The Power Of Renovations


September 15, 2006

In classic “Mission Impossible” style, I was asked to research and write a report on how renovations impact retail businesses. Every person I called responded in the same manner. First they laughed, then said “good luck, no one gives out that information” and then several people actually were kind enough to share their company’s statistics.

After researching this topic I have chosen to divide the subject into three sections: Emotional/Psychological Impact of Renovations, Fixtures Old and New, and Renovation Facts and Figures.

The Emotional and Psychological Impact of Renovations

Why choose to renovate?

The negatives are: renovations are expensive, time consuming and there’s no guarantee that they will improve business.

The pluses are powerful.

Renovations talk to your customers and to your staff. When management chooses to renovate a store it is showing its faith in the future of the store. Both customers and staff are aware that renovations are rarely made to stores about to be closed.

This certainty creates good faith and a sense of continuity and trust. In today’s fragile business climate, developing trust and a sense of security are primary goals for all retailers.

When a retailer renovates a store he is telling the competition:
” I’m here to stay”
” I’m a player”
” I’m offering my customers more than my competition”
” Match me!”

“I’m here to stay” falls into the reliability/stability category. People want to know that they are buying from someone who will stand behind their merchandise. Although the “Going Out of Business” signs in the windows of several electronics/gift stores on Fifth Avenue in New York City generate sales, confidence in the products is limited. Generally only tourists think they might get a “deal” on Fifth Avenue.

Renovations = longevity in the mind of the consumer.
Renovations = longevity in the minds of the employees. They will treat their customers better with lower job anxiety levels.
Better service = better sales.
Renovations = better sales.

“I’m a player” is an annoying expression but it sums up the feelings of both the manager and the staff of a renovated store. When a store is renovated it says to the competition – “I’m in business, I’m counting on growth and I’m going after you!”

The perceived quality of a purchase is in direct proportion to the look of a store. People buy down in prices when a stores’ energy and appearance is faded, tired and old. Even when maintenance standards are high, people can sense dead energy.

A store that feels old and faded gives customers the feeling that the merchandise assortment is made up of “losers” and is unwanted. Only clearance goods will move well in that kind of environment.

Renovations = management’s confidence in the future of the store
Renovations = employees pride in the look of the store
Renovations = customers awareness that the store is in business to stay and is growing.
Awareness of growth and appreciation of new look = improved sales

“I’m offering my customers more than my competition” is another way of saying, “my merchandise mix and my employees are terrific – and I have the power to make it even better.”

Making it even better is the key.

Customers are a captive audience in many of Aramark’s locations. Where else are they going to go for souvenirs or gift items at Muir Woods or Ellis Island? But, even with a captive audience, they will buy less if the energy in the store is old. While cleaning and moving merchandise will improve energy flow, renovations alone create a dramatic increase in the perceived value of the merchandise. If the merchandise is perceived to be more valuable, customers will feel better about themselves when they buy.

People like to be associated with winners.

When a store positions itself as a “winner”, it’s telling the customers that they too are winners for buying at this store.

This may sound simplistic or childish – but it’s true.

Imagine that you bought two t-shirts. One was purchased at a basic discount store for $12.99 while the other was bought at an attractive gift store for $15.99. Which T-shirt will have more emotional value?
Which shirt allows you to feel like a “winner?”

The experience at the attractive gift store would be more memorable because it was appealing. The discount T-shirt would be a practical purchase while the gift store shirt may be more emotional.

Now, add an overall positive experience to the attractive gift shop – such as a walk in Muir Woods or experiencing the win of your favorite team -and the T-shirt’s emotional impact doubles in value.

Renovating the store adds to the value of the merchandise by helping the customers and the employees feel like they are worth the effort. When people feel like they are worth such an intensive effort – they feel like winners. Winners support the store that makes them feel great.

Renovations = people feeling like winners
Winners = spending money to keep feeling that way
Renovations = more money spent in the store

“Match me!” This is not just a challenge to your competitors; it’s a challenge to your staff.

It’s one thing to have a great location and just wait for people to wander in – and another to galvanize them when they come in to buy far more than they intended.

A store that hasn’t been renovated in 7 years has fallen into patterns and traps. The personnel, no matter how hard they try to do something different, are going to repeat merchandising habits over and over.

A newly renovated store offers a fresh floor plan, new fixtures, different lighting and forces the staff to rethink the entire merchandising for the store. Rethinking encourages creativity. Creativity honors both the customer and the sales staff.

Renovations + Creativity = sales.

Renovations get energy moving in a store. Most merchants will either admit – or brag that when they move something – it sells.

There are several reasons for movement creating sales.

  1. People tend to dust in new places. Dirt discourages sales. Neat and clean stores increase the perceived value of the merchandise.
  2. When you move something you create energy. Energy attracts other energy. People like movement and are attracted to moved objects.
  3. When something remains unmoved for long periods of time it becomes “wallpaper” – attractive but unwanted and invisible.

Why not just move stuff around the store? Why go to all the trouble and expense of renovation?

Customers know the difference. Fixtures, flooring, wall treatments and lights all get old. They are very difficult to move. Even fixtures on casters may move – but they never change – except to get beat up and old looking. So, you can move product all over the place and it’s a short-term good investment in energy. In the long term, only renovations will give the total store the lift it needs to get people to buy more when they come in to browse.

Fixtures Old and New

After talking with numerous fixture manufacturers and store designers one fact came up over and over. The only people who buy stock fixturing are small Mom & Pop stores that think they can’t afford custom fixtures.

The big box retailers who have seas of chrome quads can afford to have the quads manufactured to their exact specifications. Even the most mundane, typical fixtures in a chain store have probably been recreated and engineered to fit the store planner’s needs.

