Buildings Go Green
Green building is on the rise, with half of all new U.S. retail and hotel projects expected to be green by 2015, according to recent surveys. The boom is credited to a number of factors, including higher energy efficiency standards, a move toward greater transparency, decreased operating costs, increased sustainability awareness and a more responsible use of building resources.
According to Lux Research, an independent research firm specializing in emerging technology, the green building sector is expected to grow by $280 billion globally by 2020.
As stores and commercial buildings go green, here are the top trends* to look for:
• Alternative energy sources: More businesses are turning to alternative energy sources in efforts to lower utility costs, meet green building standards and generate their own electricity. One increasingly popular choice is solar power, which harnesses the sun’s free, clean energy to power HVAC, lighting and more — while lowering electric costs and impact to the environment.
• Increased visibility: The release of publicly disclosed building use in New York City is likely to set up a trend for other U.S. cities, making businesses more accountable for their utility use. Building product manufacturers are catching on, too, offering increased transparency with environmental product declarations.
• Net zero: Net-zero building status once seemed impossible to obtain, but it’s becoming more common (net-zero energy buildings generate as much energy as they consume). Now, commercial building developers and architects are starting to showcase net-zero energy designs as a means of differentiation from competitors.
• Daylighting: An increasing number of new building designs and retrofits rely on daylighting to reduce energy costs by up to one-third, positioning windows, skylights or other openings and reflective surfaces to take advantage of the sun’s natural light. This method also relies on a daylight-responsive lighting control system that automatically adjusts brightness when daylighting is inadequate, helping to keep energy use and costs in control.
• High-efficiency HVAC: Heating, ventilation and air-conditioning can account for 40% to 60% of a building’s energy use, making it an obvious first item to tackle in greening efforts. High-efficiency HVAC units are not only equipped to meet current building efficiency standards, but also are built with features such as MSAV (multi-stage air volume) supply fan technology that can boost overall comfort while dramatically reducing electricity costs.
• Local sourcing of raw materials: Local material sourcing reduces the amount of energy involved in transportation to the building site, resulting in lower carbon emissions. (*Trends source: Lennox Industries)
Less is More
Bristol Farms has been outsourcing logistics management since 1996. The upscale specialty grocery store operator initiated logistics outsourcing to aid growth. But the retailer has since used it to improve delivery efficiency.
“In the mid-’90s, nobody had heard of the term ‘3PL,’” said Sam Masterson, executive VP operations, Bristol Farms, Carson, Calif., which operates 15 stores in Southern California. “But the owners at the time, who had purchased Bristol Farms from the original founders, had a rapid expansion plan.”
To support its growth, Bristol Farms started partnering with APL (at the time, the supply chain services provider was known as GATX Logistics). The plan required the retailer to move beyond cross-docking dry merchandise and produce, some of which had a shelf life as brief as 72 hours, from the pallet and container levels to the case and item levels, with as quick a turnaround time as possible.
APL modified the proprietary legacy warehouse management system to accommodate Bristol Farms’ unique requirements, resulting in an operation where the grocery store operator is able to ship and receive merchandise almost simultaneously.
The High Cost of Driving
In 2008, Bristol Farms faced a new distribution challenge. Faltering general economic conditions, coupled with sharply increasing fuel costs, bumped up the cost of distribution as a percent of sales well beyond historical rates. The company determined it would need to cut $372,000 annually from its distribution costs to reach its desired rate, and launched a project with APL to get there.
The project used total distribution cost as a primary success metric, with secondary metrics of truck fleet utilization, number of miles driven by the fleet and number of hours behind the wheel.
In addition, Bristol Farms sought to eliminate problems of a high in-store shrink rate of fresh prepared foods.
Bristol and APL determined the best solution to these various issues hiking up distribution costs would be to achieve a 20% reduction in delivery frequency by removing one day from the five-day delivery week.
As part of the distribution process overhaul, Bristol Farms began using a “single pass” ordering system where store associates go up and down the aisles scanning tags of items that needed replenishment. Orders then show up premoduled at the warehouse dock.
Less Truly Is More
As a result of successfully removing a day from its weekly distribution cycle, Bristol Farms has reduced the number of miles driven per month by 20% and the percentage of total driver hours paid as overtime by 45%.
