Jordan Ashley

Jon Farchmin

Michael Fischer

Munmun Manna

Joshua Melchert

Mason Pech

EXECUTIVE SUMMARY

Objective:“To improve sales per square foot through a cost analysis of whether

the ReStore should stay, expand, or move to a new location.” – Michele Johnson (Lawrence Habitat for Humanity ReStore manager)

Research Conducted:Primary:

Customer Surveys (paper and electronic)

Secondary: Sales data analysis Real estate inventory and pricing analysis Marketing opportunities

Recommendations: Remain at current location due to considerations listed below and

enumerated further in detail within our recommendations section:o Actual costs of moving (transport / storage / material).o Lost sales revenues (time dependent on move… min. 1 week).o Difference in rent (current $8.78/ft2/yr. vs. average for Lawrence

area of $14.91/ft2/yr.).o Cost to rehabilitate new space to needs (shelving, office,

storage).o Recommended by Habitat organization to be started 3-4 months

in advance of actual move date. Reallocate floor space (square footage) to top earning categories by

historical sales revenues. Improve back storage building and utilize as receiving/sorting area

(increase retail area by ≈ 1000 ft2 by opening up floor space in main building).

Increase marketing to clientele in under-achieved demographic categories (i.e. 50 and younger) through advertisement, trade groups and media.

Implement a basic inventory tracking and turnover system to allow for better management of donations to include markdowns for slow moving items.

Review operating hours and adjust to accommodate peak customer traffic periods.

Conclusion:Implementation of any, or all of the above recommendations will result

in accomplishment of the stated objective, to increase sales per square foot. Specifically our recommendations are tailored to providing viable options for increasing sales without the requirement of moving to a new, possibly larger location.

Table of Contents

Executive summary......................................................................iii

Analysis........................................................................................1Situational..........................................................................................1Strengths, Weaknesses, Opportunities and Threats...............................2

Primary Research..........................................................................3Customer Surveys...............................................................................4

Secondary Research......................................................................7Sales Figure Analysis...........................................................................8Local Real Estate Analysis....................................................................9

Recommendations.......................................................................11Maintain Current Location..................................................................12Optimization of Existing Space for Top Sellers.....................................14Inventory Management......................................................................17Marketing to Demographics...............................................................18Adjustment of Current Hours..............................................................20

APPENDICES................................................................................21A-1: SURVEY - Have you taken this survey before?..............................22A-2: SURVEY - Profession..................................................................23A-3: SURVEY - What is your age?.......................................................25A-4: SURVEY - How often do you visit ReStore?..................................26A-5: SURVEY - How did you learn about ReStore?................................27A-6: SURVEY - Have you ever donated to ReStore?.............................28A-7: SURVEY - What do you shop for at ReStore?................................29A-8: SURVEY - Have you ever made a purchase at ReStore?................30A-9: SURVEY - Why do you shop at ReStore?......................................31A-10: SURVEY - How far do you travel to the Lawrence ReStore?.........32A-11: SURVEY - How accessible/convenient do you find ReStore?.........33A-12: Analysis of Sales Data by Year..................................................34A-13: Habitat ReStore Dimensioned Floor Plan...................................35A-14: Regression Analysis of Sales Data.............................................36A-15: 2010 Demographic Profile (U.S. Census Bureau Data)................39A-16: Moving Costs Comparison.........................................................42A-17: Sales per Square Foot Analysis.................................................43

ANALYSIS

SituationalOur focus was set by the initial description of the situation as presented by our client, Michele Johnson, the Lawrence Habitat for Humanity ReStore manager:

“To improve sales per square foot through a cost analysis of whether the ReStore should stay, expand, or move to a new

location.”

Not only was our research concerned with meeting these stated objectives, but we also attempted to seek and recommend specific process improvements that will aide in the operation of the ReStore outlet.

To further evaluate the goal set by the ReStore manager, the Habitat ReStore KIP group has organized into three main areas of focus for analysis:

Review of existing sales data for trends Current real estate market valuation Opportunities within the current location

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Strengths, Weaknesses, Opportunities and ThreatsBelow reflects our initial analysis of the ReStore operation in terms of observed strengths, weaknesses, opportunities and threats (SWOT). This analysis allowed the focusing of efforts with regards to formulating and conducting research in order to make recommendations suitable to achieving the goals set forth of increasing the sales per square foot for the Lawrence Habitat for Humanity ReStore.

