “sign you up” for more stores than you actually can/should do, because you didn’t push back with the right response
The store count itself is important, but the timing is even more so (if you’re focusing on next 12 months’ revenue). For example, I’d rather open 1 store in January than 2 stores in October: there are 12 months of selling for the 1 store vs 3 months of selling for 2 stores (or 6 months of selling total).
Real estate teams need to focus on maximizing “selling weeks”
If brands focus solely on the store count, they’re missing the importance of selling weeks, and the power of opening a store sooner vs opening multiple stores later.
Let’s start with a formula:
New store selling weeks = [end date of fiscal year - new store’s opening date] / 7
So if you opened a store on 6/30/23 and your outside date for the fiscal year is 12/31/23 (or 2/3/24 if you’re using the retail 454 calendar), then that would generate:
[12/31/23 - 6/30/23] / 7 = 26 selling weeks
OR
[12/31/23 - 2/3/24] / 7 = 31 selling weeks
If I’m responsible for driving growth with new stores, I like to track the overall sales weeks that I’m unlocking:
A simple view like this will give you a sense of the number of doors (which also represents the capital and other overheads required), AND the sales weeks (which represents the sales generated in the fiscal year).
Risk-adjusted pipelines
In the table above you’ll see how the pipeline sales weeks are trending, which is a great starting point. But you’ll need to risk-adjust the sales weeks based on some milestones that generally correlate with the probability of those dates coming to fruition. This is an important approach for two reasons:
When the Finance team needs an update on how likely it is the pipeline will come to fruition (for forecasting purposes)
When you back into how many deals across all deal stages (see below) you need in order to hit a certain sales weeks target
Let’s start with the milestones that tend to best reflect a change in probability:
Site ID’d: you’ve confirmed a space is available, and your estimated opening date is based on when you think you’ll get possession so you can start building it out. Generally the date is calculated as:
Opening Date = Possession Date (provided by landlord) + Buildout Period (provided by your construction team) + 2 weeks prep (as determined by your Store Ops team)
This is the lowest likelihood since it’s the furthest out and has made the least progress, so the sales weeks estimate needs to be taken with a big grain of salt. I like to discount these by 90% because you still don’t know if the landlord (a) is interested in doing a deal with you, or (b) if the asking rents and capital required to build the space are within your budget. Another way to think about this is that for every 10 opportunities you’ve identified, only one comes to fruition (usually as a result on passing on the other 9 for various reasons).LOI negotiations: at this stage, you’ve begun to negotiate. By now you’ll have a better sense of how likely the deal is to happen: your broker should be able to communicate how realistic it is that you’ll get the rents you need. If it’s unrealistic, then you should take the opportunity off the board.
At this stage, I like to discount the sales weeks by 50%. Thought another way, there is a 50% chance this deal happens; or for every 2 in LOI, only 1 comes to fruition (usually as a result of both parties not being able to reach an agreement on the economics).Lease negotiations: by now, both sides (landlord and tenant) are pretty committed to each other. The hardest part about deal negotiations (economics) is complete, and it’s mostly smaller, less important details that you’re negotiating that either party can live without. Both sides have engaged legal support and have begun collaborating on store design and have engaged other third parties — in other words, you’re both spending money in good faith that the deal will happen, even though the lease isn’t signed.
In most cases, deals won’t die in lease negotiations since both parties have started incurring costs and are committed to making it happen. You should have also firmed up possession dates and buildout timelines by now, and can update your timelines accordingly.
Even here, I still like to discount the sales weeks by up to 20%. There’s a chance that (a) the deal falls apart in final stages (rare but it happens), or (b) you run into last minute permitting or inspection issues. It’s always easier to push an opening date if you don’t end up eating into your “contingency” days, but it’s notably more difficult to pull an opening date forward by the same amount of days.
The discount on the sales weeks has less to do with the deal not happening (95-99% of deals will get signed if they make it to lease, in my experience), and more to do with the date itself.Lease signed: The lease is done, and the legal obligation is locked in. While you’ve eliminated the uncertainty of a deal getting done, you still have some risks associated with the buildout timeline. Permit timelines can be unpredictable, or you may run into a snag with final inspections or even filling out the store team. Vendors could hit snags on their ends, resulting in late shipments or deliveries on their ends too.
I still discount the sales weeks by up to 10% once the lease is signed. This buffer will (arbitrarily) shrink as construction milestones are passed (eg received the permit), and requires constant (ie weekly) communication with internal and external stakeholders as dates inevitably continue to shift.
Over time, you should have a better sense for what these probabilities look like for you. The way you negotiate may result in different figures that make more sense based on how you operate. For example, you may rush into LOIs and punt all major negotiations to the lease, in which case you probably want to discount the sales weeks by more than 20% at the Lease Negotiation stage since you’re going into it with fewer points pre-negotiated in the LOI.
With these milestones in mind, my more robust dashboard looks like the below (link included):
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