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HomeMy WebLinkAboutIR 8204 INFbRMAL REPORT TO CITY COUNCIL MEMBERS No. 82o4 To the Mayor and Members of the City Council July 20, 1999 X Subject: STATUS OF THE CITY STORE 873 In the past three fiscal years that the City Store has been in operation, it has generated $349,137 in gross revenues and $391,253 in expenditures, for a total net loss of $42,116 or about 12 percent of gross revenues. There are several reasons for this under-performance. Store location, The south end of City Hall is not a strong retail location. Customers must generate a shopping trip specifically to come to the City Store because there is no other retail activity nearby. The reason the Store is not open on weekends is because the part of downtown in which the store is located has relatively little pedestrian traffic on weekends. Specialty retail locations that are not part of a larger retail agglomeration are at a significant disadvantage in attracting customers because strong sales depend on walk-in traffic and impulse purchases. Failure to capitalize on initial strong start. The City Store opened in September 1995 to extensive publicity and great public interest. This initial surge in interest was not used to the store's advantage. Regular advertising in various City publications such as the City Page and the City Times was only occasionally done after mid-1997, and as a consequence the City store has steadily lost its initial retail base. The Fort Worth 150th merchandise has provided an opportunity to rebuild this base and it is being used to positive effect. Strategic emphasis. Initially, the City Store emphasized retail sales of logo merchandise, surplus and custom municipal signs to the general public. Over time, the store began to strongly emphasize custom signage for City departments over retail sales, and consequently retail marketing efforts suffered. While custom signage for City departments brought in large amounts of gross revenue, this line of business was not profitable because the work required excessive labor and specialized tools and materials, and there was not an effective pricing strategy in place to recoup the expenses. The availability of surplus has declined over the years since the store opened, leading to reduced sales in this category as well. Inventory management. The original plan for the store involved two seasons, Spring and Fall, to accommodate seasonal apparel changes as well as provide an opportunity to dispose of poor-selling inventory through clearance sales promotions at the end of each season. These semi-annual sales were very effective marketing tools, and the need to keep fresh merchandise on the shelves and continually reinventing the merchandise logos were important strategies in attracting repeat customers. -this strategy was not pursued to the extent necessary when the emphasis was placed on services to City departments. Putting the City Store Back on Track After two straight years of operating losses, the goal for the current fiscal year is to break even. For next fiscal year, the goal is a 4.6 percent net profit. These goals can be achieved with the following specific strategies. Store management change. The store manager was replaced in January 1999. The store experienced a 28 percent reduction in gross sales during the first fiscal quarter (October 1998 through December 1998) compared to the same period the year before. During the second fiscal quarter, sales increased 14 percent over the same period the year before. During the third fiscal quarter just ended, sales increased 29 percent over the same period the year before. Capitalize on 150th merchandise. This is being done very effectively, Sales for the month of June 1999 were the all- time high for any single month since the store opened in 1995. Besides the increased sales, the other benefit has been to increase the proportion of sales being made to outside retail customers. In the first fiscal quarter, outside ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS INF[)RMAL REPORT TO CITY COUNCIL MEMBERS No, 8204 T To the Mayor and Members of the City Council July 20, 1999 Page 2 Of 2 Subject: STATUS OF THE CITY STORE sales were 53 percent of total sales, while sales to City departments comprised 47 percent. In the second fiscal quarter, there was slight improvement to 59 percent outside and 41 percent City departments. In the third fiscal quarter, sales were 69 percent to outside retail customers and 31 percent to City departments, The increasing sales noted above are being generated by outside retail customers. More people are drawn to the store for 150th merchandise and see other items that interest them. This is a renewed customer base that, with advertising and other marketing strategies, will bring stronger sales in the upcoming Christmas season. Improve pricing strategies. Pricing of merchandise, particularly the custom signs, has been refined to recover all expenses and produce a reasonable margin. The lack of an effective pricing strategy has been a major factor in the store's failure produce a net profit over the past two years. The store staff is also working to reduce the cost of logo merchandise that will allow for greater single-sale profits or lower customer prices and hopefully greater sales volumes, depending on the item. Alternative sales venues. Future strategies that will be developed include Internet sales and consignment or wholesaling of some of the store's more unique products to other retail businesses in the area. Return to strategic basics. The bottom line is that developing the store's external customer base is critical to the store's future success. Business with City departments is important, but it is limited in size and revenue-generating potential. Aggressive marketing, effective inventory management and sound pricing strategies are the strategic basics that must be pursued for the store to be profitable. Further information will be provided upon request, , Bob Terrell City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS