SPOTLIGHT ON: Planning & Design
Building collaborative relationships between design visionaries and construction teams was the fundamental theme underscoring the tips for success shared in the SPECS Planning & Design workshop session “Going from Prototype to Reality, Without Losing the Sizzle.”
The logical first step, suggested Brady Harding, VP project architecture, Interbrand Design Forum, Dayton, Ohio, is to test design through a concept store, ideally staged in close proximity to the retail headquarters, then follow with a tiered rollout of flagship stores in major MSAs, mainstream models in key secondary markets and modest design refreshers in tertiary markets.
Throughout the process, the critical challenges are staying on task, on budget, on time. To do this without “stifling creativity,” observed Matt Kobylski, director of real estate and construction at the fast-casual dining chain Pollo Campero, requires hands-on management and attention to details.
“Stay away from volatile [building] materials with cost fluctuations or [questionable] availability,” Kobylski cautioned.
Few retailers have mastered prototype execution as well as Disney Store, where design is all about the brand. Jonathan D. Endicott, VP global store design and construction at Disney Store USA, rounded out the SPECS presentation by outlining practices that have contributed to his company’s success, including:
• Define what goes on the priority list and what goes off. For Disney, brand is priority No. 1, followed by schedule and cost.
• Build a fully operating “mock” store and learn from its problems.
• Develop a comprehensive tool kit of everything required to meet the overall schedule.
• Commit to the “big” idea and evangelize the concept so everyone knows what is important and why.
• Plan for chaos, manage to order, and fail on paper first, not in construction.
• Follow the 80/20 rule: 80% of stores will roll out virtually on autopilot; focus on the 20% that have site anomalies.
Pop-up stores: The unique challenges of designing and building pop-up stores were addressed in the SPECS Planning & Design session, “Here Today, Gone Tomorrow.”
Chain Store Age contributing editor Connie Gentry opened the discussion by explaining that the definition of pop-up retailing embraces stores that are open for hours, days, weeks or months — basically any time frame less than one year. The newest craze, referred to as “Flash Retail,” involves stores that are open for one to 24 hours and are usually promotion-driven concepts. Pop-up stores that last days to weeks in duration are typically intended to engage consumers, create brand buzz, test markets or introduce new products.
The most recognizable format in the pop-up genre, seasonal stores, are more closely aligned with traditional retail, where the primary objective is simply to sell merchandise. Halloween stores are classic seasonal concepts and Bob Schank, president of Masquerade, Inc., presented lessons learned over the 29 years that his company has been opening Halloween Adventure stores throughout Northeast and Mid-Atlantic markets.
“Controlling expenses is critical in the pop-up business because there is no time or margin for error; you have to maximize sales every day,” Schank advised. To help keep the rollout as efficient as possible, the flow and adjacencies are basically the same across all Halloween Adventure stores, even though the formats and store footprints may vary dramatically, from inline shopping center spaces, to street-front retailing and, in some unique cases, even large big-box formats.
Among Schank’s recommendations are to hang signs in the windows as soon as possible after the sites are selected to begin to create awareness even before the store opens. And to minimize costly liabilities, he advised conducting a formal walk-through of the space prior to taking possession. The walk-though should include recording any pre-existing facility issues in photos and on a sign-off sheet so the landlord cannot hold the pop-up tenant accountable for prior damage.
Similarly, obtain official meter readings for utilities on the day of occupancy and the day of termination to ensure accurate billings, Schank recommended.
SPOTLIGHT ON: Ground-Up Construction/Remodeling
Keeping a store open during a remodel versus closing it until the work is completed was the theme of the SPECS session, “Open Store Remodels: Best Practices for Maintaining the Customer Experience and the Focus on Sales.” The session was part of the Ground-Up Construction and Remodeling workshop track.
Although the speakers had experience with both methodologies, they focused more on ways to keep the store open during the process.
“There’s no question that the majority of the work we have done over the past year has been remodels,” said Matt Schimenti, president and CEO of Schimenti Construction Co., Ridgefield, Conn., who moderated the discussion. “And the intent of this session is to combine the perspectives of the contractor, the people in the field and the retailers to provide a full and comprehensive picture of the remodeling process.”
The first decision, agreed all of the panelists, is to decide if you are going to close down the store and execute an expedited rehab, or keep the store open and try to minimize customer and staff disruption.
“Over the last five years, our work has been 100% remodeling,” said Randy Pannell, director, construction, Saks Fifth Avenue, Merritt Island, Fla. He added that the department store retailer employed a variety of tactics, from doing open/occupied remodels, entire-store remodels and rehabbing isolated areas.
