M. Eng. Project Team Develops Innovative Data-based Approach for Retail Site Selection
|Duane Stiller addresses the Engineering Enterprise Colloquium
Duane Stiller, ORIE '84, told Cornell students at a recent Enterprise Engineering Colloquium that the acquisition of real estate for retail stores is ripe for the introduction of analytical methods. He is in a position to know - after graduation Duane Stiller founded Woolbright Development, Inc, which has grown to hold Florida's 6th largest retail property portfolio. Moreover, Duane's brother, David Stiller, ORIE '92 M.Eng. '93, who has worked for companies such as JP Morgan, Credit Suisse and Reuters and is Senior Acquisition Analyst at Woolbright, was the client for a recent M. Eng. project that developed an analytical method to predict prospective tenants for shopping centers.
The 2007-8 project, Woolbright Development: A Retail Site Selection Analysis, was recently featured in the electronic edition of Cornell Real Estate Review , in an article by Joshua K. Ladle and the Stiller brothers. The M. Eng. team - Haroun Al-Mishwit, Joanna Antisell, Sangmi Je, Kamil Tazi and Jun Wang under the guidance of Prof. Tatiyana Apanasovich - was charged with developing a model to predict which retail sites in Florida will be in high demand by specific categories of retail store chains.
Two years after completion of the project, team members recall the project as a positive experience. Team member Tazi, who until his recent move to Paris was sales manager for the Middle East and Africa for travel and hospitality systems provider Sabre, says "I still keep an excellent memory of this project. The teamwork environment was great and I sincerely enjoyed interacting with Woolbright and the Cornell team members." Ji notes that the project "motivated me to take a consulting career [with Booz & Co.] after graduation and I am very satisfied with my current position as a consultant."
In a form of 'reverse engineering', the team attempted to predict future expansions by retailers into new shopping center locations. The team combined Woolbright Development's database of existing Florida shopping centers with extensive demographic data to develop and test three models identifying sites they expect to be a good fit for specific retail chains, such as Walmart, Office Depot, Publix, Lowes and Target. As a result, acording to Duane Stiller, "Woolbright likely did the last of the pre-crash deals and one of the first post-crash deals - thanks to good research and an OR approach."
As the team pointed out in their project report, "fundamentally, the challenge in this situation is one of information asymmetry. Retailers have internal methods for selecting sites. Woolbright Development is only profitable if the firm consistently selects properties which will be in high demand in the future. Therefore Woolbright needs this information, which retailers closely guard, to remain profitable....This information gap, although a major hurdle, is not impossible to close." Wang, who is now with Clark, NJ-based procurement consulting company Global eProcure, notes that "we were fortunate that Woolbright maintained an extensive database for us to perform various analyses." However Al-Mishwit, who is with Goldman Sachs in London, notes that it would also have been of value to have information on "sites for which retailers turn down a potential lease agreement."
The team used techniques known as neural networks, decision trees, and regression models in attempting to learn the important factors bearing on retail location decisions, employing SAS Enterprise Miner software to carry out the data analysis. They summarized the differences among these three approaches in the following table, and concluded that no single method could be considered dominant for the application.
|Model Complexity||Data Requirements
Applying all three methods, the team recommended sites for each of eight retailers that Woolbright might approach for lease negotiations, and were gratified to learn that their analytical results accorded well with candidate sites identified by experienced professionals within the firm.
The Cornell Real Estate Review article, written in the depths of the recent financial crisis, notes that "The retail industry is rapidly changing...in this new retail environment, with a host of expansion options spanning from empty boxes to untapped raw land, retail site selection has become increasingly important to corporate real estate practitioners and the retail property developers who service them." Al-Mishwit points out that the approach used by the team can "not only be used as a competitive/expansionary tool but also as a security or risk measure," enabling a property portfolio to be "'stress tested' if demographics (incomes, spending patters, etc.) change rapidly."
For additional information, click here.