Cutting Back on Costs
The sluggish economy and declining sales are taking a toll on store development, according to
The exclusive survey was conducted by Leo J. Shapiro & Associates, Chicago, which compiled results from retailers across the nation. The study looked at such items as construction costs, store size, expansion plans, construction time, energy costs and expenditures, and trends in store-outfitting and support systems, such as fixtures, lighting and heating, ventilation and air conditioning (HVAC).
The retailers that participated in the survey were grouped by segment: drug stores, supermarkets, department stores, home centers, specialty apparel and big-box stores. The drug store group included Kerr Drug, Medicine Shoppe International, Fruth Pharmacy and Kinney Drugs Inc. The supermarket category was represented by such chains as H-E-B Grocery, Giant Eagle, Roche Bros. Supermarket and Minyard Food Stores.
United Building Centers, The Home Depot, Lowe’s and Spenard Builders Supply were among the home centers. Department stores included Macy’s West, J.C. Penney, Gottschalks and Von Maur. Specialty apparel retailers surveyed included Gymboree Corp., Jos. A. Bank Clothiers, The Wet Seal, Claire’s, Frederick’s of Hollywood and New York & Co.
The big-box segment included Value City Furniture, Staples, Bi-Mart, Dick’s Sporting Goods and BrandsMart USA.
Although the chains that participate in the survey vary year to year, the results can be taken to suggest general trends within the industry. Overall, the participating retailers operate 320 stores per company, for a combined total of $256 billion in sales last year.
Expansion: For all retailers surveyed, the number of store openings planned for 2008 was 14 (per chain), compared to 19 in last year’s survey.
Looking at the individual segments, new-store activity was down across the board when compared to last year’s results. Specialty apparel retailers said they plan to open 26 stores in 2008 (per chain), followed by home centers at 16, department stores and big-box stores at 14, drug stores at 11, and supermarkets at three.
The planned expansion ratio (defined as new stores planned as a percentage of stores currently in operation) averaged 4.5% for all retailers surveyed, down from last year. Specialty apparel, at 6.6%, had the greatest expansion rate, followed by home centers, at 5.6%, and big-box stores, at 4.1%.
Looking at the expansion issue in a different way, 41.7% of all retailers surveyed reported they plan to scale back new construction in 2008. Among the top reasons cited: the economy (15%), declining sales (10%) and cost/site selection (10%).
Remodeling remains a top priority. Of all retailers surveyed, only 20.8% said they planned to pull back on their remodeling or retrofitting plans.
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 size of the average new store was 41,658 gross sq. ft. vs. 42,125 sq. ft. for existing units.
The smaller footprint was driven largely by home centers, where new outlets averaged 47,857 sq. ft. compared to 59,821 sq. ft. for existing units, and drug stores, where new stores averaged 12,115 sq. ft. compared to 19,038 sq. ft. for existing units. New specialty apparel stores averaged 12,917 sq. ft. vs. 13,333 sq. ft. Big-box stores averaged 48,889 sq. ft. vs. 46,053 sq. ft.
Other categories built larger. New footprints for supermarkets averaged 61,250 sq. ft. compared to 54,405 sq. ft. for existing locations. Department stores averaged 93,333 sq. ft. vs. 87,778 sq. ft.
Construction costs: Building costs were divided into two separate categories: building-shell construction costs for freestanding locations, and tenant fit-out costs for stores in malls and mixed-use centers.
In the freestanding category, construction costs (includes concrete, structural steel, structural masonry, roof and HVAC but excludes interior fit-out), averaged $42.63 for all retailers surveyed, compared to $41.30 last year. Department stores had the highest costs, at $56.50, followed by specialty apparel, which averaged $50.67, and big-box stores, at $48.90.
Construction costs for drug stores averaged $43.88 per square foot, followed by supermarkets, at $35.61. Home centers enjoyed the lowest costs, at $35.21.
Fit-out: Costs for tenant fit-out work (includes dry wall, ceiling, floor, wall finishes and exterior construction but excludes fixture package) averaged $39.27 per square foot for all retailers surveyed vs. $40.75 last year. Specialty apparel, at $49.02, was above average. Department stores averaged $38.50, followed by supermarkets at $36.50.
Drug stores averaged $34.70 per square foot in fit-out costs, with big-box stores at $33.19. Home centers were on the low end, at $18.33.
In the individual segments of trade, fit-out costs were down nearly across the board compared to last year. The only exception was specialty apparel, which experienced a slight increase.
Energy costs: Energy remains a top priority for retailers across the board. For all chains surveyed, 59% reported increased energy expenditures compared to a year ago, up from 43.8% last year. It’s worth noting that an overwhelming majority of retailers do not expect energy costs to decrease any time in the near future. Of the total survey respondents, 66% said they expect energy outlays to increase during the next 12 months.
