1. Not All Customers are Created Equally

Say you have 500 customer’s buy the same pair of shoes from your online store and you wanted to re-market to those customers to try and get them to buy your newest pair of shoes, which of those 500 or more likely to buy from you again?

There are a number of questions to be asked in order to help answer that question, here are just a few:

• Was there a sale during their last buy?
• Were they part of a group discount?
• Was it a limited edition buy?
• What is the customer’s past spending habits if they have purchased previously?

Going through these questions and many more will help you in your analysis of your customer and their spending behavior and we’d like to add two more questions to your list.

1. What is my customer’s current economic situation? (i.e. do they have a job/economic stability)
2. Which of my customer’s are willing to spend money today and which ones are still dealing with adverse affects of the housing and job crisis?

As we have learned since 2008, the housing market in addition to the job market has a huge impact on consumers spending behavior. Looking at housing and employment at an MSA or County level is not good enough, you need to drill down to the neighborhood level to get the real story, it’s a lot of work but in the end it will make a difference to your bottom line. Catalyst Analytics is here to help you answer these questions and more, learn about our services here.

2. Looks Can Be Deceiving

In the case of brick and mortar locations, just because you have 20 or 100 locations that demographically look alike does not mean that they will perform the same. Brokers, retailers and analysts spend hours looking at shopping center demographics in addition to to other analytics to give them insight as to the future performance of a retail location.

Over the past few decades, with rare pockets of exception, neighborhoods changed slowly. The average price of a dwelling unit within a neighborhood would rise and fall with periodic cycles and occasionally there would be an unfortunate foreclosure. If someone moved out, you had a pretty good idea about the household that would move in…particularly their income level. That paradigm is in the midst of significant change in many major and minor markets throughout the U.S.

Just because a demographic report tells you that the population and income levels fall within your acceptable parameters does not mean that the sales per square foot will be equal amongst locations, especially those existing locations where you last ran a report using pre-2008 data. Once you understand the new make-up and economic standing of the neighborhoods supporting your locations  you can adjust your marketing spend accordingly. Identify those neighborhoods who have survived the “great recession” and housing crisis, they are  more willing and able to spend money today! We can help you during this process, learn more here.

3.  Economic and Social Changes are Affecting Your Customer’s Spending Habits

For the most part, businesses within the last fifty years have heard about and focused on the “baby boomers” and their impact on our economy and our culture. Not undeservedly so, as the baby boomers have had more impact in the United States than any generation in the history of our country. However, the echo boomers (18-32 year olds) who numerically are just as large as the baby boomers, and their impact on the economy, are being largely ignored.

The baby boomers reached their peak spending and earning power within the past decade. Their late forties is when they achieved their highest salaries, and they spent the most money as their children matured and as their families grew to their max…McMansions were affordable because of low interest rates and the ability to buy them.

Things are changing radically for the baby boomers. They don’t need the McMansions anymore. Forget the ability to buy them. Today baby boomers are looking toward retirement…looking to downsize, looking to save… and in many cases they are looking to economically help their echo boomer children, survive these difficult economic times. When have you seen so many “children” living at home?

We have a perfect storm. The echo boomers are in the stage of life where their earning and spending power is not at the height it will be in twenty years. At the same time, we have the baby boomers coming out of their highest earning and spending power years and refocusing their consumer attitude on their retirement and savings.

Understand the Make-Up of Your Customers

• Economically challenged households are being replaced by larger, financially stable households in many neighborhoods
• Baby Boomers have moved out of their peak earning/spending years and are focused on retirement
• Generation X will boost their earning and spending capacity over the next 10 years
• Mobile households (renters, Echo Boomers, Singles, etc…) are moving to smaller communities with diversified, stable, employment opportunities

Once you recognize the significant economic and social changes affecting your customer base your immediate next step should be to understand the make-up by age of your customers and adjust your marketing efforts accordingly. Understand that the services and prices that you market to Baby Boomers should be different than Echo Boomers and Gen Xers as they are all at different stages of life! If you need assistance measuring the make-up of your customers contact us and we’ll help.

As we continue to emphasize, the problem in housing is demand related. Despite all hope to the contrary, this problem is not going away.

Until the unemployment problem is solved with significant job creation, U.S. demand-supply imbalance will drive home prices down further across the U.S.

Low interest rates do not solve the problem.

The ability to qualify for and obtain the loans necessary to absorb excess housing supply in the U.S. requires:

1. A job with stable income;

2. An acceptable credit score to insure against risk of future default; and

3. A down payment of cash to mitigate risk in the case of future default.

The arithmetic is simple, but sadly, not enough Americans have the above three basic requirements. The number of Americans that are CAPABLE of purchasing a home (set aside willing for the moment) is nowhere near close enough to absorb the current, let alone increasing, inventory of homes that will continue to mount into 2011-12 as we projected in the July 2010 Catalyst Quarterly. Get your copy here.

The result: HOME PRICES WILL CONTINUE TO FALL ACROSS THE U.S. THROUGH 2011-12.

