Cost Control Is Still Key
Retailers generally held the line on store development and construction costs in 2006, even in the face of rising expenditures for physical-supports systems, according to Chain Store Age’s 2007 Physical-Supports Census, an annual survey of retail building activity. The survey also indicated rising concern about energy costs and increased interest in environmentally friendly materials.
The exclusive survey was conducted by Leo. J. Shapiro & Associates, Chicago, which compiled results from chains across the nation. The study examined such items as construction costs, store size, expansion plans, construction time, energy costs, and expenditures and trends in physical supports.
The retailers that participated in the survey were grouped by segment: drug stores, supermarkets, department stores, home centers, specialty apparel, big-box stores and, new this year, specialty hard line. The specialty-apparel retailers in the survey included Pacific Sunwear of California, Rainbow Apparel, Cato Corp., Claire’s Stores and Wilson’s Leather. Chains such as J.C. Penney, Mervyn’s, Saks and The Bon-Ton Stores represented the department store category.
Big-box stores included Minyards, Price Chopper, Safeway, Aldi, King Soopers and Giant Food. Orchard Supply Hardware, Home Valu, Ace Hardware Corp. and United Building Centers were among the surveyed home centers.
The specialty hard lines category included Restoration Hardware, Kirklands, Williams-Sonoma, Eastern Mountain Sports and Blockbuster. Walgreen Co., Drug Fair Group, Lewis Drug Stores and Kinney Drugs were among the drug store retailers.
The companies that participate in the survey vary from year to year. But the results can be taken to suggest general trends within the industry. Overall, they operate 31,797 stores, with sales exceeding $268 billion. They opened 1,517 stores last year, remodeled 1,603 and expect to open 1,823 over the next 12 months.
Store size: The size of new stores (defined as stores opened during the past 12 months) on average was down slightly compared to the size of existing units. For all retailers surveyed, the average new store opened totaled 41,929 gross sq. ft. compared to 42,263 sq. ft. for existing units.
The smaller footprint was driven largely by two classes of trade: home centers, where new outlets averaged 32,250 sq. ft. compared to 43,750 sq. ft. for existing units, and specialty apparel, where new stores averaged 11,477 sq. ft. vs. 17,159 sq. ft. Specialty hard lines were flat, at 13,333 sq. ft.
|All stores 2007||Drug store 2007||Supermarket 2007||Department store 2007||Home center 2007||Specialty apparel 2007||Big-box store 2007||Hard lines specialty 2007|
|Stores in operation during 2006||331||278||253||403||312||452||223||465|
|… New stores opened In 2006||16||10||5||13||12||32||15||15|
|… Stores remodeled In 2006||17||13||16||19||19||21||8||22|
|… Years before a store is remodeled||7.8||9.6||7.4||8.0||8.8||7.1||7.2||7.8|
|… New stores plan to open in 2007||19||12||9||15||19||34||18||17|
|(New stores planned as a percentage of stores currently in operation)||5.7%||4.2%||3.5%||3.7%||6.0%||7.4%||8.0%||3.7%|
|(Mean days to complete)|
|… Shell construction||81||76||80||93||71||68||86||106|
|… Inside preparation||71||45||84||97||68||60||68||69|
|Total new store preparation time||152||121||164||190||140||128||154||175|
Other categories, however, built larger. New footprints for drug stores averaged 14,063 sq. ft. compared to 10,625 sq. ft. for existing units. Supermarkets averaged 64,286 sq. ft. vs. 62,045 sq. ft.
Big-box stores averaged 56,250 sq. ft. compared to 52,656 sq. ft. And department stores also went bigger, with an average new footprint of 93,333 sq. ft. compared to 82,222 sq. ft. for existing stores.
Expansion: The average number of new stores planned by all retailers surveyed was 19 (per chain). The number of new stores retailers planned to open in 2007 was up in supermarket, department store, specialty apparel and home centers, compared to planned openings in 2006.
The planned expansion ratio (defined as new stores planned as a percentage of stores currently in operation) averaged 5.7% for all retailers surveyed, up slightly from last year. Big-box stores, at 8.0%, and specialty apparel, at 7.4%, had the fastest expansion rates, followed by home centers, at 6.0%.
The rate of planned expansion for drug stores was 4.2%, followed by department stores and specialty hard lines, both at 3.7%. Supermarkets were on the low end, at 3.5%.
Construction costs: Building costs were divided into two separate categories: building-shell construction costs for free-standing locations, and tenant fit-out costs for stores in malls and mixed-use centers. Costs are for locations opened during the past 12 months or under construction. On average, building-shell costs as well as tenant fit-out costs were down compared to last year.
In the freestanding category, building-shell construction costs (includes concrete, structural steel, structural masonry, roof and heating, ventilation and air conditioning, but excludes interior fit-out) averaged $41.30 per square foot for retailers surveyed. Department stores, specialty hard lines and specialty apparel had the highest costs, at $55.00, followed by drug stores, at $41.50.
Building costs for big-box stores averaged $40.70 per square foot, and home centers came in at $39.50. Supermarkets enjoyed the lowest costs, at $38.11.