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STRENGTHS WEAKNESSES

• Michele Johnson (Manager)

• Enthusiasm

• Customer relations

• Brand name “Habitat for Humanity”

• Donor Base

• Property

• Parking

• Inventory space

• Inventory Flow/Layout

• Inventory Composition

OPPORTUNITIES THREATS

• Growth

• Donations

• Customer base

• Focus on Inventory

• Organization

• Testing area

• Increase Revenues

• Sales/ft2

• Marketing

• Inventory Space (sq. ft.)

• Lease Ends on April 1

• Early deadline

• Donor fatigue

PRIMARY RESEARCH

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Customer SurveysAbstract:

The research team endeavored to learn more about the current ReStore customers. Basic information collected from this group could lead us to finding trends in the current purchasing habits of existing customers while also introducing areas for potential growth in sales.

Methodology:

The survey exhibited below was created in order to gather information from customers of the ReStore utilizing eleven questions focused primarily on collecting information on the customers individual demographic data as well as purchasing habits. This survey was distributed to customers in the store (in a paper format) and also through the Lawrence Habitat for Humanity e-newsletter as a link to an online version of the survey. A total of 179 respondents completed the survey during the period of 21 November 2013 through 28 January 2014. For purpose of analysis all survey data was entered into Survey Monkey©, an online survey analytical tool, allowing us to quickly quantify the data.

Findings:

The results of the survey are presented in the appendix section of this report, parts A-1 through A-11. The following key insights were noted from the survey and used in formulating our recommendations below:

The largest percentage of respondents identified themselves as retirees (24.6%)

63.5% of respondents were aged 51 or older (only 11.2% were aged 18-20) 68% of respondents say they heard about the ReStore via word of mouth Respondents frequently entered ReStore to “just browse” (57%) or to

purchase building materials (lumber and hardware – 41.2%) Price was a clear motivator for shopping at ReStore, with 81% choosing this

as a reason 91.5% find the current location convenient and/or accessible, or are neutral

in thought

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SECONDARY RESEARCH

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Sales Figure AnalysisAbstract:

Charged with the task of improving sales per square foot, we found it prudent to ask and discover what those figures actually are. We accomplished this by measuring each product category as given to us by the ReStore staff. These dimensions, used with the average sales from the last three years, yield the historic sales per square foot. Coupled with the popularity of items (based on survey results), the findings guide our recommendations.

Methodology:

The dimensions that account for dimensional portion of the "sales per square foot" equation were taken by hand, in-store, with as much accuracy as possible (in most cases, +/- 1 inch). Recognizing a potential discrepancy in the "square footage" occupied by different items -- say a dining room table versus a shelf of paint -- we then multiplied recorded floor areas by the corresponding number of shelves, where applicable, to gain a more representative metric of habitable retail area (shelving and/or floor space).

AN IMPORTANT NOTE ON DIMENSIONS: while the square footage depicts as closely the current store conditions of what items take up what space, these numbers (particularly regarding furniture) can fluctuate significantly depending on the nature of inventory. As such, these numbers reflect the general conditions of past data.

To find the "sales” portion of the of the “sales per square foot”, we averaged annual sales of each category from the last three years, due to partial information. A regression analysis of the sales data was also utilized to look for trends in the sales history of key categories tracked by the register system currently utilized by the ReStore outlet (appendix A-13 provides a detailed breakdown of how this was accomplished).

AN IMPORTANT NOTE ON SALES: because the sales numbers used are averages, it is again important to note that the sales per square foot is an average of past data, which may or may not reflect recent trends.

Findings:

We confirmed some assumptions as well as observed some interesting conditions from the Sales per Square Foot that were not as apparent in the raw sales data. (See Appendix A-17 for raw data)

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Confirmed Assumptions:

Furniture : the undisputed leading sales category by revenues (23% of total sales), furniture's sales per square are near the top performers ($84 .09 per foot per year).

