When Atlanta-based United Parcel Services bought Mail Boxes Etc. and decided to expand from 3,000 converted locations to 5,000 U.S. stores by the end of 2007, UPS turned to Colliers Corporate Solutions for help with the expansion, rather than adding scores of real estate employees.
For at least 20 years, U.S. firms have outsourced real estate functions — from space planning to landscaping — as a way to concentrate on their core business. But now, many top firms are taking outsourcing further, using service partners to help them grow, and locate or manage new workplace facilities. Some executives say the partnerships help them carry out corporate strategy, speed up response time and save money. For example:
Electronic Data Systems Corp. (EDS), a technology services firm based in Plano, Texas, shifted management of its global real estate portfolio to Dallas-based Trammell Crow Co. two years ago. About 170 EDS employees joined Trammell Crow, now part of CB Richard Ellis Group, as part of the five-year outsourcing deal.
After Procter & Gamble, known for household brands such as Bounty, Crest, Pampers and Tide, asked real estate services company Jones Lang LaSalle to manage workplace facilities, it was so impressed with the results that P&G asked the real estate firm to oversee integration of property obtained through corporate mergers.
St. Louis-based financial services provider Edward Jones relied on Colliers Corporate Solutions to help it expand from 1,500 branches to more than 10,000. Now, Colliers supervises all of Edward Jones' corporate real estate, and the company estimates that it saves $3.5 million annually on facilities costs.
In a survey released last fall by corporate real estate trade group CoreNet Global, 91% of respondents indicated they expected expenditures for corporate real estate outsourcing to increase by 2010. Facilities management, lease administration, project and transaction management are among the areas forecast to register the most growth. Currently, about half of corporate real estate spending is outsourced, according to Atlanta-based CoreNet Global.
Outsourcing partners can more nimbly perform functions such as integrating property acquired in a merger, says Eric Bowles, director of global research for CoreNet Global. “An outsourcing partner can usually staff projects more easily than a corporate client can,” Bowles says. “If you need five people for a specific job, you can always pull somebody from somewhere.”
That kind of flexibility led The UPS Store, Procter & Gamble Co. and Edward Jones to outsource a host of real estate duties, and to expand their menus of outsourced services.
Speed of delivery
In 2003, two years after UPS acquired Mail Boxes Etc., it unveiled The UPS Store, its postal, shipping and business services brand. A year later, UPS asked Colliers Corporate Solutions to help open the corporate-owned locations and some franchised stores.
After a 60-store pilot program, Colliers now handles site selection, lease negotiation, design, space planning and construction for about one-fifth of UPS Store locations, which numbered 4,500 by late 2006.
Colliers enabled UPS to open stores as much as 30% faster than franchisees or in-house staff, translating into more sales revenue, says Phil Thomison, vice president of global development for The UPS Store. That pace may have helped beat competitor FedEx Kinko's in expansion efforts at some locations, says Thomison.
Why is Colliers so effective? The firm assigns one person to coordinate all facets of a store opening to reduce the chance that something will slip through the cracks, executives say. That person juggles design, architecture, permitting, construction, fixtures, and lease negotiations and approvals. Meanwhile, Colliers monitors speed to market, costs, franchisee satisfaction, and overall store quality.
For each new 1,200 sq. ft. to 1,500 sq. ft. store under its purview, Colliers bargains for free rent, tenant improvement allowances and other favorable leasing terms. Thomison declined to divulge specifics on how much money Colliers has saved UPS in the leasing process.
Speeding up the store-opening process is more critical than shaving upfront costs, Thomison says. “This is where outsourcing is more married to business strategy than cost avoidance,” adds Brandon Mann, senior vice president and principal of Colliers Corporate Solutions in St. Louis. “Just on the savings stuff, tenant improvement and free rent, we more than cover our costs.”
If the corporate services firm can slash the time it takes to launch a store, why not hand over all store openings to the company? Some franchisees prefer to keep those duties, Thomison says.
Outsourcing the store-opening process allows UPS and franchisees to concentrate on their core business, explains Mann. “That's the crux of outsourcing: Do what you do best and find resources to help you with the things that aren't core to what your business focus is.”
In January, UPS hired Colliers to handle store relocations and facelifts, a sign that the relationship with its outsource partner is still evolving.
