HomeMy WebLinkAboutIR 8463 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8463
11 a To the Mayor and Members of the City Council February 4, 2003
X 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 the past several years and to discuss issues related to
the future operation of the store.
City Store Income Statements for Fiscal Years 2000-2002
2002 2001 2000
Sales 150,968 164,540 117,298
Cost of Sales (83,011) (112,991) (64,970)
Gross Profit 67,957 53,550 60,931
Labor Costs 77,395 65,511 62,974
IT Costs 11,610 8,010 4,734
Advertising Costs 8,635 8,701 7,695
Other Costs 3,639 3,348 3,123
Total Expenses 101,279 85,570 78,526
Net Income (Loss) (33,322) (32,020) (17,595)
Both common-size and percentage change versions of this income statement are
provided as Attachment 1 to this report.
Analysis
Overview
The City Store opened in 1995, offering retail merchandise in the form of City
logo apparel, City surplus, and custom street name signs. The City Hall location
has always been a challenge in terms of attracting retail customers since it is not
near other retail establishments, an important factor in the success of gifunovelty
establishments.
The City Store continues to have annualized net losses around 22 percent of
sales, driven mainly by the high cost of labor (51 percent of sales in 2002)
associated with having full-time employees staffing the store.
Sales
The City Store sells retail items such as logo apparel, surplus items ar,
street name signs to retail customers. The City Store also sells items, pritnariiy ,
ales '
custom signs, to City departments. Table 1 shows the breakdown of al s, in ,the
retail and internal categories,
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS
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INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 846--1
To the Mayor and Members of the City Council
February 4, 2003
E
Page 2 of 3
X Subject:
Im STATUS OF CITY STORE
2002 2001 2000
Retail Internal Retail Internal Retail Internal
Sales 114,562 36,406 101,546 62,994 80,692 36,606
Percentage 75.9 24.1 61.7 38.3 68.8 31.2
of Total
Sales
There has been significant effort over the past several years to increase retail
sales both in absolute terms and as a percentage of total sales. This has been
largely successful, with retail sales increasing 26 percent from 2000 to 2001 and
13 percent from 2001 to 2002. The large increase in internal demand during
2001 was related to orders received primarily from Police, Parks and Community
Services and IT Solutions.
Cost of Sales
Cost of sales is normally about 55 percent of sales. In 2001, cost of sales
increased significantly as new products were developed and introduced to
increase retail sales, many of which had high minimum purchase quantities. The
2002 figure reflects a return to normal operations.
Labor Costs
About half of the 2002 increase in labor costs was for increased salaries and
retirement contribution. Also, temporary help was acquired to fill in for a
permanent employee out on extended medical leave. The remainder was
increased workers compensation and group health costs.
IT Costs
Additional costs were incurred to replace computer equipment and software that
had reached the end of its useful life.
Advertising Costs
rhe City Store advertises on WBAP radio during the first three weeks of
December. WBAP has been the sole advertising venue for the past several
years. There is no reliable way to calculate the actual return on this marketing
investment. December sales are two to three times the average month's sales
for any given year, and there is little doubt that the advertising significantly
contributes to December sales. Advertising is restricted to the time when
consumers are most likely to spend money on gifts, and it is further expected that
this exposure helps generate new shoppers that occasionally return to the store
during the year.
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8463
To the Mayor and Members of the City Council February 4, 2003
Page 3 of 3
STATUS OF THE CITY STORE
Other Costs
Other Costs include graphics and printing services obtained through the City's
Print Shop operation and miscellaneous store operating costs.
Future Operation of the City Store
It is unlikely that the City Store will generate net income in the future due to its
inherently high labor costs and poor location away from upscale shopping
concentrations. Moving the store would incur significant additional costs such as
rent and utilities, additional fixtures, and increased labor costs due to longer
operating hours (the current operation is not open on weekends).
The City Store does add value in several ways. One is an employee benefit, a
place to get City items (the employees get a 10% discount) and snacks. The
other is that the City Store produces a large number of signs for City departments
in a convenient and timely manner. The Transportation and Public Works
Department operates a sign shop, but it does not have the capacity to handle
much demand for signage beyond traffic signs. Both of these benefits cost the
City about $33,000 a year, which is the portion of expenses that is not covered
by revenues. There is also a growing benefit to the general public (measured by
increasing retail sales) in providing Fort Worth merchandise.
Given that there are policy issues related to the future of the City Store, it is
recommended that a Council Committee be assigned to study these issues.
Further information will be provided upon request.
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Gary W. Jackson
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS