Refreshing the Brand without Breaking the Bank: Remodeling Stores on a Budget
By Jo Seed, Chief Commercial Officer, LogicSource
This article was originally published in the June 2017 edition of the Journal of Corporate Renewal
Disruption is the new norm across the retail industry as retailers pursue the best omnichannel approach to engaging with their customers. The proliferation of internet retail and omnichannel delivery is resulting in new priorities for the in-store experience. Brick-and-mortar retailers must now think about how to use their retail estate assets differently, focusing on a range of initiatives, such as online ordering/in-store pick up, automated kiosk services, and demographic-driven or market-specific strategies to drive foot traffic. Given those ongoing changes, keeping stores refreshed and up-to-date with respect to a retailer’s brand and image is critical.
Retailers have always been looking to reduce capital and operating expenses related to real estate and to optimize store footprints wherever possible. Perfecting the retail channel both in terms of store experience and retail footprint is not a new challenge. But as online sales growth continues to significantly outpace that of traditional retail outlets, the importance of maximizing real estate investments, protecting the brand, and effectively managing remodeling projects to enable these new initiatives is becoming an increasingly high priority. According to Chain Store Age, 52 percent of retailers plan to invest in redesigning and remodeling stores to improve customer experience.
Of interesting concern, the associated costs, timelines, and return on investment (ROI) of store builds, remodels, and refreshes are often not well understood or accurately predicted. Experience across a broad range of retailers competing in wide range of channels, including food, drug, automotive, club, specialty, department store, and others, shows a consistent set of challenges that significantly and negatively impact store remodels, refreshes, and builds.
These issues are typically driven by four factors:
- Insufficient interaction between design and construction teams, leading to budget overruns, build complexity, and increased timelines and costs
- An inability to scale existing resources to meet the demands of large remodeling programs without hiring additional full-time employees (FTEs), which cannot be justified for a temporary peak in activity
- Design and construction teams that do not have expertise in sourcing and procurement strategies for their areas, resulting in higher costs
- A lack of technology and process, further compounding cost and lead time issues
The end result is that remodeling project rollout timelines and costs are adversely affected, and retailers rely on external parties – from architects to general contractors and even materials suppliers – to help fill in the gaps. However, these approaches usually increase costs and risks, and reduce control of compliance to brand standards and use of preferred suppliers.
But just as the retail marketplace is changing, so too are options for sourcing, procurement, and supplier management. A number of specialist providers now offer services to help reduce costs and improve rollout efficiencies for store remodeling programs. Retailers’ design and construction teams can work with such firms to optimize and value engineer remodel designs to reduce costs across the entire labor and materials scope of a construction project.
These providers focus on generating efficiencies throughout the supply chain, looking at operational processes, resources, technology, and supplier relationships to find value in a range of areas. “Store-in-a-box” is one example. This type of consolidation and rollout delivery is an option for retailers with high-volume, accelerated remodel projects, and can reduce traditional construction timelines significantly.
These providers can also define and deploy a collection of best practices to improve ROI. Examples include a brand design definition/test/stabilization methodology, establishing an end-to-end critical path store project tracker system to minimize construction duration, aggressive sourcing from an established network of suppliers, and regionally optimized general contracting provider and pricing.
They also allow for a “scale-up, scale-down” of resources to deliver remodel programs over a fixed time period without the need to make permanent FTE hires. Such relationships can reduce costs for furniture, furnishings, and equipment (FF&E); construction materials; labor; and services while also improving brand consistency, quality, and supply chain control across projects.
One sourcing and procurement services firm recently worked with a rapidly growing retailer to help it define a more efficient souring and procurement approach for its retail development and operations spending. With a concentrated focus on cost reduction and time-to-open efficiencies, a rapid assessment of people, process, technology, supply chain, and execution challenges was completed.
The assessment revealed a highly fragmented spending distributed across more than 1,000 suppliers. Highly manual and decentralized processes were causing significant resource constraints and time delays, and the company relied heavily on architects, general contractors, and internal business units to perform sourcing and ordering of materials and services.
A strategy, business case, and implementation plan was developed to address these challenges. The approach included net-new resources on-site at the retailer’s offices to support sourcing and procurement execution on a day-to-day basis. These resources were supported by on-demand category personnel to perform strategic sourcing using the benefit of the sourcing and procurement services firm’s aggregate pricing leverage. Procurement processes were centralized and automated through a workflow platform, creating “one source of truth” for all pricing, spending, and order management.
The project resulted in:
- Annual net savings across materials, labor, and services expenditures
- A streamlined sourcing and procurement capability that was up and running in 90 days
- A reduction in “speed to open”
- A reduction in reorders and change management through improved sourcing of contractors and accuracy in ordering and delivery of materials
Free to Focus
Just as priorities for the in-store experience are changing for retailers, so are the delivery models for store remodeling programs. Cost reductions and timeline efficiencies may be realized by working with a specialist provider for a fixed period of time to help provide scale, leverage, and operating efficiencies.
Ultimately, such a relationship should be managed in terms of focus. The chosen firm should focus on execution, increasing ROI for the retailer through cost reduction, timeline enhancement, and brand control and risk management. Meanwhile, the retailer’s focus should be freed up to focus on core strategic initiatives as a result, enabling it to react to and stay ahead of the fast-paced and changing landscape in the industry today.
Tags: Change, Complex Categories, Execution, Strategic Sourcing, On Demand Resources, Store Remodel, Sourcing and Procurement, Buying as a Service