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Market sizing: Estimate revenue from a sports-outlet store

Anonym A fragte am 14. Okt 2019 - 2 Antworten

Hi guys,

My friend got this one in an interview recently: "How would you estimate the annual revenues from a sports-outlet in a given city?" They gave the name of the outlet (which you probably dont know as it is a national player in Sweden), but it is a large chain known for all of their big warehouses. They buy in large quantities, and hence can sell at lower prices. However, this is not very relevant as I understand it. Anyways, they just wanted to know the revenues from ONE of these warehouses annually.

I wish I could give it a shot here so you can adjust my apporach, but I rally dont know ho wto approach it. There are thousands of different products, with different prices, so to me this seems almost impossible. Maybe you could look at the average number who walks in the front door, but again, the prices of the thousands of products are so different, so it does not make any sense to make an average price.

How would you guys approach this one?

Best,

K

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Vlad
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antwortete am 14. Okt 2019
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
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Hi,

  1. Define the time it takes for a single person to pay
  2. Define max number of people paying in a singly cashier line per shift
  3. Multiply by the average utilization of the cashier line
  4. Multiply by the number of lines
  5. Multiple by the av check based on your personal experience
  6. Multiply by the number of months, adjusting to seasonality

Best

Udayan
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bearbeitete seine Antwort am 14. Okt 2019
Ex McKinsey EM with 7 years of recruiting experience/ received all 3 MBB offers/Real MBB cases
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Hi, below is one approach to get to this number for sales in one particular outlet

I will assume that the main purchases are 2-fold - 1. Sports equipment and 2. Sports clothing

To get overall market size :

  • Estimate population of the city
  • Divide into individual age brackets assuming uniform distribution
  • Estimate % that play sports of some kind by age :
    • Almost all children 6-18 can be assumed to play sports of some kind; for college (18-22) this number should drop by 60% or so and for adults maybe 20-30% play sports regularly
  • Now assume that for children they need new gear at least once a year as they grow out of equipment fast
  • Adults this can be once in 2 years or less, anything is reasonable if you can explain it
  • Now to make it simple assume some sort of an average price for the spend, let's say $100 for children each time and $250 for adults each time
  • Multiply the two to get an initial estimation

For sports clothes

  • Next, estimate the % that go to gym or do outdoors physical activity that requires gear
    1. Relevant for all children <18 - assume 10%
    2. College assume 40%-60% or so
    3. Adults - need country context but say 20% to 40% do some sort of regular physical activity
  • Make assumptions on how often you need new gear for these activities - I would use the same as for sports gear
  • Assume some sort of avg price , say $100 for children, $200 for adults
  • Multiply the two to get the estimation
  • Add both the numbers to get total market size for sports gear and clothes
  • Next get market share of this chain (If it is a dominant chain you can assume 30 to 60% depending on the context you have)
  • Multiply market size by this above percentage to get sales for the chain in question
  • Divide revenue by number of stores
  • This should give you annual sales for one store (with the assumption that sales are equally distributed)

To make it more realistic you can get separate market shares for sports goods vs sports clothes as people shop for those two things very differently

Hope this helps,
Udayan

(editiert)

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