If you need to sell your home in the next 24 months, and you can, SELL NOW, with the exception of a few markets.

The Mortgage Bankers Association recently articulated the problem well:

“The disappointing news is that after declining since the beginning of 2009, the rate of short term delinquencies is going up, and the increase in these short term delinquencies may ultimately drive the foreclosure measures back up. The percent of loans one payment behind had peaked in the first quarter of 2009 at 3.7% and fell to 3.31% by the end of 2009. Unfortunately that rate has now risen to 3.51% (Qtr. 2, 2010.) The causes are likely two-fold; first, this increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years has become delinquent again because those borrowers by definition have weak credit.”

The Association further declared, “Ultimately the housing story, whether it is delinquencies, home sales or housing starts, is an employment story. Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers. Until we see the increase in the number of households that comes with the increase in the number of paychecks, all measures of the health of the housing industry will continue to be weak.”

We at Catalyst Analytics only disagree on “all measures will continue to be weak.” The supply side of starts is not governed by demand, as history has proved. Seasonal optimism, balance sheet demands to chew through land, and the ability to take advantage of “seize the day” subsidies by the federal government can drive starts, particularly for large public builders with cash.  Sales can be subsidized by utilizing reduced land assets written down for tax advantage in prior years. U.S. housing starts in 2010 would be more abysmal without large public builder construction on written down finished lots.

It is the land underneath the U.S. housing stock that is deflating. It will continue to deflate. Home price appreciation will only occur in the few U.S. markets where there is solid job growth and no significant inventory of discounted developed lots left.

Want to buy a public builder housing stock for the short term? Buy a company with operations concentrated in these few markets, under these temporary conditions!

Banks/lenders initially focused on foreclosure moratoriums for borrowers who would ultimately default as prices continued to drop, unemployment stayed high, and the ability to pay, let alone pay DOWN monthly household debt remained constrained.

Today there is a huge backlog of “underwater” homes that have been “pushed forward” with loan amendment/extensions where possible. In some cases, banks are accommodating live free but pay the utilities lifestyle.

There is no hope to accomplish a sale at current the house price held on the banks balance sheet. For many who can’t amend or extend their loan it will cost the banks less to let delinquent owners “squat” than to foreclose, resell, and take a price loss. It’s better to have someone not pay the mortgage but pay the utilities and maintain the property.

Not many were amending or extending loans in the start of the housing crisis, despite STRONG encouragement from the government. REMEMBER?

Time for the white hat…“Mr. Homeowner, how would you like to continue to pay us money on a home that isn’t going to be worth your monthly payment (albeit reduced)? Forget the fact that you can rent a nicer one for less. You were dumb enough to take out the mortgage originally; surely you’ll go for this terrific extension. An opportunity to pay even more money into a devaluing asset we really own!” Thanks for nothing, guys.

The new problem, partially created by the banks not dealing with this MUCH EARLIER when there was more political will for government partnership, is that the desperate American mortgagee has become “street smart” over the past two years. Desperate people do desperate things.

Many homeowners are taking a lesson from the banks….they are pretending they don’t really have a mortgage.

In many cases, the banks are pretending along with them. Are the banks in denial? Absolutely not. Are they just overloaded? Ever had a bank not call you on a small overdue amount of credit card debt?

Right or wrong, the “take the pain” and “pay down the deficit” political will has momentum… the huge  targeted fiscal stimulus needed for immediate job creation the country desperately needs ain’t happening. Continuing housing price drops will be the barometer of bad economic news. The problem goes deep. This is an economic downturn created by massive loss of private wealth. It is a crisis of debt/solvency. The American private sector continues to deleverage….pay down debt. We are battling deflation.

The second round of Quantitative Easing may be successful at keeping interest rates low for a time, and some new jobs may be created related to a devalued dollar, but QE2 will not create the private wealth necessary to solve the requirement of number 3 listed at the beginning of this article….DOWNPAYMENT.

This is the critical problem in the next wave of 2011/2012 foreclosures. Unlike the first wave, (which was concentrated in lower end home subprime loans) the next wave of option ARM, jumbo, and alt A loans foreclosures will be in the higher price ranges.

Bottom line: house prices will continue to drop into 2011/2012, with the exception of the few market types mentioned above.

Local housing trends have an impact on your business in 2011-12. What’s your next step?

Remember: “30 –day delinquencies are very closely tied to first time claims for unemployment insurance. The number of first-time claims fell through most of 2009, but leveled off in 2010; and have started to rise again. The increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years has become delinquent again because those borrowers by definition have weak credit.”

Your immediate next step should be to measure the unemployment rates, mortgage foreclosure risk and housing trends (sales price, volume, price per square foot) directly around your business locations. If your concerns lead you to confront a major decision on a business location order our 3L Score report for the particular address you are considering.

Opening a new location or shutting down an underperforming one is a major decision. Use solid information to inform your assessment.

