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<td width="590" valign="top"><b>The Musings of a College Store Consultant<br>
</b>By Ron Duvall<p>Having managed institutional college stores for 14 years and leased
stores for 4; having been an operational vice president for a leasing company for 3 years
(with heavy emphasis on marketing;) having owned a consulting company now for 7 years,
during which I have provided operational reviews for some 75 colleges and universities
ranging in size from 500 to 35,000 students, I hope you will humor my feeble attempt to
shed some light on the college store industry and more specifically, outsourcing. Having
spent the majority of my career as a college store manager, my thoughts will be directed
primarily to my fellow college store managers.</p>
<p>The continuing debate (and it will continue for a long time) among college bookstore
managers and college administrators about whether or not to move from an institutionally
owned and operated bookstore to a lease/contract operation evokes a full array of
intellectual, financial and emotional responses. With approximately one third of all
college and university bookstores now under lease operation, it is time to look more
closely at this trend.</p>
<p>Based on many years of performing operational reviews and hundreds of discussions with
bookstore managers, college administrators at every level, faculty and students, I see
this debate as one where administrators are continuously evaluating the promises of the
leasing company to transform the bookstore operation into a "sure thing"
financially against their sincere desires to keep the bookstore in house. I use the term
"sincere desires" because I believe the vast majority of administrators would
prefer to maintain the bookstore as an institutional operation. I also know that the vast
majority of bookstore managers are reading this statement in disbelief. You are certain
that, given a reasonable opportunity, your university administration would outsource in a
heartbeat. After all, you think, of your two closest managerial colleagues in this
industry, one's store has been contracted and the other colleague's institution is
considering it.</p>
<font SIZE="2"><p></font>It is true that as the momentum for outsourcing builds, more
administrators are breathing a little easier. They see a predictable revenue stream for
budgetary purposes, and if they are already in their first two to three years of the
agreement, the campus is experiencing a positive response to the bookstore operation.
However, having talked with hundreds of administrators, I can attest to the fact that if
the store could come even <u>close </u>to providing what a lease operator promises, the
store would remain in house.</p>
<p>In most cases the administration knows that its institutional operation is not
measuring up to what a contracted operation is likely to provide. Food for thought for
store managers-- imagine for a moment that you are the auxiliary services director or the
business manager or the vice president for administration. You have just read an
unsolicited proposal from a store lease operator. The following three points stand out.</p>
<p ALIGN="JUSTIFY">1. The lease operator will guarantee almost twice what your store is
providing (average institutional store profit is 4.5% to 5.0%; lease operators are
providing, on average, 8.5% to 9.0%.)<br>
2. The lease operator will purchase the inventory.<br>
3. The lease operator will renovate, as needed, the bookstore facility. (The store needs
it!)</p>
<p ALIGN="JUSTIFY">Keeping those three points in mind, I would now like to dispel a myth
believed by most store managers. That myth being that institutional bookstores provide
better customer service than do contract operators. Let's be realistic folks! Lease
operators run their stores as a <b>business. </b>And as a business, they all know that in
order to increase profits, you must satisfy your customers. Having provided operational
reviews of contracted operations at the request of university administrators, I will tell
you that contract operators are on par with most institutional operations, and are indeed
better than many. And that includes customer service and satisfaction. </p>
<p ALIGN="JUSTIFY">Having now taken customer service out of the equation, let's look at
those three points in the lease operation proposal. This time I would like to take the
position the bookstore manager takes in refuting those points. The following statements in
quotations are how the typical institutional store manager would respond.</p>
<p ALIGN="JUSTIFY">1. "In order for the lease operators to be able to double the rate
of return to the university, they cut the number of staff and increase prices." Let's
examine, shall we, what it takes to "double" the bottom-line return. However,
let's not look at going from 5.0% institutional to 9.0% contract guarantee. Instead, let's
look at finding a total of 3.5 percentage points in the operation (keep in mind that you
do not have to match a contract operator to satisfy the administration; "close"
counts.). Based on the last fiscal year, without looking it up, what was your store's
Gross Margin percentage, Total Payroll percentage, Occupancy Cost percentage, and
Bottom-line Profit percentage? The average bookstore manager (based on interviews we have
conducted) usually knows what the Bottom-line percentage is; can come within plus or minus
2 percentage points of Gross Margin; and does not know what the Payroll or Occupancy
percentages are. I believe that if a bookstore manager knows what these figures are, that
manager can easily manage the operation to a 3.5 percentage point improvement.</p>
<p ALIGN="JUSTIFY">Take for instance Cost of Goods Sold (COGS) percentage (the reciprocal
of Gross Margin.) The major factors that combine to determine COGS are product purchase
price, freight (in and out) and write-offs. On average, we have determined that each of
these items can be improved, collectively, to produce an additional 2.5% to 3.0%.</p>
<p ALIGN="JUSTIFY">Payroll, by itself, can be reduced by at least 2 percentage points.
