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Kroger enters into agreement with Cardtronics USA

BY CSA STAFF

Cincinnati Kroger Co. has entered into a multi-year ATM managed-services agreement with Cardtronics USA, Houston.

Under the agreement, Cardtronics will provide comprehensive ATM management services in approximately 800 Kroger grocery and convenience store locations, including ATM installation, complete cash management, maintenance, customer service, monitoring and transaction-processing services. Cardtronics expects to begin managing the Kroger ATMs starting in third quarter 2010.

“We are very excited to be working with Cardtronics,” said Kathy Kelly, president of Kroger Personal Finance. “Customers today want convenient services that save them time. Our relationship with Cardtronics helps us make shopping easier for Kroger customers and we look forward to Cardtronics’ expert management of the ATM services Kroger Personal Finance provides.”

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Handicapping Healthcare Reform’s Impact on Retailers

BY Alden Bianchi

The federal agencies with principle jurisdiction over the new healthcare law as it affects employers—the IRS, Department of Labor, and the Department of Health and Human Services—are busy issuing rules governing key reforms that will apply to employer-sponsored group health plans in 2011 for calendar-year plans. These reforms include further limits on pre-existing conditions among many others. For the most part, it is the state-licensed insurance carriers that will bear the brunt of complying with this first wave of new rules.

Commencing in 2014, however, the healthcare reform rules governing “employer responsibility” take effect. Unlike the insurance reforms that are getting all the attention currently, the compliance burden and cost of these rules rest squarely with employers. These rules are complex; they will affect different employers and business sectors in different ways. But they will not be kind to many retailers.

Sometimes referred to as a “free-rider” surcharge, the employer-responsibility rules apply only to “large” employers, i.e., employers with 50 full-time equivalent employees (with a very limited exemption under which “seasonal” employees are not counted for this purpose). The rules work differently depending on whether an employer offers coverage to all full-time employees. Where an employer fails to offer coverage to all of its full-time employees, and where more than 30 employees qualify for low-income health insurance subsidies through state-based insurance exchanges, then the annual penalty of $2,000 (in practice, penalties will be determined and assessed on a monthly basis) will be multiplied by the number of the employer’s full-time employees in excess of 30, including those who do not qualify for any subsidies. Full-time for this purpose means employees who work 30 or more hours per week.

Where the employer offers coverage to all full-time employees, then the penalty is $3,000 multiplied by the number of the employer’s full-time employees who qualify for the subsidy. There is a further wrinkle. Where the value of the plan coverage dips below a certain level, employees need only establish that their household income is less than 400% of the federal poverty limit in order to qualify for the subsidy. But where the value of the plan coverage exceeds that threshold, employees must also establish that their premium cost for the employer’s plan exceeds 9.5% of their household income.

These rules have some important implications. First and foremost, industries and sectors that have not traditionally furnished group health plan coverage to all full-time employees will be hit the hardest. This includes many medium and small retailers, and more than a few franchise operations. Companies that have a large cohort of minimum wage or low-income workers will also be hit hard since the employer responsibility penalties are tied to the number of full-time employees who have access to healthcare premium and cost-sharing subsidies by virtue of their income.

Importantly, the employer responsibility rules test coverage under an employer’s plan and the level of benefits that the plan provides. There is no requirement that the employer pay a particular percentage of premium cost. An employer provides coverage to all of its full-time employees for purposes of these rules even if the plan is entirely employee paid. As the amount of premium cost to the employees increases, however, so does the number of employees whose premium cost might exceed 9.5% of household income, thereby increasing penalties in the aggregate. The challenge for employers, then, is to arrive at the right premium balance, i.e., one that reduces overall healthcare plan costs taking penalties into account.

Since the employer responsibility requirements don’t take effect until 2014, the regulators are not likely to issue guidance for some time. What is clear, however, is that while the compliance calculus differs radically from industry sector to industry sector, retailers will face some of the biggest challenges.

Alden J. Bianchi is the practice group leader of the Employee Benefits and Executive Compensation practice at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC (mintz.com).

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Making the most of your real estate portfolio

BY CSA STAFF

By John Miologos, AIA, CSI, NCARB, [email protected]

So the era of high-growth is officially over. Every party has to end. Now what? Retailers are turning their attention back to core brands and existing locations. Frank Blake, CEO of The Home Depot, told writers at The Atlanta Journal-Constitution, that the company was mapping its current stores the way it used to map potential sites, identifying underperforming stores for renewed attention, and that that is by far the company’s biggest opportunity.

A wise plan for any retailer with a sizable fleet of stores. Without understanding exactly what you have to work with, it’s hard to make smart decisions about how to move forward. For those of you who find yourself in similar circumstances, here’s a roadmap for making sure that you’re getting the most out of the locations you have.

Evaluate current locations
An objective assessment of your existing real estate will form the foundation for prioritizing stores that need attention, as well as budgeting how much investment makes sense for each location.