Building Materials : survey results and staff observations indicate that building materials (lumber, doors, and windows) are the most sought items. Sales per square foot analysis reveals that of the three, doors and windows are in fact some of the top selling categories as well ($89.09 and $86.47 /ft2/yr., respectively)

Additional Findings:

Appliances : the highest profit margin item, unsurprisingly, with annual sales of $199 per ft2

Hardware : while hardware accounts for 11% of the total revenues, a healthy share, in terms of sales per habitable retail area it excels at $94 per foot annually, the second best performer

Lumber : as mentioned earlier, this popular sale item by request does not fare as well in sales, ranking in the bottom fourth ($31.68 per foot per year, 10% of habitable retail area)

Plumbing : plumbing is an adequate seller by total revenue (8.1%), yet ranks second to last in sales per square foot ($27.20 annually, 15.3% of retail area)

Miscellaneous : as this category is a catchall, it can be hard to identify what is being underutilized where. Nonetheless, these miscellaneous items occupy an estimated 10.6% of habitable retail area while generating just under $5 per foot of that area

Local Real Estate AnalysisAbstract:

Part of our charge was to examine the option of moving to a new location. We researched what this would entail in terms of considerations for moving to a new location and potential increases/decreases in rental charges.

Methodology:

We utilized several resources to determine the current real estate market in Lawrence including lease costs for the market from Loopnet.com and also the current inventory for this area by talking with Realtor© Kirsten Flory of Colliers International Real Estate. Moving considerations were also taken from talking with Mrs. Flory as well as consulting readily available material found on the ReStore Support Group, found at the Habitat for Humanity website for affiliates and volunteers (https://my.habitat.org).

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Findings:

While the recommendations section “Maintain Current Location” includes many of the details concerned with attempting a move, key highlights from our findings are as follows:

The inventory for available retail space is shrinking in the Lawrence area, driving lease costs upward.

The current cost of a retail lease for Lawrence averages at $14.71 per square foot, annually.

The current lease the Lawrence Habitat for Humanity ReStore is $6500 per month, which translates to $8.78 per square foot, annually.

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RECOMMENDATIONS

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Maintain Current LocationFrom our research of the commercial real estate market of Lawrence, and from discussions with commercial real estate brokers and the ReStore Support Group, we have come to the conclusion that it is in the best interest of the Lawrence ReStore to postpone a relocation and instead renew the lease for the current location. We have identified a number of reasons that support this conclusion:

Time Constraintso There is simply not enough time to relocate. According to the “Relocation

Action Item Timeline” provided by the ReStore Support Group, it is suggested a ReStore relocation process begin 15 months prior to the projected grand opening of the new location. This is to allow for completion of time consuming endeavors such as acquiring necessary funding, identifying a suitable location, and negotiating a lease.

o The selection of a suitable location and the negotiation of the lease can take months alone.

Limited Options for Relocationo As the economy continues to improve, Lawrence is experiencing a decline

in commercial real estate vacancy rates.o Finding a suitable space in a desirable location will be difficulto Moreover, declining vacancy rates are resulting in a rise in rental lease

rates. The current yearly rent per square foot for retail spaces is $15.00

(the Lawrence ReStore is currently paying approximately $9.00 per square foot yearly).

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If and when the time comes to reconsider relocating the Lawrence ReStore, we have identified a number of items to be considered:

Increase in Fixed Costso A new location with a larger square footage will most likely entail a

considerable increase in rent as well as utilities.o The Lawrence ReStore will have to significantly increase sales to

accommodate the increase in expenses. The ReStore Support Group provides a number of documents and

Microsoft Excel files to assist in projecting future cash flows and expenses.

The individuals working in the ReStore Support Group office are more than happy to assist the Lawrence ReStore with this process.

Relocation Expenseso Substantial expenses will be incurred throughout the relocation process

that must be planned for. According to the ReStore Support Group the average amount spent

on opening a new ReStore was $100,000 with some spending as little as $25,000 and others spending as much as $250,000.

o Some of these expenses include, but are not limited to; Building Uplifts

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Between $25,000 and $125,000 has been the range of amounts spent on improvements needed at new locations by past ReStore outlets.

Price will be largely determined by the amount of work that must be done to new location in order to accommodate the needs of a ReStore.

Covered Donation Center Between $10,000 and $25,000 has been the range of amounts

spent on a covered donation center at new location to ensure enough merchandise for grand opening and beyond.

