Tracking the Storm: VMSD's exclusive report on the design firm industry

These are perilous economic times, for the country and for our industry. As unemployment rises, credit shrinks and consumer confidence disappears, retail is squarely in the cross hairs.

In VMSD’s annual design firm survey, more than 100 design firms weighed in on current industry challenges, trends and opportunities (see sidebars and charts).

And to delve deeper into this critical topic, VMSD assembled some key players in design firm circles to discuss their unique perspectives in a roundtable format. Participants included Michael Bodziner, principal at Gensler (San Francisco); Steven Derwoed, senior vp and managing director at the New York office of RYA Design Consultancy (Dallas); Bruce Dybvad, president of Interbrand Design Forum (Dayton, Ohio); David Kepron, studio principal, store design, in the Philadelphia office of Little (Charlotte, N.C.); Dave Nelson, vp, client services, at JGA (Southfield, Mich.); Michael Payne, designer, retail environments team, at Mulvanny G2 Architecture (Portland, Ore.); Brian Shafley, president of Chute Gerdeman (Columbus, Ohio); and Randall Stone, senior partner at Lippincott (New York).

How are their clients changing to deal with the times? How are they adapting their own businesses to be more valuable to retailers? And where is the whole thing going? Here's our report:

VMSD: What do you find is on retailers’ minds right now?

Steven Derwoed: Virtually all of our clients have work on their books. However, some of the plans have been scaled back or delayed. It’s now a matter of when they intend to initiate them.

Michael Bodziner: We’ve had major retailers who are still developing prototype stores. They’re seeing these times as an opportunity to present a new face. And others have put everything on hold. They’re waiting to get past the first quarter just to see what’s happening.

Randall Stone: We’ve seen a modest cutting back. They’ve laid out their design and renovation budgets, and it will depend on how easily they can borrow what they need. Right now, everyone is plodding along at a modest rate until they see the signs that it’s okay to get going again.

VMSD: And what might those signs be?

Stone: First, the easing of capital and credit. Then the sense that consumer confidence is coming back.

Bruce Dybvad: I think “plodding along” is a good way to put it. We’ve not seen a tremendous number of projects actually being cancelled yet, but we’ve seen people taking their time to move into things.

VMSD: What role will design play in all this?

Derwoed: It will be critical to those retailers who are looking for operational efficiencies. Clients say they want to reduce costs. And in-store service personnel represents one of the most significant operating costs. So for one retailer, we’ve simplified circulation for the entire store, making it easier for customers to navigate the space without the need for a person to ask.

Brian Shafley: The new reality is lower labor models in-store. We have to create the illusion they’re having no reduction in how they communicate with their customers. You can achieve that with good store design and a good communications graphics design.

Dybvad: When customers do less shopping, their choice behavior changes completely. So we’re seeing changes in the way merchandising and store layouts are put together. Brands have an opportunity to steal market share as customers are no longer buying on autopilot and are considering almost every choice that they make.

VMSD: How is your business changing? And how are you adapting your own businesses to this changing world?

Michael Payne: We’ve tried to set up more phone conferences and TV conferences with our clients instead of traveling. It reduces the number of site visits.

David Kepron: We have five offices around the country and the people in our store design group are collaborating and sharing resources more than ever. As they realize there will be fewer projects to work on, the relationships that we share are becoming a lot more valuable to everyone.

Shafley: We’re dealing with smaller in-house teams on the client side, in their store planning and design departments. Maybe they anticipate building out fewer stores.

Dave Nelson: We’re seeing that, too. We’re educating some of our clients because the person’s not always there anymore who knows how to design and build a store. People are wearing hats they’ve not worn before.

VMSD: It sounds like retailers are depending on you for solutions more than ever.

Stone: We’re seeing more demand for our strategic rationale. Design changes do have cost impact, so clients want to know our design recommendations are grounded in deep strategic ideas and will not only enhance their sales but the brands themselves.

