Careful development planning, execution keep retail stores ahead.
In today’s environment of social media and sophisticated interactive online media, branded physical environments play a pivotal role in validating the consumer’s perception of any brand. This is particularly the case for luxury goods retailers because it is in these environments that customer experience and brand value are consummated.
Yet the act of planning these environments is often plagued by compressed project schedules and ongoing design changes during construction, which lead to runaway costs, missed opening dates or both.
Many luxury goods retailers spend tens, if not hundreds, of millions of dollars annually on renovating and building out their retail locations. Given the potential to drive sales during the lucrative holiday season, an early fall opening as opposed to a spring opening of the following year, may seems an obvious choice.
However, shortening the planning period to achieve an earlier, but unrealistic, opening often results in unanticipated cost overruns and the very schedule delays the retailer is trying to avoid. The increased costs and delays ultimately eat into the pro forma projections used to rationalize the project in the first place.
Drawing lessons from our recent experience in project managing the build-out of a new store for a major luxury goods retailer in a major urban historic district with a very aggressive schedule, every retailer should take the following into consideration.
1. Location Matters
This goes without saying. But what a lot of luxury retailers don’t initially realize is that their desire to locate in culturally vibrant urban neighborhoods, such as SoHo in New York City, means increased development costs attributable to:
- a. Renovating older building stock, in particular integration with or replacement of older heating, plumbing, sprinkler and other life-safety systems.
- b. Dealing with residential neighbors or other non-retail occupancies.
- c. Construction and delivery logistics and restricted work hours
- d. Local landmark laws, input of community groups, and strict municipal noise ordinances.
2. Planning Matters
A store design consistent with brand image within a given project budget and schedule is the expected outcome, but this is easier said than done. The design team must have a comprehensive grasp of not just the elements and coordination of the design, but also an understanding of how procurement, fabrication, and the construction schedule are impacted by their written specifications for the project.
Greater front-end coordination is often necessary if unforeseen expedited delivery and/or overtime costs are to be avoided. The in-house design team can mitigate some of the uncertainty surrounding procurement and performance of specified items by adhering to strict criteria for when to include new and novel items into its brand-standard specifications. Those criteria should include confirmation from the manufacturer regarding applicable use and expected performance prior to inclusion in the construction documents. It should also include sufficient time in the planning schedule for mockups and the submittal of test samples. If there is insufficient time for coordination and timely procurement of novel specifications, alternate proven materials and details should be selected.
3. Teamwork Matters
Many luxury goods retailers that maintain a significant real estate portfolio have their own in-house design and construction operations, and utilize outside consultants on a per project basis.
In an effort to not be critical of its client, these consultants often accommodate the client design team’s internally driven changes, which inevitably increase the scope, cost and schedule of the project. Strong consultants should provide the discipline required, respectfully holding the client to the project budget and schedule when the threat of ‘scope creep’ ensues with the retailer’s in-house team. Retailers with actively involved in-house design teams should select strong outside consultants to shore up any weakness or lack of experience in their in-house team.
4. Complete Scope Matters
The devil is in the details. Most retail projects are executed on such a fast-track that less than 80-percent-complete construction documents (CD) for bidding are the norm. However, a properly planned project schedule can account for expedited production of complete and coordinated CDs.
Even so, construction managers and contractors bidding projects, require sufficient time to review the plans and submit requests for information in the event that any given aspect of the scope of work is not specific or sufficiently clear. A beneficial byproduct of a thorough bidding process is valuable input for improving constructability. The project team can use this input to enhance the CDs prior to accepting final bids.
5. Fairness Matters
The best-planned project will still face its share of challenges. Working with the project team ahead of time to develop a fair method to allocate responsibility for those risks among project participants will make reaching resolution during the frenzy of construction easier and less disruptive to the process.
The project team can also develop a list of weighted risks that could adversely impact project costs, then seek a price for the appropriate mitigation effort from the bidding construction managers or general contractors. Those costs form the basis of an informed project contingency controlled by the owner, not the contractor.
Retailers following the five guidelines will learn they exert greater control over actual construction costs and project schedule while improving their relationship with each member of the design and construction teams. Achieving these greater efficiencies throughout the project process will naturally result in the success everyone desires.
— Barry B. LePatner is the founding partner of LePatner & Associates LLP, which serves as construction counsel for corporate, commercial, institutional owners and real estate developers. Also contributing to this article were: C. Bradley Cronk, a principal of LePatner C3 LLC, the project management practice affiliated with LePatner & Associates LLP; and Norine Bagate, a project manager for LePatner C3 LLC.