Fixtures and Displays Between $5,000 and $15,000

Opportunity Costs Opportunity costs in the context of relocation are all foregone

sales due to the relocation process.o A sample breakdown in the difference in costs incurred with a move can be

found in appendix A-16. The ReStore Support Group suggests that ideally there should be only a one

week gap from the time the old ReStore closes, and the new ReStore opens. This weeks’ worth of sales that will not be recognized should be considered.

The ReStore Support Group also suggests working all inventory down at the new location in an effort to move as little merchandise from the old location to the new location. To facilitate this, they suggest incrementally marking down merchandise a couple months before the closing of the old ReStore. This lost revenue should also be considered.

This does not preclude the option of moving at a future date. If any move is attempted it is recommended that the negotiated lease agreement hold the rent per square foot, annually, to as close as possible, or lower, than the current lease price at the existing location (approximately $9.00 per square foot, annually).

Optimization of Existing Space for Top SellersResearch into the current sales data, when paired with additional data gathering into the current layout of the store, lead us to recommend the following:

Focus on the “top sellers”: Research conducted utilizing historical sales data and customer surveys identified the following as the top sellers at the Lawrence ReStore:

Appliances Furniture Hardware Cabinets Doors

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Windows

The graph below identifies the “ideal” utilization of the retail floor space based upon percentage of revenues attained in each category (i.e. with Furniture being your top revenue earner, it can be argued that by percentage of sales, up to 1900 ft2 of floor space should be dedicated to this category). The two graphs recognize the layout of the store as it currently exists (5,645 ft2 of retail floor space) and the inclusion of 990 ft2 based upon our recommendation below (see “Utilize Exterior Storage Space”).

Consolidate the odds and ends: Determine what miscellaneous items might be floundering, eliminate them and reconfigure the shelf space accordingly.

Consolidate plumbing: Because this category is still a strong seller by volume, a simple re-evaluation of its configuration is needed (note: toilets and baths are the largest items; movement to a more prominent area in the store and/or a larger area dedicated to sales, combined with a push for more donations of this type).

Utilize Exterior Storage Space: It is the recommended that the exterior building, currently utilized for storage purposes, be upgraded and utilized as a receiving and sorting building, thereby freeing up an additional 990 ft2 in the main building for retail purposes.

The current layout of the store has 990 ft2 dedicated to the purpose of receiving, sorting and stowage of donated material, located at the back of the main building while an additional 1,057 ft2 exterior building is used for storage alone. As ReStore works solely on a donation basis (all items sold are received in the form of donations), there is no “regular” inventory per se. The need for storage should not exist – all items received should immediately be set out upon the sales floor in order to generate revenues as soon as possible and free up space for additional donations. Any costs incurred by upgrading the exterior building, to include lighting, heating, new doors and general repairs to the structure would be offset by the increase in retail space in the main building. Utilizing sales data from the 2012 year, this increase in retail floor space would equate to an annual increase of $34,610 (990 ft2 x $34.96 per ft2/year).

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See Appendix A-17 for raw data

Inventory Management The implementation of an inventory management system would allow for greater tracking of donated material coming into the store and also aide in the marketing and promotion of sales.

An inventory management system will provide ReStore with basic inventory receipt and item tracking capabilities to allow for better analysis of the flow of inventory, both in and out. Furthermore, the system will allow the capability for ReStore to capture on hand inventory data immediately, as required, while also indicating quantity and length of time the merchandise has remained in inventory. This information will allow the timely movement of donations through price markdowns or regularly held (and advertised) sales. Also, items in inventory that have been categorized as “slow movers” or have simply been on the sales floor for too long of a duration will be subject to review and appropriate action will be taken (i.e. place item on sale, lower the price, relocate item to more visible location on sales floor or markdown to zero to free up retail space for more profitable items).

Off the Shelf systems readily available for resale outlets (no official endorsement of any of the following examples…)

– Transact POS for Habitat ReStore (http://transactpos.com/Solutions/HabitatReStore/tabid/209/Default.aspx)

– Intuit Quick-Books

– Excel spreadsheet and/or ledger system

IMS allow the creation of databases to ensure timely movement of donations

• IMS also allows for advertising of inventory on flyers, website, etc.