Doctor Gordon Giesbrecht, director of the Laboratory for Exercise and Environmental Medicine at the University of Manitoba in Winnipeg, wants to dispel the myth that hypothermia kills quickly. “If you think you have just minutes to live, you tend to panic and then you do things that are more likely to bring about a negative result.” 95 percent of those who perish in cold water aren’t actually hypothermic, he says. Their body temperatures turn out to be almost normal. Cold doesn’t kill them. It’s the terror that leads to drowning and heart attacks.

What to do? Dr. Giesbrecht recommends a straightforward 1-10-1 system: One minute to get breathing under control, 10 minutes after that for meaningful movement, and one hour after that before you lose consciousness. “Survive the first minute,” Giesbrecht says, “and you’re on your way to saving your life.” The most immediate danger comes from what’s called the “cold shock” in the first minute. This includes a gasp reflex followed by uncontrolled breathing known as hyperventilation. As one gasps for air you inhale in freezing water, making it very difficult to coordinate your swimming. Your first goal is to fight your panic and get control of your breathing. Do that within the first minute. Stay calm. Next, you’ve got ten minutes to move. Swim to safety or the safest spot you can find and crawl out of the water. After ten minutes, your muscles and nerve fibers get so cold that they don’t function anymore. If you’re running out of time and can’t climb out of the water, attempt to position your wet arms so that they will freeze on to the ice so that when you lose consciousness you won’t sink into the water. After that you’ve got about one hour before you lose consciousness.

Watch the video below to learn about Catalyst Analytics and the 3L Score!

Get Your 3L Score Today!

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Below are 9 questions and answers regarding the practical application, use and understanding of the 3L Score.

1) Which of the 3L Score components is the most important to focus on?

Answer – It depends on your specific business or service. Start by looking at each 3L Score Category and number them in terms of most to least important in your decision making priorities. If you sell electronics/IT- Highest Echo Boomer %’s and Willingness to Spend scores may be your best sights. If you are investing in apartments or buying houses to rent, high Stability Strength scores are critical to find a good location. An area that could change significantly in the next few years is not a place to invest in a piece of collateral that you may own for 20-30 years.

Focus on your 2nd and 3^rd highest ranking score components. This way when you evaluate multiple sites and the top scores in your 1^st priority (for example, Total Population) are equal or close, you can make the best decision by comparing your 2^nd and 3^rd most important factors. This should be the best location for your business. Decision making made easy!

2) What is the difference between the “Daytime Employment” & “Residential Occupation Make-up components of the 3L Score?”

Answer – The “Daytime Employment” factor measures the number of workers commuting to a specific job located in your 3L Score area. The “Residential Occupation Make-up” is a measure of those actually living within your score area. They may be employed in your 3L Score area or commute to work outside your area, but all reside in your area.

3) I am deciding between two tenants who want to lease the same space from me. Can the 3L Score help me decide which applicant is less likely to default under the terms of the lease? How?

Answer – Yes. Look at the products they are selling and think of the customer profiles that are the primary buyers from each business. Given the makeup of consumers that surround your address, which has better chance of success? Look at each of the individual 3L Score components. For example, if the blue collar population is very high and the white collar make-up is very low, you would probably choose select a burger joint over a sushi restaurant as a tenant. You don’t want a tenant that goes upside down, or might struggle and default on their lease. Watch out for “pioneers” that are hoping to create a market where there isn’t one.

4) How come housing prices are not one of the components of the 3L Score?

Answer – Actually housing supply and demand, including recent number of sales, and different measures of local housing value, with particular emphasis in our algorithms on change, including price per square foot, median price, and average price are a huge component of our work. The algorithms also include mathematical functions that correlate local performance to performance within the broader marketplace outside your score area as well.

5) The whole focus of the 3L Score is local. You seem to emphasize specific local conditions over national economic indicators or the demographic/economic measurements of regional, state, or even the county I’m located in. Why?  

Answer – Simply put, every business or service transaction happens at a specific address with a customer that lives or works in fairly close proximity to the location. What is the relevance to you and your business or service of the consumer make-up, spending ability, potential to change, etc. of individuals located in other parts of the United States, your own state, or too far a drive from you in your own county? Use your local 3L Score to understand the customers that surround YOU.

6) Poverty is defined as income of $25,000 or less? This does not seem like poverty to me based on the incomes of some of my customers.

Answer – Keep in mind that the income component of the 3L Score references household income. For example, 3 echo boomers making $15,000 per year and sharing an apartment have a combined household income of $45,000. One reason most housing markets won’t “recover” in the near future is that Americans have discovered that low income goes a lot further when it is “pooled,” or consolidated under one roof.

7) Why are the age cohort make-ups surrounding a business address important to understand?

Answer - Do you know your product and who buys it? To illustrate the point: If you were selecting a site for a shoe store catering to baby/toddler/preschool age children, you would probably choose (all other 3L measurements being equal), the area highest in Generation X population. Why? They have the highest percentage of children in this age range of all the age cohorts, and generally higher incomes than any echo boomers that might marry early and have babies. If your store was a toy store targeted to the same age range of children, and you had two sites to choose from where all measurements were fairly equal including the number in the Generation X age cohort, you probably would pick the site highest in Baby Boomers and the Bob Hope Generation. Grandparents are big toy buyers!

8)  The “Willingness to Spend” part of my 3L Score is 48 (“economic survival is a priority”) yet my “Stability Strength Score” is 73 (“Stable”). Is this a contradiction?

Answer – No, not necessarily. It may mean, however, that you need to refocus your product mix to more “bang for the buck” value propositions.

9) How do I know the proprietary algorithms used by Catalyst Analytics produce accurate data?

Answer – Our team has invested thousands of hours and significant “blood, sweat, and tears” in the intelligent creation of tools that will assist our clients in making better decisions in less time.

Following our long and intense collaborative work to develop a specific algorithm, we test it out in the “real world” in order to evaluate the effectiveness of the algorithm. Sometimes we found that one of the key premises of the algorithm was mathematically correct, but was not accurately reflecting real world conditions. Accordingly, we adjusted the algorithm as appropriate by altering the weight given to specific variables, and added or deleted variables until the algorithm was reflective of real world conditions. It is vital to Catalyst Analytics that our customers have precise and correct data at their fingertips, and our people love this process!

The definitions of each of our algorithms is comprised of complex and specific sets of rules and functions that define a sequence of mathematical operations, which are then used by our programmers and applied to multiple fresh sources of input data for each individual 3L Score search to ensure practical measurements and predictions of socio/economic behavior in the surrounding area

For example, in our “Willingness to Spend” algorithm, four components of Inflation/Deflation are just part of what is included:

1)      Demand for goods

2)      Demand for money

3)      Supply of goods

4)      Supply of Money

Each component has a related set of developed rules (calculations) that are weighted and specifically applied to local area data input and output for households regarding each one of the above 4 components. There are further calculations that go through the processes described above in developing the algorithms applied in the 3L Score.

Get Your 3L Score Today!

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Reduce Your Risk, Eliminate Bad Locations

Now that we have explained to you “Moneyball” and have shown you a demonstration of the 3L Score it’s time to put our service to use in a real life situation.

Scott and Gina Smith are the owners of a InkWrap from Lake Havasu, AZ. They are the makers of auto, boat, RV, off-road vehicle wrap graphics using premium vinyl wrap material. They create premium, high resolution consumer wraps for car and truck owners, and premium commercial wraps and fleet graphics for the the advertising and outdoor promotions industries.

Scott and Gina have decided that it’s time to start evaluating the possibility of opening a second retail location and are thinking of looking at Las Vegas as a possible destination. They have allowed us to assist them during their initial research stage.

InkWrap – It’s not a wrap, until its and InkWrap!

Current Address:
501 N Lake Havasu Ave Ste 106
Lake Havasu City, AZ 86403

Phone – 928-846-5148

Website – www.inkwrap.com

Email – inkwrap@me.com

Average Customer:
Business Owner, Age 28-50, College Degree

Our business is generated from a combination of “Small Town” word of mouth, local advertising, combined with a high traffic location.

Prices:
We are competitive, but on the higher end, we sell our quality and design.

Space Requirements for Las Vegas: 1,000 to 1,500 SF of retail space in either a Neighborhood or Community center. Ideally this new location would have a drugstore or grocery store as the main anchor tenant and have a high daytime employment population.

The Real Estate Challenge

Like many small business owners who are in their initial research stages, Scott and Gina are not working with a commercial real estate broker and instead are using many of the free services available online to start their search. Using the free Loopnet search they have determined that there are approximately 59 locations currently available on the market matching their search criteria (1,000-1,500 SF retail space in a community or neighborhood center.)  Scott and Gina would like to narrow their search results down to 10 to 15 locations before scheduling a visit to Las Vegas.

Step 1 – Reduce Your Risk, Eliminate Bad Locations

A common fear amongst many business owners in today’s economic environment is that they opened their business in the wrong location. We’ll recall an excerpt from our previous blog post titled “Retail Business Planning” (read the full article here):

“Although a great location may not guarantee success, a bad location will almost always guarantee failure. A new retail business needs to be where the customers are. You want a location with a reasonable degree of security, access to public transportation for your customers and employees, adequate parking for commercial as well as personal vehicles, room for an office, and that all-important sales space. Where you locate will determine the hours you keep, who your clientele is, and what types of promotions you do. Also, where you set up shop will impact how long it will take you to grow. Luckily, you have lots of options.”

In terms of reducing risk, the first step that Scott and Gina need to take is to eliminate perceived “bad locations” from their search results. With the assistance of the Stability Strength Score as discussed in Part 2 of “Moneyball” and Real Estate we can quickly evaluate all of the locations in our search results. Scott and Gina have determined that any location with a Stability Strength Score that is 55  or lower (40-55=Unstable, 40 or below = Very Unstable, download the 3L Score Dictionary) should immediately be eliminated.