In addition, distribution expense as a percentage of sales has fallen 18 basis points. Other “soft” benefits that have developed from the project in the past few years have included better planning resulting from having 20% less ordering opportunity, reduced receiving time at stores, having the fleet available for vendor pickups on Wednesdays and improved driver compliance with Department of Transportation regulations.
“Our stores get big chain distribution benefits without the big chain investment in warehousing and inventory,” Masterson said.
Postal Rate Increases
In the largest price increase since 2007, the U.S. Postal Service (USPS) is proposing a rate hike of 5.9%, a move that has catalog mailers scrambling to assess the impact of such an increase and also evaluating less expensive alternatives. The Postal Regulatory Commission (PRC) has up to 90 days to rule on the proposal, with the price increase going into effect as early as Jan. 27, 2014.
In an open letter posted on its site, the American Catalog Mailers Association (ACMA) further warned that the PRC can apply the increase differentially to each class of mailer, which could include a surcharge on Standard Flats used to send full-sized catalogs that could be as high as 10% to 12%.
For many catalog mailers, simply paying the higher mailing rates is not an option. Instead, early feedback suggests that many intend to reduce catalog circulation and send frequency; use less expensive forms of mailing such as mini catalogs; and even employ digital promotions, such as email, search engines, digital ads and social media.
“We will look at everything from page count, to mailing frequency and circulation, to online and mini catalog options if the proposed postal price hike is approved,” said Kerrie Thornton, a business analyst with National Ropers Supply (NRS), a Decatur, Texas-based catalog, online and store retailer of Western lifestyle decor and supplies.
The rate hike was recently proposed by the USPS Board of Governors as part of an effort to close a USPS $20 billion dollar budget gap. If approved, the hike “will do real damage to an industry still struggling to adjust to the exorbitant 2007 rate hike where many companies are struggling mightily, mail volumes are depressed, and the availability of quality names to mail is diminished,” wrote the ACMA’s president and executive director, Hamilton Davison.
In the face of the proposed postal rate increase, some catalog mailers are weighing alternatives. One option are so-called “mini-slim catalogs.” Despite having fewer pages, mini catalogs allow companies to cut production costs without sacrificing circulation or frequency. Though not considered a replacement for full-sized catalogs, mini catalogs can be used on a case-by-case or supplemental basis to fill the void of a catalog unsent due to mailing price increases.
“We expect that expanding what we do with mini catalogs should help us offset much of the proposed rate hike,” Thornton said.
Mini catalogs mail at the cost of a standard automated letter and provide up to 10 pages to promote products. They can cut mailing and production costs by a third, helping to offset the increase in mailing costs. They can also be as effective as larger catalogs in response rate, as well as driving customers to company websites.
Where a marketer is doing four to five mailings a year of full-sized catalogs, supplementing their schedule by doing three full-sized catalog mailings and two mini catalog mailings, for example, can significantly lower cost without lowering response rates. While mailing a full-sized catalog can cost 57 cents a piece at a million mailed, mailing these new mini catalogs can cost as little as 28 cents a piece at similar volume. This can make mini catalogs a cost-effective alternative even to postcards.
Driving Prospects and Customers to the Company Website
NRS needed an inexpensive way to drive customers and prospects to make purchases at their website. According to Thornton, the retailer had traditionally mailed out five to six full catalogs of more than 250 pages annually, costing about $1.50 each at their volumes.
To cut costs, they began substituting a few 84-page catalogs for the larger catalogs, but still found this a costly way to market to prospects. Another challenge was forecasting accurate inventory and sale prices in these catalogs, since the printed data could be out of date by the time customers went online to buy.
As a solution, NRS chose to mail out two full catalogs a year, supplemented by mini catalogs by B&W Press, a Georgetown, Mass.-based printer specializing in direct marketing, in between.
“We found that sales with the mini catalogs were as good as or better than with the 84-page catalogs,” Thornton said. “For as little as 32 cents per mini catalog, we’ve been able to get our key product groups in front of prospects and customers to drive them to our website, where inventory and pricing is up-to-date. For about the cost of producing and mailing a postcard, we’ve found this to be a much more effective direct-marketing approach.”
Western goods retailer National Ropers Supply switched from mailing out five to six full catalogs a year to just two, with the gap supplemented by mini catalogs.