Bolstering the bottom line
Mega-manufacturer Procter & Gamble operates in more than 80 countries and employs nearly 140,000 people to crank out products from coffee to shampoo. Its workers are housed in nearly 19 million sq. ft. of office and industrial space.
Until 2003, Procter & Gamble managed its facilities internally. Then, the company turned to Jones Lang LaSalle Inc. to improve efficiency and free P&G executives to concentrate on core facilities and real estate strategies.
The company has been so pleased with the relationship that it asked Jones Lang LaSalle to integrate real estate obtained through mergers with Gillette Co. and Wella AG.
In early 2006, after its $57 billion purchase of Gillette in 2005, Procter & Gamble relocated about 10,000 employees. Lydia Jacobs-Horton, director of global facilities and real estate for Procter & Gamble, says Jones Lang LaSalle completed the Gillette project in less than 12 months — on time and on budget.
Earlier, Cincinnati-based Procter & Gamble had challenged Jones Lang LaSalle to meet a five-year target for cost savings. That goal was reached in just three years, says Jacobs-Horton. Executives with Procter & Gamble and Jones Lang LaSalle declined to provide dollar figures.
Executives partly attribute improved employee satisfaction at Procter & Gamble to the work of Jones Lang LaSalle. “P&G employees are the ‘customers’ of the facilities management team,” which responds more quickly on maintenance calls, for instance, says Peter Bulgarelli, managing director of Chicago-based Jones Lang LaSalle. Jones Lang LaSalle also oversees dining services, janitorial services, lighting, landscaping and small to midsize construction projects.
Procter & Gamble was concerned about roughly 500 employees transferred four years ago from its in-house real estate operations to the Jones Lang LaSalle payroll. But Jacobs-Horton reports that turnover among the reassigned employees has been extremely low. “That says a lot for the entire relationship, and also the satisfaction that employees in the organization are getting from the work,” she says.
Edward Jones eases headaches
In 1993, financial services provider Edward Jones set a lofty goal — expand from 1,500 branches to more than 10,000 within approximately a decade. That meant establishing the infrastructure to open an additional 8,500 locations. Since 1990, Colliers Corporate Solutions had been administering Edward Jones' corporate real estate — about 1.8 million sq. ft. at 21 buildings, including the main campus in suburban St. Louis. So, Edward Jones enlisted Colliers to help drive the growth plan.
Today, Colliers supervises all of Edward Jones' corporate real estate and nearly every aspect of its leased branches. Over its 17-year span, the relationship has evolved from managing corporate offices to oversight of branch offices and repairs, maintenance and disaster recovery. “As Edward Jones continues its growth, our services continue to grow,” says Rich Etzkorn, senior vice president and principal of Colliers.
Edward Jones maintains about 10,000 branches in the U.S., Canada and the United Kingdom. Each office, measuring about 1,100 sq. ft., houses one broker and one office administrator. Colliers manages the addition of about 40 Edward Jones storefronts a month, including relocations, Etzkorn says. Colliers also renews about 1,500 Edward Jones leases each year and accepts about 25,000 maintenance calls for Edward Jones.
Annually, Colliers saves Edward Jones $3.5 million on the company's facilities budget. “Colliers has brought professionalism and peace of mind to a fast-growing firm with a widespread portfolio of leased offices,” says James Weddle, managing principal of Edward Jones.
In fact, the business relationship between the two is so tight that employees of the real estate services company share office space with workers from the financial services company. “We treat them like partners. We allow them to execute across a broad range of activities without a great amount of day-to-day oversight,” Weddle says. “They answer the phone like they are Edward Jones associates and, as far as we are concerned, they are.”
As “employees” of Edward Jones, Colliers managed the firm's recovery from Hurricane Katrina, which slammed the Gulf Coast in August 2005. Etzkorn says 107 Edward Jones offices in Louisiana, Alabama and Mississippi sustained significant hurricane damage. Three months after Katrina, 103 of those offices were back in business.
The Katrina experience shows why Edward Jones hired Colliers to run the branch offices. “Our engagement [with Colliers] was not just about saving money on our real estate spending. It was as much or more about execution,” Weddle says.
“It was about allowing our sole profit center — our financial advisers — to focus on their core business without being distracted by real estate issues.”
John Egan is an Austin-based writer.