Here are the properties that will be eliminated from our search results (click on the image to see a larger version):

The process discussed above allowed us to eliminate 20 of the 59 properties in our search results, leaving us with 39 to still go through.

Step 2 – Are your customers willing and able to spend money today?

Imagine your own neighborhood and the local geographies your friends live in. What you experience and what you see and hear about those around you impacts how you think of the future and influence your spending decisions today.

Perhaps, many of the homes in your neighborhood are “underwater,” and those that are selling are often sold at a loss. There are noticeably more “For Sale” signs standing in yards waiting for a viable offer. You now see vacant homes­ in your neighborhood, and maybe more in the neighborhoods around you. Compared to last year, maybe more of your neighbors have either lost their job or have had their wages and hours cut. Your closest friend, like you, is bringing more work home on her computer at night, but not getting paid more. She calls it “job insurance.” She’s worried because hardworking capable friends can’t find work, and they are looking. You hear numerous similar anecdotal stories at local school sports events, cocktail parties, church and other places.

Wouldn’t an environment like that affect your willingness to part with your cash? Would this type of environment cause you to “splurge” less and save more when possible? Would it cause you to grace the doors of discount/value stores with a new mentality and check menu prices more closely when eating out? If you haven’t experienced this, good for you. But your customers might be going through it right now.

Taking this into consideration Scott and Gina have decided that the Willingness To Spend Score for each location that they are evaluating needs to be greater than 40 (for reference download the 3L Score Dictionary). (click on the image to see a larger version)

This process has left Scott and Gina with 27 properties to review.

Step 3 – Be Picky, Find the Right Location for Your Business

Thanks to the filtering process the 3L Score Scott and Gina have the ability to be even more specific in their requirements allowing them to eliminate riskier locations so that they can focus their time and efforts on locations that will potentially bear the most fruit.

During their research process it was decided that Scott and Gina could be more selective and they decided that they would like their final set of potential locations to have a Stability Strength Score of at least 65 and Willingness to Spend Score of at least 40 leaving them with the following 11 locations to consider. (click on the image to see a larger version)

While the 3L Score does not guarantee business success at whichever location Scott and Gina may choose in the future, they can feel comfortable knowing that they have eliminated the riskier locations from their search allowing them to focus on better opportunities.

Interested in learning more? Visit our website http://www.catalystanalytics.com/retail-restaurant/ and register for a Free Trial or give us a call at 888-600-2370.

* Note – Scott and Gina have not made any formal decisions regarding the expansion of their InkWrap brand into Las Vegas or any other market for that matter. This exercise is to be used as an example for the purposes of showing the practical business use of the 3L Score. We thank Scott and Gina for their time and for allowing us to use their brand InkWrap in our example.

In case you missed part 1 click here.

Now that we understand “Moneyball,” the next part is to examine how the concept of using statistics and mathematical algorithms comes in to play when evaluating retail real estate locations. As businesses assess the impact of the “great recession” and position themselves for future growth, having a grasp of the changes to their local market(s) will help them achieve their goals. We have developed a new market research program called the 3L Score that is designed to be a barometer of the the economic stability and consumer spending mentality of the neighborhoods surrounding any address in the United States.

What is the 3L Score?

The 3L Score is not an annually updated data base printout that you’ll look at with a blank stare. It is an up-to-date custom designed snapshot of the condition and make-up of the customers supporting your current or future business location. The information relied upon for the 3L Score is comprised of last completed quarter and current month data. Often the information is only days old. The 3L Score allows for quick decisions and shaves off hours of precious time you will spend analyzing a location.

Quickly evaluate and score any business location in the United States. Immediately recognize the big differences between locations and get insight to recent significant business changes you have experienced based upon the changing consumer. Your location hasn’t changed, your product mix hasn’t changed, but your customer base may have significantly changed from what you knew it to be 2 years ago, 6 months ago, or even one quarter ago.

The 3L Score contains 2 unique scores within each report, the Stability Strength Score and the Willingness to Spend Score. These scores, when combined with demographic information such as population, daytime employment, household income and age will give you a clear picture of the neighborhood make-up and mentality surrounding every location.

Stability Strength Score

The Stability Strength Score reflects the likelihood of future change to household make up, household formation patterns, and the probability of the consumers surrounding your address changing in the foreseeable future. It reflects the future stability of the local economy given what is known today, and also assesses the relative strength of an area to withstand an economic hit.

Catalyst Analytics’ proprietary algorithm measures the general ability of an area’s residential households to withstand shocks to possible employment/income changes from the local and national economic environment. It reflects the very stability of the geographic area itself, in terms of income, employment, and the strength of the average household’s ABILITY to be there and remain.

Willingness to Spend Score

Imagine your own neighborhood and the local geographies your friends live in. What you experience and what you see and hear about those around you impacts how you think of the future and influences your spending decisions today.