While there are many specialty fixtures on the market that are standard – such as some quilt holders, poster swing frames, etc., the bulk of fixtures are custom made.

Custom doesn’t have to mean more expensive. A lot depends on the surface materials and how complicated the fixture gets. Interesting, expensive surfaces = interesting, expensive merchandise.

Interesting surfaces can make even the most mundane gifts seem unique. When you are trying to develop a mood, feeling or image for a store, standard non-custom fixtures will more often than not destroy that mood by making the store similar in feel to the local convenience store.

Custom fixtures have the most impact in the front of the store, in focal areas and at the cash wrap. These are the areas that will convey the entire theme of the store. If these areas are standard issue – the store will have less impact than 7-11.

The logic behind this is easy – what we see influences what we think. If we see bland off-white counters and chrome racks with a vast assortment of gifts heaped on the shelves, we think – “okay, let’s grab something for the kid and get out of here before the traffic gets bad.”
If, however, the counters are wood mixed with copper and the sides are birch and you see trees wherever you look adding a soft feeling throughout the store – all of a sudden things start looking more appealing. It’s more interesting, fun and engaging. The store has honored you, their customer, by making itself more presentable and different from the competition. The merchandise then looks more appealing and interesting which leads to increased sales.

Renovation Facts and Figures

Very few people were willing to share their renovation facts and figures. One major fact that became extremely obvious was that if renovations didn’t pay off, no company would be doing them.

Every company that renovates one or more stores figures on a minimum increase of 10% of sales with an anticipated and/or hoped for increase of 38% which seems to be the average increase after significant renovations.

The method of analyzing the success of a renovation is unique to each company.

There is virtually no way to compare sales and profits figures or, “apples to apples” by company. Each figures their costs differently. The only figures that matter are those within each individual company.

Some smaller companies saw immediate increases in sales and didn’t dwell on the actual renovation costs. For other companies, the costs are factored in to determine the actual profit and the percentage of profit increase over time after the initial renovation costs are covered.

One of the premier upscale chain of stores in the United States shared their process with me for this essay. They did not want their name mentioned.

When they decide to renovate one of their stores they first look at the real estate deal. The costs of the real estate determine how much they need to make on the property after renovations.

They then create a target for this location. They look at the history of the location, the national average of their stores and their actual goal for the store.

They determine the sales per square foot by category in the store, the average throughout the chain, their expectations for each department and the gross margin by department.

This corporation expects -and generally gets 2.5 growth out of each renovation – for example: 1 million spent on renovations will generate 2.5 million in sales.
The one million will be amortized and capitalized over five years.

Their oldest stores are often located in their best market areas. To remain competitive and to keep their best customers from going into their worst stores, they often renovate highly successful locations to keep them fresh and appealing. They believe they must remain competitive in their own market.

Bobby Drouin, the director of Real Estate and Store Planning for “Things Remembered” was very helpful with information regarding their remodeling projects.
” Things Remembered” has two types of remodels/renovations:

The Skin Package
This is a clean-up/fix-up program that deals with the storefront, carpet, wall paint and lights.

Full In-Place Remodel
This includes new architecture, custom fixtures – which consist of a standard fixture package that is custom for them.
They tend to have stronger percentages of growth after either type of remodel in “A” centers.

Better malls = better growth

They try to do their renovations when their lease terms expire.
In the better malls they have been averaging 22% increase in sales after full remodels.
In their stores located in less successful malls, the increases were based mainly on the Skin Package type remodel and generated between 7 – 12% increases in sales.
When asked about their use of custom fixtures, Drouin mentioned that non-custom fixtures often had variations of colors/shades and standards. When combined in a store, non-custom fixtures looked significantly less professional and attractive. The only “off the shelf” fixtures they buy are specialty items such as bronze throw holders and prop pieces.

Mike Grimes, the president of GH Home Furnishings in Charlestown, MO finds that when he makes improvements to his store the confusion and movement during construction excites customers and sales increase. When he put a new façade on his building the sales increased 28%.
When he did a remodel in the bedding area of his store (new carpet, new walls, banners and fixed the ‘dip’ in the floor) the sales in that area increased 45%.

“Spirit of the Red Horse” carries American Indian western-themed gifts. Jim Stelton of CBR. Inc. carried out a renovation for this interesting store that included:
– Replaced the ceiling coves to make the energy flow better and create an airy feel.
– Changed the fixturing from solid to the floor to “leggy” so the airflow and energy improved and the store feels lighter. – Redid store front
– Created storage drawers by each bay with twin panels to reflect the new traverse detail.
After renovations “Spirit of the Red Horse” improved their business by 30% yearly with an average ticket price increase of 10%.

Devangshu Dutta, based in New Delhi, India has been researching the impact of renovations on retail sales internationally. What he discovered was the impact in the six months following major refits and renovations ranged from 10 to 40% of a sales increase with large discounters showing a lower impact than smaller specialty stores. Gross margins also improved to the extent of 10 to 12%. The sales upswings tapered off after the initial months but sales levels per square foot remain higher than comparable stores that remain unrenovated. They also remain about 5-10% higher than previous levels for the same store. The impact, Mr. Dutta states, comes from the renewed consumer interest as well as better management of space and merchandise.

These figures are supported in the United States by every person interviewed. All those who did not want their names or companies mentioned in this report agreed that the percentage increase in sales after a full renovation averages between 30 – 39%. “Skin” remodels averaged 12 – 20% sales increases.

A renovation tells the world that you are putting your money where your mouth is – a cliché that makes financial sense.

When you renovate you are offering your customers more than the competition. You are giving them an interesting, fresh, creative and hopefully exciting shopping experience. When you correctly factor-in location, renovation costs and new merchandise, experience proves that your profits will increase significantly over time.