Fit-out: Costs for tenant fit-out work (includes drywall, ceiling floor, wall finishes and exterior construction, but excludes fixture package) averaged $40.75 per square foot for all retailers surveyed, compared to $41.85 last year. Specialty apparel, at $48.11, was above average. Department stores, at $42.00, and supermarkets, at $41.15, were also above the curve.
Big-box stores averaged $39.00 per square foot in fit-out costs, followed by specialty hard lines at $37.80, and drug stores, at $37.30. Home centers spent the least, at $21.80.
In the individual classes of trade, fit-out costs for supermarkets, department stores and specialty apparel were down vs. last year. But they were up for drug stores, home centers and big-box stores.
The surveyed findings indicate that retailers expect construction prices to rise this year. Among all retailers surveyed, 85.4% have factored price increases into their 2007 construction budget, with an expected average hike of 8%. That’s down from last year, when retailers factored in an average increase of 10.7%.
Retailers attributed the price increases to a number of various factors. Leading the list were the price of raw materials (cited by 42.7% of all retailers surveyed) and the price of fuel and energy (36.5%). Also cited were supply and demand (16.7%), labor (13.5%), and demand in China and other markets overseas (7.3%).
More than half (65.6%) of all retailers surveyed said the expected price increases would have no impact on their store-expansion plans. For others, the effects included limited expansion (cited by 5.2% of all retailers surveyed) to changes in design and lease costs (cited by 4.2%).
Building schedule: Total new-store preparation time, including construction of the shell and interior prep, averaged 152 days for all retailers surveyed.
|Total 2007||Drug store 2007||Supermarket 2007||Department store 2007||Home center 2007||Specialty apparel 2007||Big-box store 2007||Hard lines specialty 2007|
|Average (mean) gross square feet||42,263||10,625||62,045||82,222||43,750||17,159||52,656||13,333|
|Among those who… …Did not build In 2006||68,250||0||61,667||100,000||73,125||5,000||0||0|
|…Built any in 2006||39,206||10,625||62,105||77,143||29,063||17,738||52,656||13,333|
|Stores opened past 12 months||41,929||14,063||64,286||93,333||32,250||11,477||56,250||13,333|
|Percentage change in size||6.9%||32.4%||3.5%||21%||11%||–35.3%||6.8%||0%|
|…In existing stores: Percentage of total space||79.70%||78.4%||77.6%||84.2%||77.3%||79.4%||84.1%||75.6%|
|Average (mean) square feet||33,664||8,334||48,144||69,249||33,797||13,619||44,297||10,078|
|Percentage of total space||79.10%||80.5%||76.8%||84.8%||76.6%||77.3%||83.8%||75.6%|
|Average (mean) square feet||33,186||11,320||49,339||79,178||24,704||8,877||47,127||10,078|
Building schedules were longest for department stores, 190 days on average, and specialty hard lines, 175 days, followed by supermarkets, at 164 days. Big-box stores averaged 154 days, and home centers took 140 days. Getting the job done fastest were specialty apparel, at 128 days, and drug stores, at 121 days.
Outer-shell construction only averaged 81 days for all retailers surveyed. Department stores, at 93 days, and specialty hard lines, at 106 days, took the longest in getting the shell up, followed by big-box stores, at 86 days, and supermarkets, at 80 days. Drug stores averaged 76 days in shell construction, while home centers, at 71 days, and specialty apparel, at 68 days, did the job fastest.
Getting the interior of the store open for customers took 71 days on average for all retailers surveyed. Similar to past years’ results, the job took the longest in department stores, 97 days on average, and in supermarkets, 84 days.
Inside preparation in specialty hard lines averaged 69 days, followed by big-box stores and home centers, at 68 days, and specialty apparel, at 60 days.
The quickest job was done by drug stores, at 45 days.
Remodel: For all retailers surveyed, remodel time averaged just under eight years. Drug stores had the longest time before a remodel, at slightly under 10 years, followed by home centers, under nine years, and department stores, at eight years.
The remodel time frame was shortest in specialty apparel and big-box stores, at slightly over seven years.
Average Life Span of Physical-Supports Systems (Mean years)
|All Stores 2007||Drug store 2007||Supermarket 2007||Department store 2007||Home center 2007||Specialty apparel 2007||Big-box store 2007||Hard lines specialty 2007|
Energy: For all retailers surveyed, 43.8% reported increased energy expenditures over a year ago and 35.4% reported their costs were essentially the same. Significantly, a majority of retailers do not expect the costs to decrease any time soon. Of the survey respondents, 57.3% said they expect energy expenditures to increase during the next 12 months.
Energy costs averaged $1.73 per square foot for all retailers surveyed, compared to $2.15 in last year’s survey. Expenditures were highest in supermarkets, at $2.72, followed by specialty apparel, at $1.97, and department stores, at $1.75.
On the low end were specialty hard lines, at $1.50 per square foot, drug stores, at $1.33, and big-box stores, at $1.30. Energy costs were lowest in home centers, at $1.05.
Green: The survey indicates that increasing numbers of retailers are going “green,” at least when it comes to material usage. More than half (61.5%) of respondents reported using environmentally friendly materials, up from 57.1% in last year’s survey.