(Did you just hear that collective moan?) I am sure that each of you immediately thought
"he wants me to cut my staff." No, I want you to increase sales without
increasing staff. The effect is the same. Believe me, there is not one store out there,
including the ones I've managed, that could not increase sales. The areas in which sales
can be increased are used textbooks and non-book merchandise. All of which,
coincidentally, have longer margins.</p>
<p ALIGN="JUSTIFY">2. The question, "How much should your inventory be?" is
usually met with a blank stare. You may know what your inventory is (or was as of the last
fiscal year closing.,) but do you know how much it should be? Neither does the
administration! They just have a feeling it's too high. Our experience has been that
inventory is twice as high as it should be for each department. How do you think the
administration would feel if you reduced by half the amount the university has invested in
inventory?</p>
<p ALIGN="JUSTIFY">3. "I want to renovate my store, but my boss won't let me."
What do you think would happen if you went to your administration with a specific plan
(not necessarily detailed drawings) but one that lets them know precisely what you need
and what the anticipated results will be? My experience in dealing with administrators is
that they feel much more comfortable when their bookstore manager presents plans, not
generalities, for improving their bookstore operation. I am amazed at the number of
administrators who say they wish their managers would come to them with quantifiable and
qualifiable plans for improvements. This indicates that college store managers have a
tendency to be reactive rather than proactive.</p>
<p ALIGN="JUSTIFY">Getting back to that unsolicited proposal from a lease operator, my
experience is that there is not one institutional store that cannot reasonably compete
with the offerings of lease operators. There are, however, hundreds who will try to defend
their operation by saying it's as good or better than the industry average. The average is
only half as good as it should be. And that is what administrators are saying every time
they sign that lease contract.</p>
<p ALIGN="JUSTIFY">I am sure that many of you, after having read this far, are saying,
"It's easy for him to say. After all, he's a consultant. He's not on the front line
every day." As an indication of how firmly aware I am of the potential of this
industry and its people, I put my money where my mouth is. I now offer a program called
CUBPaC, (<b>C</b>ollege and <b>U</b>niversity <b>B</b>ookstore <b>Pa</b>rtnering <b>C</b>oncept.)
Through CUBPaC we purchase the store's inventory and credit memos, install a POS system,
guarantee the university a financial return and with the funds generated by inventory
buyout, renovation to the store can be completed (sounds like a lease operation, doesn't
it?) while the staff and the store remain institutional. We are on campus every 4 to 6
weeks providing guidance and training as necessary. At the end of the term the store is
totally developed and we leave. Are we taking a risk? Sure. However, we know first hand
the potential of a college bookstore and its staff, and we know from experience exactly
what it takes to develop that potential.</p>
<p ALIGN="JUSTIFY">The question of contracted bookstore operations will be debated for
decades to come. However, the store manager who is proactive, provides solid, quantifiable
results without resorting to emotional justifications will be able to participate in the
debate from his or her position as an <b>institutional</b> store manager.</p>
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<p align="center"><small><small>�1999 Business Management Concepts, Inc.</small></small></td>
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