The Willingness to Spend Score quantifies your area’s qualitative household attitude toward spending disposable income on a scale of 0 to 100. The lower the score the more cautious the local households attitude to parting with their money. A score of zero (0) would equate to “survival desperation- hoarding all cash possible,” whereas, a score of 100 would equate to “will splurge to reward hard work or goal achievement.”

View a 3L Score Demo below:

In Part 3 of “Moneyball” and Real Estate we’ll put the 3L Score to work as it helps Scott and Gina Smith of Inkwrap in Lake Havasu, AZ decide which retail locations to visit as they look to expand their business to Las Vegas. Click here for Part 3.

Moneyball: The Art of Winning an Unfair Game is a book by Michael Lewis, published in 2003, about the Oakland Athletics baseball team and its general manager Billy Beane. Its focus is the team’s modernized, analytical, sabermetric approach to assembling a competitive baseball team, despite Oakland’s disadvantaged revenue situation. A film based on the book starring Brad Pitt and Jonah Hill opened September 23, 2011.

Synopsis of Moneyball: The Art of Winning an Unfair Game

The central premise of Moneyball is that the collected wisdom of baseball insiders (including players, managers, coaches, scouts, and the front office) over the past century is subjective and often flawed. Statistics such as stolen bases, runs batted in, and batting average, typically used to gauge players, are relics of a 19th century view of the game and the statistics that were available at the time. The book argues that the Oakland A’s’ front office took advantage of more empirical gauges of player performance to field a team that could compete successfully against richer competitors in Major League Baseball.

Rigorous statistical analysis had demonstrated that on-base percentage and slugging percentage are better indicators of offensive success, and the A’s became convinced that these qualities were cheaper to obtain on the open market than more historically valued qualities such as speed and contact. These observations often flew in the face of conventional baseball wisdom and the beliefs of many baseball scouts and executives.

By re-evaluating the strategies that produce wins on the field, the 2002 Athletics, with approximately $41 million in salary, were competitive with larger market teams such as the New York Yankees, who spent over $125 million in payroll that same season. Because of the team’s smaller revenues, Oakland is forced to find players undervalued by the market, and their system for finding value in undervalued players has proven itself thus far. Read the rest here

“Moneyball” and Real Estate

Similar to the discoveries made by Billy Beane and the Oakland A’s, we at Catalyst Analytics believe that there is a need to re-evaluate the process of site selection for retail real estate.

Retailers and restaurant owners/managers around the world use detailed customer intelligence for strategic real estate leasing and acquisition planning, new market expansion, franchise development, and marketing strategies and tactics – including product mix, pricing, promotion and advertising tailored to each of their locations. A common misconception by outsiders is that the key to retail success is “location, location, location.” The real key is recognizing that it’s not the real estate itself, but rather the make-up and spending mentality of the consumers surrounding the real estate, (including daytime employees) that will determine success or failure.

Find success in new/different retail locations

It has taken time, but most businesspeople in the U.S. have come to recognize that this “economic recovery” is very different from those in past decades. We have had major structural change that will last for years.

If your current decision making tools utilize annually updated database printouts with no means to interpret the major structural changes that have occurred within the U.S. economy since the upheavals of 2008, you may be in trouble. Your location hasn’t changed, your product mix hasn’t changed, but your customer base may have significantly changed from what you knew it to be 2 years ago, 6 months ago, or even one quarter ago. Significant structural changes have occurred in the U.S. and Global economy since 2008, changing not only who your customer is but also how and when they part with their disposable income.

To give you an brief example of a few of the changes that we are talking, about we recommend that you watch the video below about Echo Boomers and Baby Boomers.

Continue reading “Moneyball” and Real Estate and see how we use the 3L Score to help a small business owner find the best location for their growing business. Click here for part 2.

If you are planning on starting your own retail business in the near future, the selection of the right location for your business is vital to your success.

Below is an excerpt from “How to Start a Retail Business” posted Entrepreneur.com in 2007 regarding finding a location, read the full article here

“Although a great location may not guarantee success, a bad location will almost always guarantee failure. A new retail business needs to be where the customers are. You want a location with a reasonable degree of security, access to public transportation for your customers and employees, adequate parking for commercial as well as personal vehicles, room for an office, and that all-important sales space. Where you locate will determine the hours you keep, who your clientele is, and what types of promotions you do. Also, where you set up shop will impact how long it will take you to grow. Luckily, you have lots of options.



The Homebased Retailer

Despite the benefits of running a business from home–low overhead, no commute, and technology options that make it easy to project a professional image–a retail business is one of the few businesses that is difficult to run from home. This is largely due to a conflict between needing customers to come to your place of business and the penalties of having a stream of clients visiting your home. Most residential zoning excludes retail, so your neighbors can report you to city or county officials if your business creates noticeable traffic, noise or parking problems. Some communities prohibit commercial vehicles or cars and trucks with signs on them from parking on the street.


One option for retailers who want to work out of their living room is to sell their goods and services from booths or tables at craft fairs, in cooperative booth space at emporiums or expositions, by mail order, or at flea markets. You can also sell retail on the internet.