The green trend was most prevalent in supermarkets (72.7%), department stores (88.9%) and big-box stores (68.8%).
Physical supports: For the third-consecutive year, specialty apparel was the top spender by retail segment in physical-supports systems. Specialty retailers outspent the other classes of trade in flooring, ceilings, interior lighting, roofing, HVAC and exterior signage, and were also big spenders in fixtures and interior signage. Home centers registered some of the lowest expenditures across the board.
Fixtures: Display fixtures retained their long-standing status as the most expensive physical-supports category, averaging $7.90 per square foot for all retailers surveyed.
Looking at the individual classes of trade, supermarkets had the highest fixture costs, with expenditures of $11.45 per square foot, followed by department stores, at $9.86, and specialty apparel, at $9.12. Big-box stores averaged $7.63. Drug stores spent $5.79, and specialty hard lines came in at $4.75. Home centers were on the low end, at $3.94.
Flooring: Flooring was the second most costly physical-supports category, averaging $3.06 per square foot for all retailers surveyed. Specialty apparel, at $4.74, and supermarkets, at $3.54, were above average, as were department stores at $3.25.
Specialty hard lines spent an average of $2.85 per square foot on flooring, followed by drug stores, at $2.59. Big-box stores, at $1.71, and home centers, at $1.25, were on the low end.
Appearance and cost were the main factors influencing the choice of flooring for all retailers surveyed. Drug stores, supermarkets and specialty hard lines ranked cost first, followed by appearance.
Appearance was most important for department stores and specialty apparel, with cost coming in second. Big-box stores gave equal consideration to appearance, cost and maintenance concerns.
Lighting: Interior lighting (lamps, ballasts and fixtures) costs averaged $2.86 per square foot for all retailers surveyed. The biggest spenders were specialty apparel, at $3.80, and department stores, at $3.54, followed by specialty hard lines, at $3.02.
Big-box stores averaged $2.82 per square foot on lighting, and supermarkets averaged $2.58. Costs were lowest for drug stores, at $1.71, and home centers, at $1.55.
Energy efficiency and aesthetics ranked as the two most important considerations when purchasing lighting in nearly all classes of trade.
Energy efficiency was the No. 1 selection criterion for big-box stores and supermarkets. For drug stores and department stores, aesthetics was most important (energy came in second in both cases). Specialty apparel and specialty hard lines gave equal consideration to aesthetics and energy efficiency.
Home centers ranked initial cost as most important, followed by energy efficiency.
Roofing: Roofing expenditures averaged $2.71 per square foot for all classes of trade. Costs were highest in specialty apparel, at $3.50, and drug stores, at $3.20. Supermarkets averaged $2.92, followed by big-box stores, at $2.91, and department stores, at $2.75.
Two classes of trade came in well below the average: Home centers averaged $1.15 per square foot on roofing, while specialty hard lines spent $0.50.
Ceilings: Ceiling costs averaged $2.05 for all retailers surveyed. Costs were highest in specialty apparel, at $3.95. Department stores averaged $2.32, and supermarkets came in at $1.86.
Average Cost Per Square Foot of Physical-Supports Systems (Mean Dollars)
|All Stores 2007||Drug store 2007||Supermarket 2007||Department store 2007||Home center 2007||Specialty apparel 2007||Big-box store 2007||Hard lines specialty 2007|
Drug stores spent an average of $1.75 per square foot on ceilings; big-box stores spent $1.32. Specialty hard lines came in at $1.08, and home centers, at $1.00, had the lowest costs for ceilings.
HVAC: Total expenditures for HVAC averaged $1.87 per square foot for all retailers surveyed. Specialty apparel, at $2.13, was above average, followed by big-box stores, at $2.01, and specialty hard lines at $1.93.
Drug stores and supermarkets both averaged $1.90 per square foot on HVAC, followed by department stores at $1.87. Home centers spent the least, at $0.81.
Exterior signage: Exterior signage costs averaged $1.34 per square foot for all retailers. The big spenders in the category were specialty apparel, at $1.77, and specialty hard lines, at $1.75. Drug stores averaged $1.41.
Big-box stores averaged $1.28 per square foot on exterior signage, followed by supermarkets, at $1.19. Home centers, at $0.93, and department stores, at $0.68, had the lowest expenditures.
Interior signage: Total expenditures for interior signage averaged $0.79 per square foot for all classes of trade. Supermarkets spent $1.23, followed by specialty apparel, at $1.14, and specialty hard lines, at $0.86, and home centers, at $0.65.
Department stores averaged $0.49 per square foot on interior signage, and big-box stores spent $0.46. Drug stores spent the least, averaging $0.33.
Floor maintenance: Spending on floor maintenance (equipment and chemicals, not labor) averaged $0.49 for all retailers surveyed. Costs were highest in supermarkets, at $0.73, and drug stores, at $0.66. Specialty hard lines averaged $0.56, followed by specialty apparel, at $0.49, and department stores, at $0.36. Big-box stores averaged $0.30, and home centers spent $0.11.
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