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Optimize, Optimize, Optimize

BY Katherine Boccaccio

When it comes to location, location, location, embarking on site selection before optimizing the market is akin to putting the cart before the horse.

According to Rudy Nadilo, CEO of Woburn, Mass.-based GeoVue, which provides location-optimization software to retailers, launching the real estate process with optimization puts retailers in the driver’s seat—and moves brokers over to the passenger position. “Too often, the development process within real estate is broker-led,” said Nadilo. “It’s reactive, propelled by brokers who offer up sites that are available and possible, but not necessarily optimal.”

Location optimization—which involves putting together an expansion plan, plotting optimal locations and then pushing the plan out to the brokers in the field to find sites that fit—stands in stark contrast to the more standard site-selection process that sees brokers alerting their retail clients that a spot has opened up near, say, a Home Depot.

“When you optimize a market, you are creating a comprehensive master plan. Not only are you making sure that you are lessening cannibalization, but you are packing in the optimum number of stores you can put in. And you can’t do that randomly,” said Nadilo.

Location optimization has helped Dedham, Mass.-based Papa Gino’s Holding Corp., which owns and operates restaurant chains D’Angelo Grilled Sandwiches and Papa Gino’s Pizzeria, to fuel growth in an efficient and targeted manner. According to Tony Padulo, senior VP of franchise development, current expansion efforts are continuing along an East Coast path.

“D’Angelo has about 180 restaurants throughout New England and [we have now entered] Orlando, Fla.,” said Padulo. “Papa Gino’s has about 160 units throughout New England, in such major markets as Boston; Providence [Rhode Island]; Springfield [Mass.]; Hartford [Conn.]; and Portland [Maine].” The first D’Angelo franchise in Orlando opened last fall, with another scheduled to open in the fall of 2007—which has propelled sister chain Papa Gino’s to follow into Florida and up the East Coast.

“In addition to expanding our D’Angelo program within Orlando, we will also be seeking Papa Gino’s franchisees in the market shortly,” said Padulo. “Within the next five years, both brands will move into most of Florida, as well as the Carolinas and upstate New York.”

That plan wasn’t committed to paper without a lot of research—and location optimization. “It [location optimization] has given us in-sights into which markets to prioritize and why,” explained Padulo. “Additionally, the software assists us in determining how many restaurants we should open in a given market, where they should be located, and how to prioritize them.”

No market model that emerges from optimization is going to work out perfectly every time. Just because software reveals that an ideal site is on Fifth and Main doesn’t mean a space at that intersection is available. “If you find, and qualify, a site that’s nearby, say at Fourth and Main,” said GeoVue’s Nadilo, “you tell the system that Fifth just became Fourth, and everything simultaneously adjusts.” The network shifts to allow for—and optimize—reality. And it puts the retailer right where he should be: in the driver’s seat.

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Sears comps hurt by energy costs

BY CSA STAFF

HOFFMAN ESTATES, Ill. Sears Holdings today reported net income of $216 million, or $1.40 per diluted share, for the first quarter ended May 5, compared with net income of $180 million, or $1.14 per diluted share, for the first quarter ended April 29, 2006.

“In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market,” said Aylwin Lewis, Sears Holdings’ ceo and president. “However, as an organization, we need to overcome these factors by better controlling costs and developing innovative solutions that better meet our customers’ needs and allow us to generate a more reasonable level of profitability even in the face of such challenges.”

Domestic comparable-store sales declined 3.9% during the first quarter of fiscal 2007. Sears domestic comparable-store sales declined 3.4% for the quarter, while Kmart comparable-store sales declined 4.4%. We believe these declines reflect both increased competition and the impact of external factors such as rising energy costs, a slower housing market and poor weather conditions during the latter part of the first quarter of fiscal 2007. Kmart experienced lower transaction volumes across most merchandise categories, most notably within home goods, health and beauty products, and food and consumables. Similarly, Sears domestic recorded comparable-store sales declines across most merchandise categories and formats, with a notable decline in home appliance sales, which we believe reflects both a slower U.S. housing market and the impact of increased competition.

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Big Lots 1Q net sales up 3.4%

BY CSA STAFF

COLUMBUS, Ohio Big Lots today reported first quarter fiscal 2007 income from continuing operations of $29 million, or 26 cents per diluted share, compared to income from continuing operations of $14.5 million, or 13 cents per diluted share, in the first quarter of fiscal 2006. Including the impact of discontinued operations, first quarter fiscal 2007 net income totaled $28.8 million, or 26 cents per diluted share, compared to $13.7 million, or 12 cents per diluted share, in the prior year.

Net sales for the first quarter ended May 5, increased 3.4% to $1.13 billion, compared to $1.1 billion for the same period in fiscal 2006. Comparable-store sales for stores open at least two years at the beginning of the fiscal year increased 4.9% for the quarter.

For the second quarter 2007, the company expects income from continuing operations of 7 cents to 10 cents per share versus income from continuing operations of 4 cents per share last year. Comparable-store sales are expected to increase 2% to 4%, compared to a 5.2% comparable-store sales increase recorded last year.

For fiscal 2007, the company expects income from continuing operations of $1.25 to $1.30 per share versus income from continuing operations of $1.01 per share last year.

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