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Do you work in commercial real estate? My father does, and would pick them and Walgreens as the most effective scaled siting operations in the US. Optimizing f
by patio11 7y ago
Do you work in commercial real estate? My father does, and would pick them and Walgreens as the most effective scaled siting operations in the US.
Optimizing for absence of failed stores would be an interesting utility function for them to have, but since they own substantially all of the stores (and therefore don't have franchisee relationships to consider, where volatility for a partner might impact you disproportionately to economic loss), that would be a suboptimal utility function. They should calibrate their risk appetite to maximize profits; occasional failed stores are just a search cost.
- kevin_thibedeau 7y agoI've seen a Walgreens that was closed in less than a year because of poor location despite being across the street from a Rite-Aid. They aren't perfect either.
- edmundsauto 7y agoIt's not that useful to say they aren't perfect. The better measure would be how they compare to other stores, and/or how their own churn rate has changed over time.
- vcxy 7y agoThis also misses the point. The point was that optimizing for number of stores closed is the wrong metric to begin with. Who cares how they rank on a metric that doesn't matter?
- edmundsauto 7y agoThe original point wasn't that # of stores closed is an optimization problem, but that it was a valid way to judge the abilities of the people making the decisions.
- spookthesunset 7y agoAnd the counterpoint is the number of closed stores is not a good metric to judge the people making these decisions. In fact, judging the number of closed stores may well be the entirely wrong metric to judge them by.
- ypzhang2 7y agoThe point is that failed stores is not a good metric to optimize for. You can have 0 failed stores if you open 0 stores. A successful operation will inevitably have failed stores. Having a long list of failed stores doesn't mean anything in of itself. You have to look at the rate of failed stores vs successful stores among other metrics.
- patio11 7y agoWalgreens will happily close a location and move it across the street to take advantage of a more advantageously shaped curb cut if they can't get the Illinois Department of Transit planner to approve the optimal curb cut from their current location. This is because they have extreme confidence in their ability to assess the business impact of curb cuts. A market commenter who believes that Google is not one of the most sophisticated engineering organizations in the world is wrong. If you believe Walgreens is not one of the most sophisticated commercial real estate operations that exist, I would encourage you to talk to people who understand real estate as well as you understand Google and recalibrate based on what they tell you.
- JJMcJ 7y agoI know of Walgreens locations that have been profitable for 50 years or more. MacDonalds is similar. If they have a franchise that is doing badly, they will pay to move the franchise to a new location. A suburban McD closing is rare, usually only the oldest ones on lots that are too small for contemporary usage patterns.
- the_watcher 7y agoChipotle's former CEO (and I believe founder) often mentions that Chipotle's time under McD's ownership hammered home that the single most important element of the company's success was excellence in real estate. It's also why getting a McDonald's franchise is generally very expensive - they'll give you as de-risked a location as possible and a proven operational playbook. It's not easy to run a franchise at all (you have to be available on days your manager calls in sick, deal with vendors, inventory, etc), but you don't need to figure out the business model at all.
- JJMcJ 7y agoMcD requires franchise holders to be involved in day to day operation, and the investment is quite large, well north of 1 million.