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HomeMy WebLinkAboutIR 8219 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8219 T To the Mayor and Members of the City Council November 23, 1999 Subject: STATUS OF THE CITY STORE The purpose of this informal report is to inform the City Council of the City Store's financial performance for FY 1998-99 and to discuss various issues related to the future operation and management of the store. City Store Financial Performance for FY 1998-99 Based on unaudited figures, the City Store sustained an operating loss of$9,617 on gross sales of $127,876, or 8 percent of gross sales, for the fiscal year ended September 30, 1999. This figure will change when audited figures are released in several more months, but even the best case will not fully eliminate the operating loss. Two expenses that could not be anticipated during the FY 1998-99 budget process account for almost all of the operating loss. One was the resignation of the store manager in January 1999, which resulted in a charge of $4,144 in terminal leave pay. The other factor involved the new manager of the store being on extended medical leave during August and September 1999, which necessitated hiring a temporary worker to cover the store's operating requirements at a cost of $4,169, Analysis On July 20, 1999 (I.R. 8204), staff outlined specific strategies that would result in a break-even fiscal performance for FY 1998-99. Results are as follows. Break-even goal. This was not achieved, but some progress was made. ■ The operating loss of $9,617 or 8% of gross sales for FY 1998-99 is a significant improvement over the FY 1997-98 loss of$20,641 (17% of gross sales totaling $119,419). ■ Gross sales increased from $119,419 in FY 1997-98 to $127,876 in FY 1998-99, a 7 percent increase. A substantial increase in sales volume in the store's City Hall location is possible, Store management change. The overall performance of the store has increased significantly under the new manager's supervision, but she has had only about six months so far in which to make improvements since she was hired. The manager has returned to work and will now be able to concentrate on further improvements. Capitalize on 150tl merchandise. Of the annual gross sales in FY 1997-98, 57 percent came from retail sales to outside customers and 43 percent came from sales to City departments. In FY 1998- 99, sales were divided between 67 percent retail sales and 33 percent sales to City departments. This indicates success in rebuilding the store's retail base and can be seen more clearly by viewing the quarterly data for FY 1998-99. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8219 TEO To the Mayor and Members of the City Council November 23, 1999 Page 2 of 3 Subject: STATUS OF THE CITY STORE Retail Sales City Department Sales First Quarter 58% 42% Second Quarter 59% 41% Third Quarter 69% 31% Fourth Quarter 81% 19% Many of the retail customers have signed up for a mailing list, and the store has begun direct marketing efforts to this interested group. Advertising in City publications increased significantly during the third and fourth quarters and will continue on a regular basis into the future. Improve pricing strategies. Pricing strategies are in place for all merchandise groups that reflect the store's location and customer base. The store's expenses are still too high, partly due to rising employee benefit costs and partly due to the unacceptably high cost of logo merchandise. Efforts will continue to reduce the cost of logo merchandise. Alternative sales venues. The City is not yet prepared for electronic commerce, so the idea of web sales is on hold pending the development of the City's e-commerce infrastructure. The r1l wholesaling concept is under development and may be ready by the third quarter of the current fiscal year. Overall, the City Store has made substantial progress during FY 1998-99 over 'the previous fiscal year. Given the management disruptions, another six months is needed to fully evaluate the store's potential as a money making operation. Future Operation and Management of the City Store Staff reviewed a number of options for operation and management of the City Store when the concept was being developed in FY 1994-95. These options included both having a private contractor operate the City Store and locating the store in retail space outside of City Hall either downtown, in the Stockyards, or in the Hulen area, The Council's decision was to locate the store downtown, and since there was no strong location available at the time that could be rented, the most viable location was City Hall. The location decision effectively required the City to operate the store because interested private sector operators were concerned about the deficiencies of the City Hall location. The ability of the City Store to generate significant profits hinges primarily on its location. This holds true regardless of who operates the store, but no private operator has thus far shown interest in operating the store while it is in City Hall. Moving the City Store to a rented location outside of City Hall would require a substantial infusion of capital for fixtures, rent deposit, operating funds and possibly finish-out costs for the space. It is unlikely that a private operator would finance what would essentially be a new startup, ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8219 T�� November 23, 1999 To the Mayor and Members of the City Council page 3 e 3 = Subject: STATUS OF THE CITY STORE im If the City Council desires, staff can develop a request for qualifications process and further explore the question of contracting out the operation of the City Store. Further information will be provided upon request. C�� a , BOB TERRELL City Manager ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS