Building Momentum

Developing Luxury Retail Stores: What Matters, Part II

In my last column I discussed the some of the challenges faced by luxury retailers as they try to expedite construction or expansion of brick and mortar stores in socially significant urban neighborhoods. Location and planning are two key components.

Below are three additional factors that can mean the difference between success and failure of these ambitious projects. Here’s what matters:

1. Teamwork: Many luxury goods retailers who maintain a significant real estate portfolio have their own in-house design and construction operations and use outside consultants on a per-project basis.

Outside consultants often accommodate the internally driven changes of the client’s design team; this inevitably increases the scope, cost and schedule of the project.

Strong consultants should provide the discipline required, respectfully holding the client to the project’s budget and schedule when the threat of  “scope creep” conflicts with the aims of a retailer’s in-house team. In other words: It is our job as ombudsman for clients to tell them what they need to hear, not what they want to hear. Retailers with actively involved in-house design teams should select strong outside consultants to shore up any weakness or lack of experience on their in-house team.

2. Complete scope: The devil is in the details. Most retail real estate projects are executed on such a fast track basis that construction documents that are less than 80 percent complete are the norm for bidding. Contractors use these incomplete design documents to drive up the project’s final cost 20 percent to 40 percent or more. A properly planned project schedule can account for expedited production of complete and coordinated construction documents and is an imperative when budget and schedule are paramount.

Even so, construction managers and contractors bidding on projects require having sufficient time to review the plans and submit requests for information in the event that any aspect of the scope of the work is not specific or sufficiently clear. A beneficial byproduct of a thorough bidding process is the gaining of valuable input for improving constructability. The project team can use this input to enhance the construction documents prior to accepting final bids.

3. Fairness: The best-planned retail real estate 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 and ensuring that team members’ contracts require them to assume the risks of performance 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 affect project costs and then seek a price for the appropriate mitigation effort from the bidding construction managers or general contractors. Those costs will form the basis of an informed project contingency that’s controlled by the owner not the contractor.

Retailers who follow all these guidelines—or have a strong project manager to insist on compliance with these objectives—will discover they exert greater control over their actual construction costs and the project’s schedule while improving their relationship with members of their design and construction teams. Achieving these greater efficiencies throughout the project process will naturally result in the success everyone desires.

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