“The approach determines the process,” Pannell said.
The panelists agreed that there should be several clear objectives during a remodel: to maintain a productive relationship with the store staff, to keep customers comfortable and to make the least impact possible on sales.
“It all starts with planning,” Pannell said. “The phasing is most important, as it affects the final merchandising.”
Omar Carcamo, senior construction manager, southeast region, Gap Inc., agreed.
“That’s true in a small box like ours as well,” he said. “We have to try to make it easier for everyone involved — the teams have to work together to accommodate each other in a restricted space. In other words, everyone has to get their jobs done regardless of what is happening around them.”
According to John Colonnese, project executive with Schimenti Construction, subtlety during an open-store remodel can’t be overdone.
“The remodel process should be as invisible as possible,” he advised. “The success of the planning is what makes the process seamless and invisible.”
Because so many of the session attendees were retailers and restaurateurs responsible for their own remodels, the panelists opened the floor to suggestions and questions from the audience. When polled, the majority of the attendees indicated that they keep their stores and units at least partially open during a remodel, and they unanimously go into a remodel with a predetermined schedule, beginning with a kickoff meeting at the pre-construction phase.
(One exception in the audience was a representative from Denny’s restaurants, who said the chain only completes closed-store remodels, as it is against the company’s policy to execute a remodel while a unit is open.)
When one attendee asked how to execute an occupied remodel versus a closed remodel, Gap’s Carcamo suggested a temporary space as a solution. >
“Temp stores can offer a potentially viable alternative to both types of remodels,” he explained. “You are able to close the space being remodeled but still remain open for business.”
While that solution might not be doable for a lot of retailers, there are plenty of other strategies that are. Saks, for instance, does multi-phased renovations, and the barricades become part of the building itself. The retailer has made it a practice to dress its barricades with color and graphics.
“It’s about protecting the customer experience,” Saks’ Pannell said.
Gap counts flexibility as key to keeping its process moving and its customers happy.
“Everyone has to understand the need for flexibility,” Carcamo said. “All teams and crews may have to adjust work schedules. There simply is no exact science when it comes to the operational interaction during a remodel.”
Saks employs block scheduling to keep operations moving smoothly.
“We know, in weeks, what it’s going to take to get a project completed,” Pannell said. “Our schedules are fairly fluid. Our superintendent meets with the store manager every day. We have started using consolidated warehousing, sending everything in ahead of time, which makes it a cleaner process.”
The panel participants and attendees concurred that another hot button during an open-store remodel is getting the marketing department involved in the process from the outset. Retail marketers can be charged with creating the signage that is used in the remodel and with keeping the brand image intact when it is being tested the most.
“You have to deal with it on the front end, and be proactive, not reactive,” Pannell advised. “We actually do that at store level, in that we have marketing personnel at each store. We go way beyond ‘pardon our dust.’ ”
Lead with Analytics
Recovery is a relative term when applied to retail real estate. It’s taken a couple of years of determined optimism, but most in the industry have now reconciled themselves to the realities of the new world order. A world where capital is cautiously invested and most retailers, even those that are opening new stores, have flattened growth rates. Gone are the days of expansive, unrestrained development — replaced instead by measured, deliberate decisions and a renewed focus on redevelopment, relocation and re-evaluation of portfolios. What we’ve come to realize is that these are progressive steps forward.
Positive indicators color the retail landscape: Bankruptcy filings have slowed significantly, store closings are down dramatically, and mergers and acquisitions are on the rise. Select sectors of retail are growing, most notably the dollar stores and discount brands across all categories, from food retailer Aldi to fashion plates like TJX.
Whether retailers are gradually adding new stores or holding steady, tenants and property owners alike appreciate that real estate portfolios need to be viewed as dynamic, not static, assets. Success in 2012 is measured not by how many new stores are built, but by how productive the retailer’s portfolio is — with productivity underscored by the difference in the number of stores performing at or above expectation, minus the stores with sub-par performance.
Strategic decisions fed by actionable information have become the trademark of the most successful players in retail real estate. Increasingly, these industry leaders are developing and executing plans around ambitious objectives to:
• Build customer-centric real estate models;
• Define the enterprise based on micro, as well as macro, characteristics; and
• Manage and monitor with a proactive mind-set.
Consumer-centric real estate models
Call it the Amazon Syndrome, but ironically the retailer that set the gold standard for building customer-centric real estate models has no brick-and-mortar real estate. Yet, the icon of online commerce taught the industry the importance of an ever-evolving consumer-relevant position.
“Constantly study and watch what your customer is doing so you can pick the right real estate location as it relates to your customer,” affirmed Charles Wetzel, president and CEO of Buxton, based in Fort Worth, Texas.
To accomplish this often requires a tectonic cultural shift within a retail enterprise. Traditional retail organizations built enterprises where real estate, operations, merchandising and marketing functioned autonomously and territorially independent of one another. That ‘silo’ approach proved increasingly detrimental to retail performance at every level, and was totally counterintuitive to the concept of creating a consumer-centric model.
“In successful retail operations, the silo mentality is no longer acceptable,” Wetzel explained. “Real estate decisions must be more holistic than just the brick-and-mortar location. It’s about more than market demographics: Know who your customers are, where they live, how they spend their money.”
That includes defining who and where online customers are as well so that enterprise decisions reflect the omni-channel preferences and lifestyles of today’s consumer.
“This is not a one-time study or single piece of analysis,” Wetzel cautioned. “Customer bases change and evolve over time so the retailer must continually evolve its real estate, marketing and merchandising strategies.”
What empowers retail enterprises to seamlessly connect and integrate various departments is technology that can effectively assemble, analyze and deliver actionable data across defined parameters.
“Cloud-based analytic tools enable end users to drill down and ask location-specific questions to more effectively evaluate sites and make the right decisions about real estate, marketing and merchandising,” Wetzel concluded.
Micro versus macro characteristics
Cloud-based solutions provide a number of benefits to enable strategic decisions that effectively consider influences at both the micro and macro level. The goal is to be able to evaluate individual store performance as well as the overarching productivity of the whole enterprise — and to do so by assessing every aspect of a real estate portfolio from a single-view vantage point. Essentially, portfolio optimization requires that retailers be able to distinguish high-performing stores from mediocre and poor-performing stores.
“The challenge is to focus on the good stores and identify what they are doing well, and at the same time focus on poor-performing stores and determine what can be done to mitigate those losses; in some cases that perhaps means eliminating the locations in as timely a manner as possible,” noted Jim Dooley, senior VP sales and marketing at Atlanta-based Virtual Premise. “The ability to look at all the relevant data at a glance and have it immediately available on a dashboard without having to dig through numerous [systems] gives the retailer a critical advantage.”
However, the strategic benefits of having visibility at a granular level into how each store is performing extend far beyond being able to classify the good, the bad and the anomalies. For a retailer that has a family of brands operating throughout its portfolio, the ability to make brand-specific evaluations based on micro- and macro-performance characteristics provides another opportunity to elevate strategic thinking.
“Having visibility into empirical data enables retailers to develop a strategy for every store and for every brand. A retailer could potentially swap store locations across different brands if the data indicates a low-performer with one brand would likely become a high-performer under a different brand,” Dooley continued.
Understanding micro versus macro metrics also positions a retailer to be more assertive in the marketplace, perhaps extending leases on high performers ahead of schedule to take advantage of favorable terms and conditions.
Now is certainly the time for retailers to be proactive, as the balance of negotiating power remains with the tenant in most cases.
“It’s not as dramatically skewed to the tenant as it was the last couple of years, but high-quality tenants still have some leverage,” stated Mark Dufton, CEO of DJM Realty, Melville, N.Y. “Especially the tenants that are stable and have good credit.”
“We’re working with quite a few clients to extend leases, and tenants have the leverage to cut a better deal in their lease because the landlords don’t want to take space back,” Dufton continued. “In the current market, retailers are working options [for lease renewals] pretty hard to get that option either back to the market level or even below market level.”
Whether a lease has come up for renewal or the retailer has initiated a preemptive discussion, effective negotiations require relevant information specific to the property under review. With geographically dispersed portfolios, technology powers the assimilation, analysis and communication of data that equips retailers to close the deal on the most favorable terms.
Since taking the helm at DJM Realty in February, Dufton has vowed to fortify the company’s culture to one that is even more technology-focused. “Our proprietary database aggregates all of the lease information we process on a national scale, with detailed insights into submarkets across the country.”
In addition to portfolio optimization through evaluation and renegotiation of existing locations, many retailers are looking at merger and acquisition opportunities to fuel growth. The same real estate technologies that enable retailers to study consumer behaviors and the micro/macro characteristics of stores in their portfolios can be used to evaluate each property in an M&A target, ultimately facilitating decisions for which locations should be retained. Joint venture partnerships essentially allow retailers to pick and choose locations within an acquired portfolio without assuming the liabilities of unwanted assets.
Capital that has been sitting on the sidelines is gradually making a move into retail real estate. Gradual is a good policy — preferable over the onslaught of investments that flooded the market with excessive development in the last decade. Now is not the time to make mistakes in real estate; now is the time to make educated, data-driven decisions.