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Marketing to DemographicsSince ReStore’s end goal is to increase their profits, we wanted to analyze multiple facets of its business beyond just its location. Our group was curious about what demographics ReStore was serving and what its marketing strategy was. Through our primary and secondary research, we were able to come up with the following conclusions and recommendations.

• Seek out younger age groups

– Lawrence 2010 census: 54% age 20 - 50

– ReStore: 36% are aged 20 – 50

Our market and customer research shows that 54% of the Lawrence population is between the ages of 20 and 50, but only 36% of the ReStore customer base falls within that age range. This means that 64% of all ReStore customers are over the age of 50; the ReStore serves a significantly older demographic from the majority demographic of Lawrence. In order to most efficiently penetrate the Lawrence market, ReStore must decrease the disparity between these two figures by capturing more of the younger demographic, those in between the ages of 20 and 50.

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• Advertise in community publications

– The University Daily Kansan

– Church Bulletins

– “Lawrence” Magazine

– Douglas Co. / Jayhawk SR magazine

• Increase web/social media presence

– Revamp and update of website

– Twitter, Facebook, Linked-IN

• Flyers at “community” bulletin boards

Currently, ReStore advertises itself using online media, specifically the ReStore webpage (http://www.lawrencerestore.org/) and Craigslist (www.craigslist.com), an online classifieds website. Occasionally ads are taken out in the Lawrence Journal World but typically for special events only. Through our survey, we investigated how customers were finding out about ReStore in an effort to analyze the efficiency of their current marketing strategy. The survey indicated that a very small percentage of those customers who took the survey found out about ReStore through any type of advertisement or online media. The majority, approximately 70%, of customers who took the survey discovered ReStore through word of mouth and about 35% discovered ReStore through their relationship with Habitat for Humanity (see the figure below).

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In an effort to make their marketing campaign more productive, we recommend ReStore pursues more mediums of advertisement (such as those mentioned above) to reduce reliance on word of mouth advertising and its affiliation with Habitat for Humanity. By pursuing the alternative mediums of advertisement recommended above, ReStore will be able to better reach the market segment they are struggling to connect with – the younger demographic of Lawrence identified in the previous section.

Adjustment of Current HoursA review of the hours that the ReStore operates is recommended to

determine whether the current posted hours of operation meet the actual trends in customers shopping at ReStore. This can be accomplished by annotating over a period of time (recommend no less than two weeks of normal store operations/non-holiday period) the number of customers in the store at a set time interval (i.e.

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every hour). Using an analysis tool, such as Microsoft Excel, this data can then be graphed and trends in the data collected can be more easily observed:

When do peak hours (most customers) occur?o Peak hours in the morning may indicate a need to open earliero Peak hours in the evening hours may indicate a need to close later

When are your busiest days, by customer count?o What promotional tools can you utilize to increase customers on “slow”

days

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APPENDICES

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A-1: SURVEY - Have you taken this survey before?

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A-2: SURVEY - Profession

Profession Number of Respondents

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Retiree 44Contractor 10Student 10Artist / Graphic Design 8Handyman / Carpentry / Woodworking 6Administrative 5Nursing / Therapy / Caregiver 5Home Owner 4Self employed 4Homemaker 4Farmer 4Architect / Interior Design 4Technician / Scientist / Engineer / IT 4Teacher 3Retail Sales 3Electrician 3Business Owner 3Landlord 3Chef / Line Cook 3Unemployed 3Financial Services / Banking 3Educator 2Customer Service 2Editor 2Antique Collector 2Waitress / Bartender 2Transportation 1ReStore Staff 1Sign Technician 1Shopper 1Project Manager 1News Director 1Marketing 1Photographer 1Horse Whisperer 1Grocery Store Employee 1Government 1Geologist 1Curtis Lamb 1Businessman 1

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A-3: SURVEY - What is your age?

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A-4: SURVEY - How often do you visit ReStore?

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A-5: SURVEY - How did you learn about ReStore?

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A-6: SURVEY - Have you ever donated to ReStore?

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A-7: SURVEY - What do you shop for at ReStore?

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A-8: SURVEY - Have you ever made a purchase at ReStore?

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A-9: SURVEY - Why do you shop at ReStore?

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A-10: SURVEY - How far do you travel to the Lawrence ReStore?

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A-11: SURVEY - How accessible/convenient do you find ReStore?

