The Revolving Industry
The primary mission of most retail facility departments is to protect the corporate assets while providing service to the store manager’s and other departments. As the average life cycle of a store commonly equals the length of the lease, usually ten years, repair and maintenance budgets are often based on the remaining lease of each store. Remodeling at one level or another usually takes What sounds simple is not at all easy. As all retailers are actively seeking ways to cut costs, the facility departments and their budgets are being butchered, and in some cases eliminated altogether. By doing so, the assets of the store – the floors, HVAC units, lighting, fixtures, etc., deteriorate rapidly. The longer the stores go without repair – or with significantly reduced maintenance – the quicker the assets decline. It’s not long before the stores begin to need restorative maintenance – far more costly than any savings realized through reductions. This “Catch-22” for most retailers is compounded by the fact that the facility budgets are often viewed as "discretionary" instead of "essential."
A large national retailer recently opted to award the full budget to a National Maintenance Organization (NMO) that had promised to reduce the $34 million budget to $25 million. Part of the savings was the elimination of the facility department with the exception of one coordinator acting as a liaison with the vendor. That particular retailer, facing possible bankruptcy, saw no option as the savings literally “bought” them a year and the hope was that this strategy, coupled with other initiatives, would pull them out of hot water.
Was it the wrong decision? Of course not – it was the only decision. This begs the question, “then what’s the problem?” The problem is when an NMO provider promises savings it can only deliver through significantly reduced maintenance. Was the retailer informed that the future cost would far outweigh the present savings? Doubtful. In fact, the “sales pitch” is usually made at the CFO level, totally by-passing the facility department and those professionals that have spent years walking the balance beam between cost and asset protection.
Another pitfall – and one more common among vendors of all trades – is the “mark-up” game. “If you give me X volume, I’ll only mark up your bill by 20%,” or 15% or some other number that at first glance appears amazingly low. How can the NMO (or even the smaller vendors) operate with their large overhead at such a small mark-up? The answer is simple: get the remainder from the sub-contractor.
Here’s an example of the basic sub-contractor recruiting pitch: “Good morning John (from Acme Plumbing), I have a job for you. Retail store 123 in X mall has a repeated sewage back up. I need you to run a camera line and let me what the problem is – then fix it! Here’s the deal: if you want to be paid in 45 days after we get your invoice, no problem. If you want to be paid in 30 days, we’re going to take 5% as an early payment fee. In fact, for 10%, we’ll pay you in 15 days and for 15%, we’ll pay you in 5 days. We’ll pre-pay the service as well, but for that, there’s a 20% fee. Oh, one more thing. Since you didn’t have to do any advertising for this job, we’re also exacting a 5% marketing fee.” What does the sub do? The same thing any normal person would do. He increases the invoice to compensate for the fees. Of course, this may be an exaggerated scenario for some, but the principal is sound and repeated thousands of times every day.