Commercial Locations

The best retail location combines visibility, affordability and lease terms you can live with. Brick-and-mortar retailers need to be where the action is, so deciding where to put your business is every bit as important as the business you decide to go into.


Take the time to analyze the areas that appeal to you. There are three phases of choosing a location for your retail business: selection of a city, choice of an area or type of location within a city, and identification of a specific site.


In choosing a city, investigate these main factors:

• Size of the city’s trading area
• Population and population trends
• Total purchasing power and who has it
• Total retail trade potential for different lines of trade
• Number and size of competition
• Quality and aggressiveness of competition



Once you have a general idea of what city you like, choose an area or type of location within a city by evaluating these:

• Customer attraction power
• The nature of competition
• Availability of access routes to the stores
• Zoning regulations
• Geographic direction of the city’s expansion
• General appearance of the area
• Sales and traffic growth prospects of the trade area
• Demographics of neighborhoods



These are factors in narrowing down your site choices:

• Traffic flow
• Complementary nature of neighboring stores
• Adequacy of parking
• Vulnerability to competition
• Cost of the site”



Catalyst Analytics has created a tool called the 3L Score that will assist you during your retail business planning process. The report is easy to read and understand and we can measure any location in the United States. Look at the demo video below and don’t hesitate to contact us with any questions.

Just like you, the team at Catalyst Analytics is ready for some football. As the NFL season begins we thought that we’d pass along this article to you.

NFL season jumpstarts the economy

By ELLEN GIBSON – AP Business Writers,PAUL WISEMAN – AP Business Writers

NEW YORK (AP) — When the NFL and players struck a deal to end the league’s lockout, they didn’t just save the football season that begins its first full day of games on Sunday. They saved the most profitable sport in America, the most popular show on TV and billions of dollars that would have disappeared from the economy.



During the regular season, the National Football League itself expects to take in about $9.5 billion. The league estimates that sponsorship revenue alone, which is included in that figure, will be up 15 percent from last year.

But the impact of the 10-year labor agreement the league reached in July to end a four-mouth lockout reaches far beyond the NFL’s big corporate sponsors, billionaire owners and millionaire players. The league supports about 110,000 jobs in NFL cities— not just tailbacks and punters but hotel workers and sports-bar owners. Overall, the games add about $5 billion to the broader economy in NFL cities, according to an analysis prepared for the NFL Players Association by Edgeworth Economics.

Now, NFL cities, fans, advertisers, restaurants and bars are preparing for the seasonal economic windfall that comes with the football season.

“It’s the game we most care about,” said Rick Burton, a sports marketing professor at Syracuse University. “The largest number of Americans would probably say they have some level of affinity or passion for NFL football.”

Here’s a look at some of the economic ripples:

To continue reading “NFL season jumpstarts the economy” click here

What are demographics?

According to Wikipedia: “Demographics are the statistical characteristics of a population. These types of data are used widely in sociology (and especially in the subfield of demography), public policy, and marketing. Commonly examined demographics include gender, race, age, disabilities, mobility, home ownership, employment status, and even location. Demographic trends describe the changes in demographics in a population over time (for example, the average age of a population may increase or decrease over time). Both distributions and trends of values within a demographic variable are of interest.”


How should you approach reading a demographic report?

1. Get the right demographic report.

If you are looking at retail space you need to determine what type of shopping center the space is it located in? Are you looking at a mall, freestanding retail, a strip center, neighborhood center, community center, lifestyle center or power center?

Understanding what type of center you are looking at will help you determine the associated trade area for that particular location. Having access to a report with 1, 3, and 5 mile demographics may be useful if you are looking at a strip center, but if your space is in a Power Center the trade area can go out as far as 10 Miles. According to the International Council of Shopping Centers (ICSC http://www.icsc.org) the trade areas for each center are as follows:

Strip Center – <1 Mile

Neighborhood Center – 3 Miles

Community Center – 3-6 Miles

Lifestyle Center – 8-12 Miles

Power Center – 5-10 Miles

Theme/Festival Center – 25-75 Miles

Outlet Center – 25-75 Miles

Regional Mall – 5-15 Miles

Super Regional Mall – 5-25 Mile

For your records you can download the full report here ICSC Shopping Center Definitions

2. Read the right demographic numbers.

Now that we know what the trade areas for each shopping center type are, the next step is to examine the numbers that make up your marketplace.  A typical demographic report shows you the total demographic numbers of the concentric circles around your subject property.

From Wikipedia -“Concentric objects share the same center, axis or origin with one inside the other. Circles, tubes, cylindrical shafts, disks, and spheres may be concentric to one another. Concentric objects generally have different radii, as concentric objects with the same radius are equal. One of the most familiar examples of concentric circles are the evenly spaced circles of a target used in target archery or firearms, and accordingly any concentric design may be called a “target” or a “bullseye” (after the center).”