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A-12: Analysis of Sales Data by Year

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6% increase

9% increase

$34.96/

$32.83/

$30.00/

A-13: Habitat ReStore Dimensioned Floor Plan

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A-14: Regression Analysis of Sales DataObjective:

To study the sales figures and design a model to allocate the sales area in the optimal way.

Theory:Auto-Regression (AR) model was used to project sales figures for 2013 (Variables have been checked for order of integration using unit root method and differenced)

∆Y t=β1∆Y t−1+β2∆Y t−2+β3∆Y t−3+…+ βn∆Y t−n,

Where Y t is the random variable representing sales at time, t;

Y t−n is the random variable representing sales at time, t-n;

β i is the regression coefficient when ∆Y tis regressed on ∆Y t−i, i= 1 to n;

∆represents forward difference i.e. ∆Y t = Y t−Y t−1

Equations have been fitted for each of the 14 departments as follows:

S.No.

Departments

Equations Durbin-Watson Coefficient

1 Appliance Y t=0.88Y t−1 2.75

2 Cabinets Y t=0.89Y t−1 3.09

3 Doors Y t=0.94Y t−1 2.19

4 Electrical Y t=0.99Y t−1 2.52

5 Flooring Y t=0.86Y t−1 2.66

6 Hardware Y t=0.98Y t−1 2.55

7 Lumbar Y t=0.92Y t−1 2.57

8 Furniture ∆Y t=−0.42 ∆Y t−1 2.21

9 Windows Y t=0.89Y t−1 2.66

10 Paint ∆Y t=−0.31 ∆Y t−1−0.35 ∆Y t−2 2.04

11 Plumbing Y t=0.98Y t−1 2.30

12 Roofing ∆Y t=−0.69 ∆Y t−1 2.04

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13 Tile Y t=0.27Y t−1+0.69Y t−2 1.62

14 Miscellaneous

Y t=0.38Y t−1+0.26Y t−2 1.89

Once the sales figures were projected for 2013, growth of sales for year 2011, 2012 and 2013 were computed. Then the geometric mean growth was calculated to derive the contribution of each department sales in the total sales. Based on this regression, two scenarios have been analyzed:

(1)Scenario 1: No expansion but optimally allocating sales area (2)Scenario 2: Using spare space and optimally allocating sales area

Scenario #1: No expansion but optimally allocating sales area:

Sales Area = 5,645 sq. ft.

Misc

Roofing

Paint

Tile/Brick

Plumbing

Cabinets

Hardware

3.0638.8059.10

173.53184.05194.56221.38238.40

434.47434.91

531.09581.32

652.931897.41

Allocation of area (sq. ft.) as per sales growth (Without expansion)

Scenario #2: Using spare space and optimally allocating sales area:

It was found that the garage space was under-utilized and thus can be used for future sales.

Existing Sales Area = 5,645 sq. ft.; Unutilized Space (Garage) Area = 990 sq. ft.

∴New Sales Area = (5645 + 990) sq. ft. = 6,635 sq. ft.

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MiscFlooringRoofing

WindowsAppliances

LumberTile/Brick

PaintPlumbing

DoorsCabinetsElectricalHardwareFurniture

0.00 500.00 1000.00 1500.00 2000.00 2500.00

4.8658.45

115.84211.58234.22

285.10302.30319.56

512.97521.11

610.13662.58

738.732057.55

Allocation of area (sq. ft.) as per sales growth (Us-ing spare space)

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A-15: 2010 Demographic Profile (U.S. Census Bureau Data)

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A-16: Moving Costs Comparison

Assumed Move to new

Location

Remain at Current Location

Total Square Feet 10000 8884Cost per sq. foot $13.00 $8.78Total $130,000.00 $78,000.00

Moving Cost * $50,000.00Tenant Improvement $50,000.00 $15,000.00Total Costs $100,000.00 $15,000.00

Year 1 Costs $230,000.00 $93,000.00Year 2 Costs $130,000.00 $78,000.00Year 3 Costs $130,000.00 $78,000.00Total Costs for 3 yrs. $490,000.00 $249,000.00

Expense Difference $241,000.00

* Moving costs data based upon data from the ReStore Support Group

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A-17: Sales per Square Foot Analysis

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