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Small-Box Construction: Challenges of dealing with unexpected rollouts and permit roadblocks

BY Marianne Wilson

The small-box construction track at SPECS/2007 was designed for retailers with smaller store formats. Sessions offered insight on a variety of topics, from the impact of Sarbanes-Oxley on retail construction build-outs to managing accountability through the design and construction process.

Managing resources: The session, “You Want How Many Next Year?” focused on the challenge that comes when a retailer is suddenly faced with a greatly increased number of projects.

“Specifically, we will look at what happens when you move from 10 or 20 locations to 100 or 200,” said Dave Handera, VP, store construction and design, Charming Shoppes, Bensalem, Pa.

The first thing to do, according to Handera, is to assess the situation.

“Understand what you are being asked to execute and deliver, and understand the time frames for deliverables,” he advised. “Carefully look at your current workload, analyze your staff and current resources, both in-house and outsourced. And identify your obstacles to success.”

In evaluating the current organization, there are a number of issues to consider, Handera said, including available competencies, organization structure, in-house vs. outsourced functions, and the performance level, qualifications and experiences of the team.

When evaluating outsourced vendors, look at their performance and skill sets and also consider whether they are large enough to handle your growth needs.

“Consider your resources,” Hand-era said. “What do you have in-house? What do you outsource, or what can and should be outsourced?”

He urged attendees not to get caught in the “We have to do everything in-house” trap or “Outside vendors do not know our processes” trap.

“It is not easy to ramp up and execute successfully,” Handera added. “Do not think you can accomplish everything in-house.”

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Typically, retailers will outsource architecture and engineering (A/E) and project management. Handera advised using multiple firms to handle this part of the project.

“It mitigates your risk in the event there are issues with a particular firm,” he explained. “And it allows the firm to flex and handle multiple assignments.”

The speaker recommended using firms with full in-house competency for MEP (mechanical, electrical, plumbing).

“And track your drawings through weekly calls with your A/E firms,” Handera said.

Attendees were urged to establish a training program for their contract project management (PM) firms. The tracking of projects is critical in a high-volume environment, and weekly reports are needed with weekly or bi-weekly conference calls.

“Opportunities for failure here include hiring a PM team and not training them in your processes, deliverables, needs and quality,” Handera said, “and expecting a PM firm to hit the ground running. Don’t believe them if they say they can—it could mean the difference between success and outright failure. Dedicate all internal resources to ensure knowledge is transferred to your external teams.”

General contractors also play a critical role in the process.

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“Shorten bidding times and ensure there is a cash flow and that payments are not held up,” Handera said.

To anticipate a big rollout, Handera urged attendees to stay close to their company’s growth plan and ask senior management for direction.

“Establish a base of vendors that you can draw from in the event this occurs,” he added. “And start planning now—you don’t have to enter into any contracts.”

Permit process: The session, “Let’s Talk Permits,” focused on an ongoing challenge for retailers: how to work through permit roadblocks. In roundtable discussions, attendees shared best practices relating to securing timely permits, and discussed the pros and cons of expediters, third-party reviews and new permitting options in Arizona, California and Florida.

The session also included the results of an electronic survey that was sent to SPECS registrants and other retail professionals. The length of the permit process and restrictive ordinances ranked among the critical issues, according to the survey.

The session also featured “success stories” and tips as offered by the survey participants. These included:

Use a hands-on national expediter for permitting;

Never use runners;

Use architects to apply for permits. They are viewed as an almost neutral party in the eyes of the reviewers. They also have the best vantage point in negotiating items and/or disputing items that may be requested;

Get construction drawings done early so as to have a lot of time to permit; and

To expedite the permit process, have thorough online documentation, guidelines, published contracts and deadlines for complete plan review. Also, maintain a dedicated Web site with all the information critical to permits and code, and have a list of local expediters approved by the landlord.

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT

BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions.

“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.

THE FIX: Differentiation would better help Sam’s

Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.

Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.

That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%

WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers.

Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.

Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.

THE FIX: Improved shopper experience ups comps

Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.

Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.

Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.

Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”

He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.

“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”

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