March, 2021 - Sachse Construction

Contractors’ Revenue Expectations Rise

Dive Brief:

  • New data shows that U.S. contractors are growing more optimistic, mostly driven by a rise in revenue expectations. They also have better outlooks on hiring as business concerns related to the coronavirus pandemic lessen, according to the latest U.S. Chamber of Commerce Commercial Construction Index.
  • In the first quarter of this year, 36% of contractors said they expect their revenue to increase over the next year, a jump of 11% from the last quarter of 2020. Eighty-seven percent expect their revenue to either stay the same or increase, up from 86% last quarter. Most (86%) contractors also reported a moderate to high level of confidence that the U.S. market will provide enough new business in the next year.
  • In addition, close to half (46%) of contractors said they will employ more people in the next six months, up from 37% in Q4 2020. The same percentage (46%) expect to keep the same number of workers, and just 3% expect to reduce their staffing, down from 12% in Q4 2020. 

Dive Insight:

Despite the positive news, the index remains 12 points below its score of 74 from Q1 2020 before the COVID-19 outbreak and it found that contractors’ top concerns are related to the ongoing effects of the pandemic. They include worker health and safety, more project shutdowns, fewer projects and less availability of building products.

“As vaccines continue to roll out, contractors are expecting to hire more workers and anticipating good times ahead. The industry still has a way to go to return to pre-pandemic levels, but rising optimism in the commercial construction industry is a positive sign for the broader economy,” said U.S. Chamber of Commerce Executive Vice President and Chief Policy Officer Neil Bradley in a press release.

Alongside the positive signs of recovery come workforce challenges, the report said. These include difficulty finding skilled workers, material shortages and cost fluctuations. Of those experiencing the impact of cost fluctuations, 43% said wood/lumber is the product of most concern, followed by steel (35%) and copper (27%).

“Finding skilled workers was a critical issue before the pandemic, and while it has remained a chronic problem over the last year, heightened concern may be emerging again as contractors look to hire,” Bradley said.

Additional findings show:

  • Tariff and trade concerns are up. More contractors say steel and aluminum tariffs will have a high to very high degree of impact on their business in the next three years.

  • More contractors plan to increase spending on tools and equipment, increasing to 37% from 28% in Q2 2020. Before the pandemic (Q1 2020), 54% said they planned to increase spending.  

  • A majority (80%) of contractors are still experiencing delays due to COVID-19, with an average share of 23% of their projects delayed, but that share is expected to drop to 15% looking ahead six months.

Another analysis released earlier this month backs up concerns over an increasing shortage of skilled labor. The 2020 Marcum JOLTS Analysis found that construction employees are becoming harder to find.

In addition, as contractors in some regions struggle to find labor, wages have risen to record levels. In January 2021, average hourly earnings of construction employees reached their highest level ever, $32.11, and average weekly hours worked rose to their highest level since 2019’s third quarter. 

Playground Project Moves Forward, Seeks Volunteers

WARREN — A disk swing, castle-style playscape, swings, slides, benches, stand-up spinner and more will soon welcome adventurous children at the Academy of Warren, or AOW, located at 13943 E. Eight Mile Road.

School officials are in the process of building a state-of-the-art playground on the school campus, and are looking for community members, staff and parents to help with the construction. AOW is a K-8 public charter school with 95% of its student body coming from Detroit and the remaining students from Warren and other communities. According to a school press release, the academy is a Title I school and currently does not have a playground or a gymnasium.

The building of the playground is planned for May 17 through June 11. Because of COVID-19, volunteers must wear masks and practice social distancing. Several building staffers have signed up to help, but more volunteers are needed. A playground volunteer form and sponsorship opportunities are available at the AOW website at www.academyof warren.net.

“(The playground) is going to cover a mass area of the parking lot. Everyone is going to have their own assigned duties,” AOW Chief Academic Officer Oronde Kearney said. “The community playground will provide a place for children to explore, be active, have fun and interact with their peers. It also gives them a safe learning environment to develop physical, social, emotional and cognitive skills. We are looking forward to seeing our students expand their horizons through exploration and play.”

The students themselves designed the playground. Last year, staff held an activity called “Design Day” in which the students drew out what their ideal playground would look like. The playground will be built on 5 acres of land. According to a “fact sheet,” students and visitors from Warren will be able to use the playground, which is being built with assistance from Leathers & Associates, which has offices in Ithaca, New York, and Jupiter, Florida.

The project includes the renovation of a 25,000-square-foot fieldhouse dome with a gym and indoor turf field, an outdoor athletic field and an outdoor combination tennis and basketball court. In addition to the playground project, a separate $9.7 million revitalization of the AOW’s campus is planned. The remodeling includes approximately 100,000 square feet of interior updates.

