Grappling with ever-increasing costs are an unavoidable reality for store development leaders.
While a severe lack of general contractors and labor remain a major issue for most retailers, escalating trade tensions and taller bureaucratic barriers are also proving major hurdles in getting stores built or remodeled.
We reached out to several store development and construction leaders to get a better idea of how the industry is dealing with the added pressures. Here’s a selection of their experiences.
What’s your biggest challenge at the moment?
Our struggle right now is that general contractor (GC) costs have really increased. Material costs too, but the biggest challenge is that the people who build the stores are really calling a lot of the shots because there’s so much growth happening. There are GCs actually turning business down these days. I know through my relationships with other retailers that we’re all feeling the same thing and there doesn’t really seem to be a solution to it. Especially with most retailers focusing on high profile and high volume markets with large populations. Those tend to be more expensive to build and operate in.
What are you focusing on in 2019 to minimize costs?
For us it’s really focusing on every line item that goes into building and operating a store. Our biggest problem to solve is that construction line. The key for us has been to continue building partnerships with companies we can trust. When we choose our builders for the year, we’re promising them X-amount of work. If they’re building more than one location, that’s a way that we can achieve savings. When you’re building one-offs it’s obviously going to be really expensive.
What’s a strategy that has worked for you recently?
With store design, we have great costing right now on fixtures — true FF&E. We’ve done that through value engineering and simple design. And then we have really good third-party partners that help us meet those goals. Materials can be expensive when you’re going market to market, especially internationally. Being an international company, our design is global, but we typically manufacture within the regions. We’re not making fixtures in Dallas and then shipping them to Berlin.
What’s your biggest challenge at the moment?
Both lease rate and construction cost escalation due to the tight commercial market are the biggest challenges we are facing right now. This has been the case for the past 4-5 years, but conditions are tighter than ever before, even with empty big box stores from bankrupt retailers waiting to hit the market. Recent trade developments have also caused material prices to increase somewhat, but if the second round of tariffs go through then that will have a much greater impact.
What are you focusing on in 2019 to minimize costs?
With much of our growth international now, and with pricing of US-produced equipment and materials no longer competitive in many international markets, we are focusing on adding new vendors in the EU, China, and Central America to serve local markets.
What’s a strategy that has worked for you recently?
Sourcing in new international markets, along with reducing required standards for our build outs have been the main approach to reduce our overall buildout cost. We have evaluated what changes to the look and feel of our parks will have a minimal impact on the guest experience. Of those potential changes we have prioritized implementation of each over the past year based on cost savings.
What’s your biggest challenge at the moment?
The cost of sub-contractor labor and the ever-increasing demands of local municipalities on design and permit requirements.
What are you focusing on in 2019 to minimize costs?
We are benchmarking projects against each other to determine GC performance, as well as experimenting with new and/or improved construction materials, and widening our pool of contractors to increase competition in the bidding process.
What’s a strategy that has worked for you recently?
We’ve been using cameras on all sites to determine GC productivity, tailor project manager travel and monitor projects more closely.
What’s your biggest challenge at the moment?
Keeping costs down. Our number one issue in keeping costs down are a lack of qualified GCs and subcontractors.
What are you focusing on in 2019 to minimize costs?
We’re focusing on bulk-purchasing materials we can supply to our GCs and developers to lower the material portion of the project.
What’s a strategy that has worked for you recently?
We bid out our vanilla box build out projects and secured one contractor to do all vanilla boxes at a cost saving of $3 per square foot.
What’s your biggest challenge at the moment?
The biggest challenge is governmental approvals. The delays and costs to get permits or even to get business licenses are increasing exponentially, thereby increasing development costs and timeframes.
What are you focusing on in 2019 to minimize costs?
Working with partners that can speed up the development process using proven products and/or procedures. If the government is taking longer to approve applications, we need to find ways to speed up the rest of the process.
What’s a strategy that has worked for you recently?
We have shifted away from the traditional design-bid-build. Because the process is such a challenge, we need to be creative such as ordering lights while we are still waiting on permits.
Tackling rising costs will be a topic of discussion at RetailSpaces ‘19 (Sep 15-17). Space is limited, reserve your spot now.
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