If landlords were as quick to point out tenant overpayments as they are underpayments, retailers wouldn't have to worry about streamlining real estate management processes with technology. But in the real world, overflowing file cabinets and messy accounting led to overlooked contract lapses and lost money. The evolution of lease management software is leaving retailers with fewer excuses for wasting funds on rent mishaps.
In fact, chains large and small are reporting enormous cost savings. Kate Kuntz, director of property management at Best Buy, with 750 stores, says that the real estate management tool she has been using for three years — Strategic Lease Information Management (SLIM) by National Facilities Group — helped put in place systems that saved the company a ton. In audits, SLIM picked up $4.6 million in potential overpayments in 2003 and $3.2 million in 2002. “We've improved our processes to go with the systems, so it has created more structure than what we used to have,” Kuntz says.
The switch from word files to Accruent lease-management software during the past two years has saved Los Angeles-based The Coffee Bean & Tea Leaf, which has 260 stores, money as well, according to Joann Krajewski, lease administrator at the company, although she wouldn't provide specifics. “If accounting wasn't on top of due dates for rent increases, whatever the landlord used to say, that's what we used to pay,” she says. The software, called cmReal Estate, from Santa Monica, Calif.-based Accruent, immediately showed some stores were paying rent increases not actually due for another year.
Retailers began to use real estate management software — developed by National Facilities, Tequila Software and Accruent — about a decade ago. Yet, according to Jay Houlihan, managing director of Innocal Venture Capital, an Accruent investor, only 10 percent to 20 percent of the national retail chains are currently using lease management software.
And the market for retail lease management, which AMR Research estimates is about $350 million and growing fast, is quickly evolving as many of the early adopters have started to move beyond the core job of lease management. It's part of a broader market of contract life-cycle management software, which totals about $3.1 billion, by investment bank Goldman Sachs' estimation. By the end of 2007, companies will spend more than $20 billion per year on software and services for contract life-cycle management, according to technology market research outfit Gartner Group.
“Our direction has become more enterprise focused,” says Tim Henry, principal and director of sales and marketing at Chicago-based NFG, whose clients include kids clothing chain Gymboree and department store Kohl's. Users of the software used to be mainly lease administrators, but now Henry says departments like accounting and finance are beginning to embrace it as they've found it helps them keep track of budgets and productivity.
For a real estate intensive business like retailing, thousand-dollar mistakes here and there add up fast. “There's a lot of money to be saved in making sure the contracts you worked so hard for are being enforced correctly,” says Houlihan. Accruent CEO Mark Friedman claims his firm's product, cmReal Estate, can save companies $600,000 in the first year.
The software makers, recognizing the more advanced uses that their customers crave, are positioning themselves as managers of all things related to real estate management. They figured that retailers “‘want someone who really understands my business and can keep all these store contracts in place,’” says Louis Columbus, AMR senior analyst. Most contract management, including the kind that interests retailers (leases), is not fully integrated. Customers “use it like an automated file cabinet,” he says.
Maximizing the contents of these sophisticated file cabinets is the main focus of retailers. However, Best Buy's Kuntz also has her eye on additional uses. She says that by July she will begin drawing on the facilities management tool within SLIM. And she's seriously considering adding the software maker's Web-based rent accounting function. Currently, that process is dealt with through a separate network-based system that works with SLIM.
From choosing store sites to sales forecasting to all matters involving contracts, all three major lease-management software vendors are trying to parlay their ability to track real estate contracts into other value-added functions. “We have a whole line of strategic services to offer,” says Michael Meltzer, president of Toronto-based Tequila Software, which counts office supply chain Staples, health foods retailer GNC and jewelry chain Zales among 70 customers using its RetaiLease system.
RadioShack is now working with Tequila to add functions to manage facilities, construction, signage and architecture, says Becky Hollander, project manager for real estate services at the electronics retailer. Beyond that, RadioShack, which has more than 7,000 stores, is considering using a site selection product, partnered with geoVue's iSITE online software. By keeping many real estate related tasks under one provider, users won't “have to look back and forth between [different] systems,” says Hollander.
Convincing users to sign for the bells and whistles takes time. When companies see they are saving money on lease discrepancies they gradually move into “bigger picture” uses, says Accruent's Friedman. “The tactical activities generate a lot of great data [that can be used toward] more strategic activities.” The latest edition of his company's cmReal Estate, version 5.9, includes a rent-collection function, automated percentage rent calculation, site selection and the standard lease management capability, although not all clients are using all pieces.
Bob Moritko, lease administrator at Yankee Candle, has taken a measured, building-block approach. The South Deerfield, Mass.-based candle retailer plans to add about 45 stores a year to its current base of 302, a pace which sent Yankee Candle looking for something to replace the spreadsheets the company was using to track leases.
“I knew growth would be very aggressive, and Excel would not be able to fill our needs,” he says. “We really needed to track our leases and key lease provisions.” he says. About two years ago, he chose Accruent software.
Now, Moritko and six colleagues use the Accruent product to develop reports that analyze how rent increases affect cost per square foot. He says he will begin to implement the accounts payable function later this year. Moritko is also considering adding the percentage rent calculation function. (A retail tenant often is obligated to pay a landlord a percentage of store sales.)
“We do it manually now, but I want to see if the software is better than me,” he says. Over time, Yankee Candle's use of the software “will be more and more vital to running stores efficiently, measuring stores against each other and find out where we can do a better job at negotiating leases.”