A total of 36 classrooms will undergo renovation to install smartboards, updated furniture, modern teaching equipment and new windows. A state-of-the-art library will include seminar rooms, tutoring offices, a computer lab, an audio-visual studio, family lounge and business center. AOW is partnering with Leathers & Associates, Equity Schools, based in Chicago, and Sachse Construction, located in Detroit, to complete the upgrades.

“This project is very special because we are giving the Academy of Warren students, and the community, a new terrain in which they can release energy and expand their minds,” Richard Murray, president and founder of Equity Schools, said in a prepared statement. “And, we are bringing a supportive community together in order to get it done.”

Retailers Now Opening More Stores Than They’re Closing

U.S. retailers have announced more store openings than closures so far this year: 3,199 openings versus 2,548 closings, according to retail data specialist Coresight Research. If the trend holds throughout the year, that will represent a complete turnabout from 2020, when the coronavirus pandemic and other factors drove more than 8,950 closures but only a shade less than 3,300 openings nationwide.

There are a number of reasons some retailers are eager to jump back into the game, CNBC reports, including the fact that not all brands suffered during the pandemic, that retailers want to test new concepts post-pandemic and that a surfeit of vacant retail space means there are deals to be had when it comes to rent and concessions.

“There’s more space available, and we’re able to get better terms today than two years ago,” Fabletics CEO Adam Goldenberg told CNBC.

After the massive number of retail closures last year, a record 159M SF of retail space came on the market, pushing the U.S. average retail vacancy to 5.7% this year, the highest rate since 2015, Forbes reports, citing CoStar data. Also, average retail rents fell 0.7% in 2020 compared with 2019.

One retailer that never quit opening stores during the pandemic, and which will not stop now, is Dollar General. The discounter, which has more than 17,100 stores nationwide, opened about 1,000 new stores in its fiscal 2020 (ended Jan. 29) and closed only about 100. 

Dollar General’s growth has been buoyed by strong returns, as consumers buffeted by last year’s economic maelstrom sought cheaper goods. Its net sales increased 21.6% to $33.7B in fiscal 2020, compared to $27.8B in fiscal 2019, while same-store sales grew 16.3% year-over-year in 2020. Operating profit for fiscal 2020 grew 54.4% to $3.6B compared to $2.3B a year earlier.

“The company believes consumer behavior driven by Covid-19 had a significant positive effect on net sales and same-store sales,” Dollar General said in a statement regarding its fourth-quarter results. The company plans to open more than 1,000 new stores in 2021 as well and sell more fresh and frozen food in its stores.  

Retail was also marked by a number of major bankruptcies in 2020, and while many of those were pandemic-related, others were at least partly strategic in nature, according to a new report by Fitch Ratings. The goal in those cases was to reduce debt and get out of leases, rather than liquidate completely.

“In these cases, capital structures were untenable and a default may have occurred over the medium term,” Fitch Director Judah Gross said in a statement. “Examples of this trend include Tailored Brands and Ascena.”

Even so, Fitch reported, liquidation was the fate of many retailers last year. Nearly half of retail and supermarket bankruptcies were resolved that way, the company found, compared with 11% for corporate bankruptcies in general.

Why Now is the Ideal Time to Renovate Your Office Space.

Have you been considering renovating your workplace, but muddling over when the right time would be? While it might feel like a low priority to take these steps during the current pandemic, where remote work has become the new norm, there is in fact no better time than now!

The benefits of proactively renovating your office before team members return include reducing move management expenses, getting ahead of the curve, and adapting your workplace to meet the demands of employees before they return to the office. The future of today’s office has been somewhat unclear, however as companies begin to transition employees back together there are necessary changes to ensure everyone is ready for a safe return.

Unoccupied Office Space.

More employees than ever are working from home resulting in office buildings being partially or completely unoccupied. This scenario creates an opportune time to not only plan for what a new space should look like, but to physically begin the build-out. Once your space is reoccupied, there is the added expense of phasing, relocating staff, and move management becoming an unwelcome burden during construction. Space limitations may cause interruptions to the workday and impact efficiency. Alternatively, implementing renovations while your employees are working remotely can help you save time and money while maintaining productivity. Vision is also clearer with limited people. Current times call for intentionality, creativity, and flexibility in the workplace more than ever.  

Ahead of the curve.

The completion of a successful office remodel is deep-rooted in clear communication, a precise plan, and staying on schedule. While businesses are transitioning back at their own pace, there may be a time in the future when nearly everyone comes back to the office environment in mass. The inherent surge in demand on the construction industry can lead to increased costs, limited subcontractor and material availability. While there is uncertainty in what the future workplace should look like, simply kicking the can down the road can have major impacts from schedule delays to paying more for less. Currently, the industry is hungry and looking for work. Get ahead of the curve and ensure your office space is ready for a safe return. Completing work before employees return shows them you are thinking proactively about their health, well-being, and comfort.

Open and Collaborative Areas.

