Grocery Store Conversion Trend: Right Size, Right Cost

Over the past 10 years an increasing number of grocery store buildings have been converted to furniture stores. It started as a trickle following the 2007 recession, maybe one or two stores a year for our firm. Today we convert one or two stores a month.

What makes these locations attractive to the furniture industry? First, grocery stores tend to be the right size. They are either in the 30,000 plus square foot range or the 60,000 square foot range. Many of the stores are located in convenient shopping neighborhoods. In some cases representing a friendly place that consumers visited often and loved. Because of changing economics and distribution patterns in the food and grocery industry, many of these stores have fallen on hard times or closed down.

Benefits

Furniture and home stores see these stores as a great fit for conversion because they have the following characteristics that are an ideal starting point.

• Highly visible locations
• Ideal size
• Open high ceilings
• 36-48 foot column spacing
• Loading dock facilities at tailgate level
• Quick access
• Are easy to convert
• Have ample parking

Incentives

Landlords, local authorities and realtors are all keen to help furniture retailers convert these sites to build stronger communities and generate future tax revenues.

Building owners may be under pressure to find new tenants or a new owner, and are often prepared to offer unique incentives. These can take the form of a straight discount on the asking price. We have seen buildings that were listed at nearly $2 million sold for around $1 million. This represents a huge savings for furniture retailers looking at the cost of new construction based on $100 per square foot for 30,000 square feet. That's three million dollars, not including the cost of the site.

Often a retailer can lock in a low overhead situation and increase long-term profi tability versus new construction.

Despite internet competition, brick and mortar is here to stay. Should conditions change, however, appropriate sites have the potential to be profi tably converted to condominium or residential developments.

Considerations

Before embarking on a project like this it's important to fi rst secure a detailed evaluation of your regional competition and estimate the potential market share that you are likely to achieve. This study can be undertaken by a specialty realtor or consultant who fully understands the furniture industry. Once market potential has been established, and the investment to purchase or lease the space has been formulated, a space plan can be drawn up.

Depending on how the contractor is employed to make this conversion, and how much work can be done by the buyer, stores can be converted from between $15 to $30 per square foot. This covers new lighting, fl ooring, partitions, bathrooms, and all other interior preparation before the furniture is brought in.

Incentives and guarantees for air conditioning, mechanical plans and electrical systems should all be part of the negotiation process. A rent-free period during construction and other incentives should be explored. A realtor who understands how to negotiate for you and is familiar with the furniture industry will be invaluable throughout the process.

Conversion Steps

New design techniques have made the conversion process for former grocery stores easier and less expensive. The use of CAD plans and Google Earth can save money and time previously required for travel and consulting services.

Drawings: Store drawings sent via e-mail are enough to allow a design team to plan alternate layouts to consider to convert a grocery store into a viable furniture store.

Merchandise Assortment Plan:A merchandise assortment plan is created to project overall revenue and look at the percentages of square footage assigned to each major subcategory of merchandise. Typically, upholstery including recliners, leather, stationary and motion will represent between 50-55 percent of sales. Mattresses will typically be responsible for between 25-35 percent of sales. Once these two major categories are defi ned, at least 75 percent of the store can be designed. The rest is easy.

Concept Plan: Now, a concept plan can be developed and discussed via video conference call to refi ne the design according to the owners' preferred layout. This in turn will trigger the design of the lighting, fl oor covering, and major merchandise features together with customer service areas. All this forms the basis of a set of drawings which can be put out to bid and used for managing the construction process including the budget and timing.

Exterior: The exterior can now be developed to tell everyone that a new retail home furnishings store format is available for them to experience. This can be achieved with a combination of new exterior materials and signage. Maximizing the visual impact of the exterior is essential to telegraph that the converted grocery store is an exciting place to visit. This can usually be done economically without changing major structural elements. New windows, lighting, and landscaping should combine to create an inviting atmosphere and exceptional curb appeal.

Cost: It is difficult to make generalizations about the cost of a total conversion, but we have seen stores completed for between $20-$40 per square foot. This, of course, depends on the degree of alteration, time line and other incentives.

Case Study

A good example of a retailer that undertook this kind of project is Kloss Furniture, a grocery store conversion of about 30 thousand square feet. Before and after photos can be found on pages 62 and 64.

For this renovation, the odd-looking towers with green copper tops in the "before" photo of Schuette’s Market were demolished. The tower at the entrance was replaced with a wooden arch highlighting Kloss Furniture's branding. The building was painted a light color in order to make those previously dark arches look interesting.

Examining Sales Philosophy

The good news on the inside of this grocery store was the nice open ceiling and clean floor area, which are typical of most supermarkets. The ample distance between columns, also made this space easy to convert. Once the metal fixturing was removed, the project was well on its way for a furniture store conversion at the low cost end of the per square foot range mentioned earlier.

There’s also a brilliant story about purchasing this property.

The final negotiated price for the former Schuette’s Market was less than half of the original asking price. New construction would have cost about 150 dollars per square foot. The total actual investment including purchase price and conversion cost came to roughly a third of that amount. And, the new store was ready for business in about six months.

Conclusion

Many families in the furniture industry are still doing business in their original stores after two, three or more generations. As younger family members enter these business, perhaps bringing with them relevant work experience from other industries, they are looking to implement new technologies to take these businesses to a new level. This may require re-branding to appeal to the next generation, attract top talent and create operational efficiencies that may not be attainable in their present locations. The grocery store conversion may offer an opportunity to address these challenges.