Shafley: I’ve seen a sea change in the way firms in our industry have been asked by our clients to do a lot more than they would have in the past. Sometimes they hire us for store design or store planning and it morphs into much more than that. They realize that solutions and innovations can come out of a process that only starts with bricks-and-mortar. It may involve the way service is rendered in a store with the labor models they have, packaging, merchandising, down to the product level.

VMSD: Does that include visual merchandising solutions?

Kepron: Yes, we’re finding our clients want to focus on visual merchandising and branded graphics. They may not want to spend $10 million on a renovation, but they see the light when you can spend a fraction of that on establishing better merchandising practice and seeing a significant uptick in sales. It’s ironic, because the whole core of our industry is about merchandise.

Bodziner: Agreed. Many clients today are coming to us for a graphics facelift, something that’s inexpensive but can cause a big change in the shopping environment.

VMSD: So your scope can be smaller, but the value you bring can be greater?

Kepron: When clients announce that they’re going to cut back on their store openings by 50 percent and you want to maintain your client relationship, you have to find all kinds of other ways to increase your service. You start finding ways to maintain that relationship in any way that you can – be it visual merchandising, a training session, looking at graphics. So a year and a half or two years out, when you come out the other side, you’re still in their stable.

SIDEBARS

Survival of the Fittest

It’s perhaps no surprise that, when asked which retail sectors were most likely to ride out the recession, our panelists mentioned grocery retailing. “While some of the clothing formats have been cutting back,” says Michael Payne of Mulvanny G2, “people still need food on a regular basis.”

“Food shopping is the little indulgence people allow themselves these days,” agrees Randall Stone of Lippincott.

“A lot of the food sales are coming out of the warehouse clubs, like Sam’s and Costco,” notes Dave Nelson of JGA. “In this economy, people are storing up.”

But Michael Bodziner of Gensler identifies a surprising source of business for the store design industry: banks. “The banking industry is providing opportunities because of all the buyouts that have happened and re-brandings that must now take place as a result,” he says.

Given current economic conditions, which retail sectors are most likely to ride out the recession best? Ranked from most likely to succeed to least likely:

1. Mass merchant discounters
2. Food and grocery
3. Specialty non-apparel
4. Specialty apparel
5. Consumer electronics
6. Department stores
7. Sporting goods

Green Overboard?
Are retailers dropping their green initiatives as the economy tightens up? No, say the panelists – and yes.

“It’s been mixed,” says Bruce Dybvad of Interbrand Design Forum. “Some clients are very passionate about how green aligns with their brand. But when their priorities become front-end costs rather than the overall savings to be had, green does have a tendency to go by the wayside.

“Going for LEED certification isn’t as high a priority as it was a year ago,” says JGA’s Dave Nelson, “but nearly every client wants to see green alternatives in material choices, lighting, etc.”

“We’re ramping up our efforts to track these costs,” says Mulvanny’s Michael Payne. “So while we might not be pursuing LEED certification, we’re still testing the concepts.”

And Little’s David Kepron notes that at least one part of the industry isn’t letting up. “The AIA [American Institute of Architects] requires that a certain number of our continuing education credits must be sustainability-related,” he says. “So no, it’s not going away.”

When will we be coming out the other side of the recession?

*“A developer told me it would be about 18 months before he even looks at a new project.” – Michael Payne, Mulvanny G2 Architecture

*“It will bottom out early this year, maybe March, but it will be a very, very slow climb after that.” – Randall Stone, Lippincott

*“If accounts receivables begin to age 120 days, it will be a big challenge for a lot of us to maintain a revenue stream. Some companies will be hard-pressed to survive the next six months, to pay staff and keep the lights turned on while they’re waiting for new work to arrive.” – David Kepron, Little
 

Which areas of the world are most promising to North American retailers for expansion to keep their businesses thriving? Ranked from most important to least important.

1. Asia
2. Middle East
3. South America
4. Eastern Europe
5. North America
6. Western Europe

To ride out the recession, which measures will be important strategic or economic implementations for your design firm? Ranked from most important to least important.

1. Invest in new technologies
2. Adjust fee structure
3. Increase sustainable design services and LEED accredited staff
4. Downsize
5. Invest in customer behavior research
6. Add staff