liquidation local economic factors coer 2016 - shawn...

6/23/16

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DemandDuringStoreLiquidation:LocalEconomicFactorsNateCraig

Ananth Raman

ConsortiumforOperationalExcellenceinRetailing,2016

LocalEconomicFactors

• Local:measuredatastore’s ZIPorblock group

• Income andwealth• Medianhouseholdincome

• Consumer sentiment• “Willtheeconomybebetter,thesame,orworseoverthecomingyear?”

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StoreLiquidation

• Storeliquidation isthetime-constraineddivestmentofretailstoresthroughin-storesalesofinventory

• Retailerssell$Bs ofinventoryviastoreliquidationannually• Goingconcernsconductaround70%ofallstoreliquidations

• 3.4%ofpublicretailersliquidateinbankruptcy(Gauretal.,2013)

• Basedonliquidationvalue,banksextend~$300Bininventory-backedloanstoU.S.retailers(Foleyetal.,2014)

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ExampleStoreLiquidations

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Home Depot

Staples

Zales

Best Buy

Abercrombie

Office Depot

J.C. Penney

Sears

Barnes & Noble

Build−A−Bear

Payless

The Gap

Sweetbay

Fashion Bug

Fresh & EasyBlockbuster

Sports Authority

Kmart

A&P Wet Seal

0% to 10%

10% to 30%

30% to 100%

0500

1,0

00

1,5

00

2,0

00

2,5

00

Num

ber

of U

.S. S

tore

s

0 100 200 300 400 500

Number of U.S. Store Closings

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Questions

• Howdoretailinventoryliquidationvalueschangewithastore’s localeconomicfactors?• Researchers studyliquidationvalueviaproxieslikeredeployability(Benmelech andBergman,2009)

• Store liquidationallowsustoobserveliquidationvaluedirectly

• Canlocaleconomicindicatorsimproveforecastingforretailliquidation?• Informpricingandinventorydecisionsduringliquidation

• Implicationsforpricing,promotion,etc.ingeneral?

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DataCollection• HistoricaldataaboutstoreliquidationsfromGordonBrothersGroup

• 31chains and2,256stores

• $4.5Bofinventory at retail value

• Apparel, books, electronics, grocery, jewelry, …

• Store- level data: address, initial inventory,daily liquidationrevenue, daily revenues for theyear priortoliquidation

• MedianhouseholdincomeinZIPsandblockgroupsfromEsri BusinessAnalyst,measuredyearly

• ConsumersentimentsurveyinZIPsfromSimmonsConsumerInsights,measuredyearly• “Will theeconomy over the coming year besignificantly better off, betteroff, aboutthe

same, worse off, orsignificantly worse off?”

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EmpiricalContext

• Storeliquidationdemandvariesacrossstoresandsegments

• Localconsumersentimentandmedianhouseholdincomevaryacrossstoresandovertime

• Liquidationoperatorheldpricesrelativelyconstantacrossstores

• Operatormanagesinventoryindollarsratherthanbycount

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Liquidation DemandVariesAcrossSegments andStores

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186 Stores 202 Stores 111 Stores 749 Stores 53 Stores

0

1

2

3

4

5

Segment A Segment B Segment C Segment D Segment E

Stor

e Li

quid

atio

n M

ultip

lier

StoreLiquidation Multiplier=StoreRevenueDuringLiquidation

StoreRevenueforSameDaysLastYear

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EmpiricalContext





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VariationinHousehold Income

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VariationinHousehold Income

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Mean: $67.4KS.D.: $35.3K

VariationinConsumerSentiment

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ConsumerSentiment: %ofresidentsthatthinkeconomywillbe“significantlybetteroff”or“betteroff”overthenextyear

Mean: 31.7S.D.: 9.0

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VariationoverTime

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Mean HHI of Highes t Quinti le

Mean HHI of Lowes t Quinti le

Mean Sentiment o f Highes t Quinti le

Mean Sentiment o f Lowes t Quinti le

EmpiricalContext





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PricesAcrossStores

15

020

4060

8010

0

Rea

lized

Mar

kdow

n (%

)

0 20 40 60 80 100

Time (%)

Realizedmarkdownsduringtheliquidationofachainof100stores

Lowest variation in price across stores

EmpiricalContext





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Does Liquidation DemandVarywithLocalEconomic Factors?• Predictoutcomes:

• Liquidation revenue(overall and firstweek)• Asset recoveryrate(ratioofoverall liquidation revenue toinitial inventory)

• Withcontrols:• Initial inventory• Last-yearsalesoverthestore liquidation period• Retail chain fixedeffect

• Withlocaleconomicfactors:• Medianhousehold incomein store’s blockgrouporZIP• Consumer sentiment inZIP

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Results

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Revenue First-WeekRevenue

AssetRecoveryRate

InitialInventory(Retail$) 0.600***(0.171)

0.460***(0.134)

Last-Year Revenue 0.439*(0.210)

0.364(0.247)

0.056*(0.026)

MedianHousehold IncomeinBlockGroup

0.015**(0.006)

0.031*(0.013)

0.009**(0.003)

ConsumerSentimentinZIP

-0.099*(0.040)

-0.21**(0.065)

-0.056***(0.016)

ChainFixedEffects Yes Yes Yes

N 2,217 2,217 2,217

R2 0.96 0.88 0.55

Log-logmodel. Standarderrorsareinparentheses.***p <0.001,**p <0.01,*p <0.05

Interpretation

• Increasinghouseholdincomeby$35,000(oneS.D.)fortheaveragestoreisassociatedwith• 4.2%increaseinliquidationrevenue

• 7.4%increaseinfirst-weekliquidationrevenue• 3.2%increaseinassetrecovery rate

• Increasingconsumersentimentby9pointsfortheaveragestoreisassociatedwith• 2.9%decrease inliquidationrevenue

• 5.6%decrease infirst-weekliquidationrevenue• 1.8%decrease inassetrecovery rate

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Summary• Acrossretailsegments,revenueandassetrecoveryratesduringstoreliquidationarepositivelyassociated withlocalmedianhouseholdincome

• Revenue andassetrecoveryrates arenegativelyassociated withlocal consumersentiment

• Initialinventory,last-yearrevenue,localmedianhouseholdincome,localconsumersentiment,andchaineffectsexplainmuchofthevarianceinliquidationrevenue(R2 =0.96)

• Futureresearch: Howdolocaleconomicfactorsaffectotherretailcontexts,suchasseasonalsales?

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liquidation local economic factors coer 2016 - shawn...

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