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.

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.

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.

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 close to providing what a lease operator promises, the store would remain in house.

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.

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%.)
2. The lease operator will purchase the inventory.
3. The lease operator will renovate, as needed, the bookstore facility. (The store needs it!)

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 business. 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.

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.

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.

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%.

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.

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?

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.

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.

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, (College and University Bookstore Partnering Concept.) 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.

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 institutional store manager.

©1999 Business Management Concepts, Inc.