Energy costs averaged $2.03 per square foot for all retailers surveyed, vs. $1.73 last year. Expenditures were above average for drug stores, at $2.59, and supermarkets, at $2.53. Specialty apparel averaged $1.89, followed by department stores, at $1.82.
On the low end were big-box stores, which averaged $1.69 per square foot, and home centers, at $1.52.
To combat rising energy costs, many chains employ automated energy-management systems (EMS). Of all retailers surveyed, 58% reported using an EMS. Such systems are most prevalent in supermarkets, with a 95.2% usage rate, and department stores, at 88.9%. They were less commonly used in home centers, at 28.6%, and drug stores (which reported the highest energy costs per square foot) at 30.8%.
Green: According to the survey results, more and more retailers are going green when it comes to the use of materials. More than half (64%) of respondents reported using environmentally friendly materials, up from 61.5% in last year’s survey. Eighty-two percent either use or plan to use green materials in the future.
The green trend was most prevalent in big-box stores (89.5%) and department stores (88.9%).
Fixtures: For all retailers surveyed, store-outfitting costs were down across the board with one exception: roofing. Display fixtures retained their longstanding status as the most expensive store-outfitting category, averaging $7.83 per square foot for all retailers surveyed.
Fixture expenses were highest in department stores, which averaged $9.19 per square foot, followed by specialty apparel, at $8.80, and drug stores, at $8.38.
Supermarkets spent an average of $7.92 per square foot on fixtures, and home centers spent $6.92. Big-box stores spent the least, at $6.
Flooring: Flooring was the second most costly store-outfitting category, averaging $2.97 per square foot for all retailers surveyed. Specialty apparel, at $3.71, and home centers, at $3, were above average.
Supermarkets spent an average of $2.83 per square foot on flooring, followed by drug stores at $2.75. Big-box stores, at $2.49, and department stores, at $2.44, were on the low end.
For all retailers surveyed, appearance and cost were the main factors influencing the selection of flooring. Supermarkets, home centers, specialty apparel and big box ranked appearance first. Department stores gave equal consideration to appearance and cost. Drug stores ranked maintenance concerns most important.
Roofing: Roofing costs averaged $2.92 per square foot for all retailers. Costs were above average in supermarkets, at $3.59, followed by big-box stores, at $2.95, and drug stores, at $2.93.
Home centers averaged $2.65 per square foot on roofing, while department stores spent $2.63. Specialty apparel spent the least, at $2.13.
Lighting: Costs for interior lighting (lamps, ballasts and fixtures) averaged $2.80 per square foot for all retailers surveyed. The biggest spenders were specialty apparel retailers, at $3.60, and big-box stores, at $2.94.
Department stores averaged $2.76 per square foot on lighting, while supermarkets averaged $2.65. Expenditures were lowest in home centers, at $2.30, and drug stores, $1.77.
For all retailers surveyed, energy efficiency was the main factor influencing the choice of lighting, at 43%, followed by aesthetics, at 27%, and initial cost, at 19%.
Looking at the individual classes of trade, drug stores, supermarkets, home centers and big-box stores all ranked energy efficiency as the No. 1 selection criteria. Aesthetics was the second most influential factor for home centers and big-box stores. Initial cost was the second most influential factor for drug stores and supermarkets.
For department stores and specialty apparel, however, aesthetics was most important (energy efficiency came in second in both cases).
Ceilings: Total expenditures for ceilings averaged $1.79 per square foot for all retailers. Specialty apparel was on the high side, at $2.43, followed by drug stores, at $1.98, and home centers, at $1.78.
Department stores averaged $1.69 in ceiling costs, and supermarkets spent $1.63. Big-box stores spent $0.98.
HVAC: HVAC costs averaged $1.71 per square foot for all retailers. Expenditures were highest in big-box stores, at $2, followed by supermarkets, at $1.84, and drug stores, at $1.81. Department stores spent $1.80.
Specialty apparel was below average, at $1.62, along with home centers, which spent the least, at $0.96.
Exterior signage: Exterior-signage costs averaged $1.20 for all retailers surveyed. The biggest spenders in the category were specialty apparel, at $1.46, and big-box stores, at $1.37.
Drug stores averaged $1.22 on exterior signage, followed by supermarkets at $1.21. Home centers, at $1.02, and department stores, at $0.48, had the lowest expenditures.
Interior signage: Total costs for interior signage averaged $0.79 for all retailers. Supermarkets spent the most, at $1.17, followed by home centers, at $0.84. Specialty apparel averaged $0.80.
Drug stores averaged $0.71 per square foot on interior signage. Costs were lowest for big-box stores, at $0.57, and department stores, at $0.35.
Floor maintenance: Spending on floor maintenance (equipment and chemicals, but not labor) averaged $0.46 for all retailers surveyed. Costs were highest in supermarkets, at $0.80, and drug stores, at $0.50. Specialty apparel spent $0.40.
Floor maintenance costs were lowest in home centers, at $0.30, and department stores, at $0.20.