How many years are left on the lease, how much has been invested in the store over the last five years, have you over- or under-invested compared with your other stores, what’s the expected lifecycle of the asset? Even, is the location right based upon your current business drivers? Your objective is to know as much as you can about the market’s potential at that site to prepare a plan of action.

New locations or investment in existing ones?
Once you’ve identified the stores that don’t meet your business’s success criteria, decide if it makes the most sense to cut your losses by closing the underperforming stores, or invest in making them successful.

If a new location makes sense, value engineering your prototype is the granddaddy of building efficiency. It’s quite possible to take a great deal of cost out of a building without compromising customer perceptions of the brand. In addition, over the last several years, retailers have been busy shrinking their footprint to reduce real estate and building costs. Meijer, Safeway, Best Buy, and Staples, among others, are experimenting with smaller formats and edited merchandise selections. Retailers not only win by reducing capital expenditures, they are often gaining access to new customers, and pleasing time-constrained customers by offering more targeted store experiences.

A new building design may also allow you to use your prototype more strategically. Walmart, like most big-box stores, has been challenged by local jurisdictions and community groups. The retailer developed an exterior architectural strategy (in parallel with its interior strategy, Project Impact) that has been implemented in many communities. This approach has not only greatly improved the retailer’s acceptance rate, but it has also positively affected consumers’ brand perceptions — even if people simply drive past it.

Takeovers offer good options
With an abundance of empty space, it’s now possible to negotiate great deals. However, takeovers and remodels are definitely getting more complicated from an architecture and engineering perspective.

Going into an existing building has always required more on-site technical expertise than a new ground-up build, but it provides huge savings on infrastructure needs. This can be as much as a 10% savings in lease-hold development costs. In addition, companies are much less cavalier about abandoning the mechanical equipment and electrical systems. The key here is an on-site viability assessment and site investigations conducted by field-savvy architects and engineers. You want to know if you can reconfigure and reuse systems to reduce construction costs.

Many retailers are targeting abandoned locations from certain brands that used similar types and sizes of buildings. This strategy allows you to develop streamlined approaches to transitioning from the original brand’s building package to yours. TJX has been evaluating former Circuit City and Linens ‘n Things locations. And it has also been reported that Best Buy, Bed Bath & Beyond, and Kohl’s are looking for takeover opportunities.

In fact, takeovers may be your “in” into many areas that previously would have been difficult to work with. Communities may be very receptive to you taking a “dark” location and making it vital again. Of course, you can expect more competition for these sites as time goes on.

Cookie cutters are only good for making cookies
Working with a single prototype for all target markets just doesn’t work anymore. Grocery and big box retailers, being the first to feel the constraints of their real estate requirements, are leading the way creating multiple store formats (and brands) that give them more flexibility to reach their customers. While Safeway continues to roll out their highly successful Lifestyle stores, they are also experimenting with a small format concept, The Market by Safeway, aimed at urban customers and fill-in shoppers. Best Buy has been targeting new kinds of customers by developing stores-within-a-store, such as Best Buy Musical Instruments and Club Beats, and even a mall concept, Best Buy Mobile.

Armed with the information gathered in your portfolio evaluation, you should have a sense of where there are opportunities exist. Collaborating with the marketing, R&D/innovation groups on new ways to address the location’s demographics, as well as general consumer trends, is a great way to create real innovation.

Squeezing every sale possible out of your square footage
What if you can’t affect your location or your footprint, and still want to improve the performance of your real estate? You still have options to boost top and bottom-line sales.

Discount, drug, and mass retailers are installing refrigeration and freezer cases to add food items and increase sales per square foot. Grocers and big box retailers are adding foodservice and coffee offers. McDonald’s forecast up to a billion dollars of additional revenue from retrofitting existing real estate with a new combined beverage platform. Now they are in the process of adding fruit smoothies too. Another option is partnering with a compact “drop in” concept, such as Quiznos and Cold Stone Creamery.

Summary
Converging development, market, and consumer trends are demanding that retailers adapt store strategies for future growth. Elementary, foundational approaches to improve performance often get overlooked in the rush to action. The key is to assess where you are, what you have to work with, and what your objectives are before you begin to budget and spend.

While it’s impossible to overlay a single set of solutions, the approach outlined above will lead to answers that are right for your store portfolio. Strategic reinvestment in remodeling, takeovers, new concepts, flexible prototypes, as well as new products and services to increase the sales per square foot are all viable options that could help you be prepared to easily address varying site requirements, community standards, and market segments.

John Miologos, AIA, CSI, NCARB, is executive VP of architecture and engineering at WD Partners ([email protected]), whose clients include The Home Depot, Walmart, Best Buy, BJ’s Restaurants, Safeway, and Gap Inc. He has 30 years of experience managing the design, development and construction of stores across the globe.

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