Make Smarter, Faster, Cheaper, Better Decisions

Over the course of the recent recession it was as if the ground literally shifted beneath the feet of retail real estate executives. Strategic objectives that had governed real estate decisions for decades were usurped by dramatically diminished consumer spending, capital constraints and an overwhelming struggle to gain control of properties and portfolios in crisis.

The fundamental battle cry of real estate warriors: “Location, Location, Location!” evolved seemingly overnight into: “Customer, Customer, Customer!”

By 2009, site selection, the primary focus through the ’90s and in the early years of the new century, had taken a back seat to cost controls and proactive lease administration.

Although 2009 was the year that retailers focused on right-sizing operations, from inventories to real estate portfolios, by year-end even that trend had begun to transition into a more refined strategy of comprehensive portfolio optimization based on customer analytics. With the dawn of 2010 came a new decade, a new economy and a new retail landscape—one that was characterized by new challenges and new opportunities.

Carpe diem: Widespread store closings and retail bankruptcies—Linens ‘N Things, Circuit City and Goody’s, to name a few—have left the industry with thousands of darkened spaces and empty boxes.

Andy Graiser, co-president of DJM Realty, Melville, N.Y., the real estate division of Boston-based Gordon Brothers Group, noted, “There aren’t a lot of takers so retailers are in a position to negotiate good leases.

“We’re seeing more short-term leases that allow retailers to test markets. If the location performs well, the retailer could extend the lease and the landlord could renegotiate for better rent. If it doesn’t go well, they aren’t locked in for a long time.”

DJM Realty helps negotiate rent reductions, and for healthy retailers, it is easy to get better terms in the current economy. However, even for troubled retailers, DJM has successfully negotiated more favorable leases.

“We compile extensive documentation that shows the retailer’s history, strategic plans, cost controls and key stakeholders so the landlord sees a full disclosure and understands they aren’t carrying the full burden for long-term rent reductions,” Graiser explained.

DJM also manages store closings and liquidations. While companies that filed Chapter 11 a few years ago typically emerged from bankruptcy after restructuring, the lack of liquidity in the marketplace has made it increasingly rare for lenders to support these recoveries.

“We’ve been working with retailers on out-of-court restructurings to avoid Chapter 11,” Graiser continued. “Again, we put together a detailed financial plan that shows landlords they would get a higher percentage working with the retailer to avoid Chapter 11.”

Technology is critical to these negotiations because of the paperwork, volume of transactions and speed with which deals have to be completed. For instance, DJM handled the CompUSA liquidation in an out-of-court process that was completed expediently and successfully gained a good recovery for all stakeholders.

In an even faster scenario, DJM represented Movie Gallery during its recent Chapter 11 filing and was given less than 30 days to secure rent reductions on 900 stores involving some 700 landlords.

“All those transactions had to be papered so you can just imagine how important it was to have the right technology in place,” Graiser declared. “Our systems allowed us to complete this job in record time—about three weeks.”

“Getting” Technology: During the height of the recession, in 2008 and early 2009, companies were slow to invest in technology, reported Andy Thomas, president and COO of Virtual Premise, Atlanta. The exception, however, was Virtual Premise’s existing customer base, which “aggressively expanded” its use of the company’s solutions even during the most difficult economy because of the desire to rationalize portfolios.

“As we turned the corner on this year, the level of activity has increased significantly across all sectors,” Thomas said.

However, there are differences in customer expectations. “Retailers are much more focused on higher value-add technology with shorter implementation times and faster ROI—largely because now is the time to capitalize on opportunities for less expensive real estate,” he continued.

The beauty of the Software-as-a-Service (SaaS) applications provided by Virtual Premise is that they minimize implementation times and maximize efficiencies providing expedient ROI. Additionally, SaaS solutions require little to no support from a retailer’s internal IT department.

“As retailers cut operational costs, their IT departments were often targeted for reductions,” Thomas continued. “By leveraging SaaS, it is easy for retailers to do more with less.”

The newest release to Virtual Premise’s Retail Edition includes an advanced strategy and analytics module that provides visibility into critical store performance and real estate information.

“Our SaaS enables retailers to optimize portfolios by bringing in stores’ actual POS information and four-wall expense data,” Thomas said. “They can easily evaluate the stores’ performances against real estate alternatives to determine if it is time to exit a lease or, if the store is doing well, lock in the occupancy.”

Operational efficiencies are enhanced because all of the pertinent information—lease administration details, percentage rent, reporting capabilities—resides in one place via a SaaS model.

Cloud Computing: Lucernex Technologies, based in Plano, Texas, which also produces Web-based SaaS solutions, has enhanced its location performance management solutions with modules designed to fortify a retailer’s strategic abilities.

“We’ve focused on modules to manage cost controls, lease administration and capital projects,” explained Joe Valeri, president of Lucernex Technologies.

For the majority of the retailers and restaurants that Lucernex serves, Valeri explained the role of technology “is about providing visibility and equipping them with data to optimize their portfolios and make sure their stores are in the best locations, ensure that they don’t miss any key lease options, and empower them with the best decision-making analysis tools for the process.”

Lucernex solutions gives a corporate retailer dual visibility into budgets and schedules, across all its store projects, so they can complete rollouts more efficiently and economically.

Interestingly, Valeri has begun to notice that some of the smaller retail and restaurant chains are beginning to look into growth opportunities. “In 2010, I think there will be a shift back to development, at least among those companies that I’d call the shooting stars,” Valeri said. “Those are typically retailers with 20, 50, maybe 100 stores in their portfolios, and they are ready to grow. One retailer that we work with has 250 stores, and they’ve increased projected new store openings from 25 to 50 for this year.”

Polishing portfolios: For most retailers, new store openings are the exception, not the rule, but polishing the existing portfolio is a priority.

Based in Dallas, DAVACO manages rollouts, retrofits and resets for retail and restaurant companies throughout the country. Speaking to the need to optimize existing stores versus opening new locations, DAVACO’s founder and CEO Rick Davis commented, “Clients are interested in their existing stores, remodels and resets. They are looking for assistance and accountability from beginning to end of a project or rollout program.”

DAVACO’s ClearThread proprietary technology collects information from the field and provides retailers with real-time visibility into the execution and management of high-v