While knowing the data associated with each radius circle is helpful, what you should really pay attention to is each radius ring (i.e. the difference between the total 3 mile radius and the total 1 mile radius) as it will give a better picture of who surrounds your business location and how far away they are from you.  To get your “radius ring” take the information from your demographic report and put it into excel then subtract the 3 Mile radius from the 1 Mile radius and the 5 Mile Radius from the 3 Mile Radius. This process will leave you with a 1 Mile radius and 3 Mile and 5 Mile rings. Thus giving you a better picture of the potential customers who are out there and how far they are away from your business location.

3. Weight your radius rings appropriately.

Ask yourself this, where do you really get your customers from? Now that we have taken the extra step and are looking at our radius rings, we now need to give each potential customer base the property weighting as to where we think our customers will come from.  As a starting point we’ll once again look at the ICSC definitions for each shopping center and their trade areas. According to ICSC each primary trade area is the area where 60-80% of the center’s sales originate (ICSC Shopping Center Definitions).  So what you have to decide now is how do you weight each trade area? For a strip center does 70% of your business come from a 1 mile radius while the additional 30% comes from the outlying 3 mile ring? Or is it more of an 80/20 split? Once you know this information you’ll start the process of narrowing down who actually makes up your potential customer base.

Strip Center – <1 Mile

Neighborhood Center – 3 Miles

Community Center – 3-6 Miles

Lifestyle Center – 8-12 Miles

Power Center – 5-10 Miles

Theme/Festival Center – 25-75 Miles

Outlet Center – 25-75 Miles

Regional Mall – 5-15 Miles

Super Regional Mall – 5-25 Miles

4. Age is not just a number.

It is critical to understand the dominant age cohort surrounding your address and weight your product mix, promotions, advertising, and overall marketing strategy to their desires and ability to consume your service and/or product. At the same time there may be a minority (smaller in relative size) age cohort that no other business/service is addressing in your market area that is wide open for you.

Having a clear understanding of “who” lives around your business locations will give you great insight into the spending mentality and patterns of your customer base. For the most part, businesses within the last fifty years have heard about and focused on the baby boomers and their impact on our economy and our culture. Not undeservedly so, as the baby boomers have had more impact in the United States than any generation in the history of our country. However, the echo boomers (18-34 year olds) who numerically are just as large as the baby boomers, and their impact on the economy, are being largely ignored.

The baby boomers reached their peak spending and earning power within the past decade. Their late forties is when they achieved their highest salaries, and they spent the most money as their children matured and as their families grew to their max…McMansions were affordable because of low interest rates and the ability to buy them. Today baby boomers are looking toward retirement-looking to downsize, looking to save- and in many cases they are looking to economically help their echo boomer children, survive these difficult economic times. When have you seen so many “children” living at home?

Read more about echo boomers and baby boomers here.

5. You can’t spend money if you don’t have a job.

What is the job situation around your business and why types of jobs do your potential customers have? The current unemployment rate as reported by the BLS (Bureau of Labor Statistics) is 9.1% for the U.S.

6. On a scale of 1-100, how economically stable is the area around your business?

How do you prepare for the future? If your customer base is economically stable today, it means that they have already survived the “great recession” and are poised to be stable for the foreseeable future. The 3L Score takes the most important economic information (employment, household growth, housing performance, income, population, etc…) and uses that information to rank the current economic stability of the neighborhoods surrounding any retail location on a scale of 1-100 utilizing a proprietary algorithm developed by our team.

The algorithm includes and incorporates the following three major factors of possible change:

1) Household income;

2) Household employment make-up; and

3) Local housing conditions that may cause significant migration due to price changes, sales rates, and probabilities of mortgage defaults in the future in your specific geography.

7. Are your customers willing to spend money today?

Imagine your own neighborhood and the local geographies your friends live in. What you experience and what you see and hear about those around you impacts how you think of the future and influence your retail spending decisions today.

Perhaps, many of the homes in your neighborhood are “underwater,” and those that are selling are often sold at a loss. There are noticeably more “For Sale” signs standing in yards waiting for a viable offer. You now see vacant homes­ in your neighborhood, and maybe more in the neighborhoods around you. Compared to last year, maybe more of your neighbors have either lost their job or have had their wages and hours cut. Your closest friend, like you, is bringing more work home on her computer at night, but not getting paid more. She calls it “job insurance.” She’s worried because hardworking capable friends can’t find work, and they are looking. You hear numerous similar anecdotal stories at local school sports events, cocktail parties, church and other places.

Wouldn’t an environment like that affect your willingness to part with your cash? Would this type of environment cause you to “splurge” less and save more when possible? Would it cause you to grace the doors of discount/value stores with a new mentality and check menu prices more closely when eating out? If you haven’t experienced this, good for you, but your customers might be going through it right now.

We hope that these 7 Useful Tips for Reading a Demographic Report were indeed useful and we welcome your feedback. Download our sample report 3L Score Sample Report or visit our website at http://www.3lscore.com and register for a free trial.