We’re all hearing that the population in general is starving for contact, connection, and interaction with others in-person. Many current workplaces are not set up to accommodate the new normal. Changes to the modern office are not going to be short-lived, they are the future. As daily activities slowly return, office spaces need to adapt to account for the various comfort levels of everyone returning to work. One of the biggest transitions will be moving from all individualized workstations to more collaborative and open areas to work together. To accomplish this, first evaluate your current office, find areas to reduce existing workstations and open them up for collaboration. Even if your company is considering a more standardized work-from-home plan, group meetings will periodically be deemed necessary, so it is important to evaluate current meeting space, size, capacity, and technology. Digital interaction will still be prevalent so figuring how and where technology fits into these areas is imperative. New work areas need to be welcoming as a safe and secure new experience. Research suggests employees believe the workplace must be deemed worth the commute, while encompassing safe practices.  This process will take some trial and error to find what is most suitable for your space and employees.

Times are different, it is no secret. While statistics show work productivity has not diminished in the past several months, according to CNBC three out of every four workers claim they want to return to an office in the near future. In anticipation of this pivot, the actions taken now will surely make the transition more streamlined. There is no better time than the present to get started.

Contact Ron Henry, senior vice president, at rhenry@sachse.net to learn how Sachse Construction can help optimize your office rebuild in 2021.

Retail Expectations vs Reality in 2021

In the Retailing universe, Experiential Retail has been a buzz phrase for years. Brick-and-mortar stores were going to stave off the rush of customers toward alternative shopping by creating environments and shopping experiences that entertain, that stimulate, that are worth being a part of for their own sake. It made sense, and it was starting to happen. Chains like Target and Costco offered “the treasure hunt,” unique items strategically placed where shoppers can stumble across them. Some malls reinvented themselves as “lifestyle hubs,” incorporating operations like brewpubs, yoga studios, and video gaming parlors.

Yet the collective annual foot traffic for America’s malls continues its multi-decade decline, as does brick-and-mortar overall. COVID-19 has created a step-change in the shift from brick-and-mortar to online, but the underlying trend had been negative for a long time.

Still, according to Neil Stern, a senior partner at retail consultancy McMillanDoolittle, “Physical retail isn’t dying. Bad retail is.”  

What makes for good retail in 2021? Forget fancy experiences. Calendar 2021 will be the Year of Convenience. In a joint study published by global consultancies Kantar and Catalyst, convenience was the number one reason online purchasers mentioned for choosing a retailer, cited by 66% of survey participants. And convenience often means saving time – ordering online and picking it up as fast as possible.

Target, Starbucks, Costco, and Amazon are retail chains that continue to outpace expectations even during the pandemic, and their embrace of convenience is a big part of the reason. Each has been integrating their physical locations with their online presence to a greater degree, and making that speedy turnaround from ordering-to-picking-up a priority.

First, the context: Consultancy HRC has issued its Retail Predictions for 2021, and the theme is a year with two very different calendar halves. Spending patterns established in 2020 will continue into the first half of 2021, but by mid-year the lid is likely to be blown off all the pent-up demand in categories that suffered the biggest declines last year. Yet HRC feels that new on-line shopping habits will not fade away, keeping the pressure on traditional retail.

WHO’S POISED TO EXCEED EXPECTATIONS?

Let’s start with Starbucks.

In October, November, and December of 2020 the restaurant industry overall saw sales declines of 14.4%, 16.6%, and 21.2%, respectively. In those same three months, Starbucks could have seen a similar fate, since the chain saw a 21% decrease in the number of comparable-store transactions – but instead Starbucks experienced only a 5% fall-off in comparable-store sales, thanks to a 19% gain in the average ticket. By making it easier to order, visit, pay, and receive their order, Starbucks has encouraged customers to buy more on a given visit.

In 2021 the company will build on this convenience-led strategy by accelerating store formats such as “drive-thru, mobile order only, counter pickup and curbside pickup” Starbucks will also pull out of malls in favor of new locations that complement the indoor experience with drive-thrus. In addition, a new deal with HMS Host will expand the Starbucks mobile order and mobile pay capability to everywhere the former has locations.

The quarter ending in November of 2020 was a particularly good one for Costco, with a sales increase of 16.9%, including same-store growth of 15.4%. Earnings per share easily surpassed analysts’ expectations.

But the chain’s success was more than a matter of being in the right place at the right time to take advantage of consumer budgets that were forcibly redirected to the home. In 2020 Costco rolled out same-day delivery across the U.S. and Canada via a dedicated Costco page on the Instacart website. In 2021 Costco is further leveraging its Instacart relationship to pilot a curbside pickup program for grocery orders in Albuquerque.

 

AMAZON AS THE 500 POUND GORILLA

Of course, it was Amazon who taught Americans to make home delivery a part of their normal routine, but the retail giant has never been one to rest on its laurels. Net sales at the end of 2020 represented a 44% surge over the prior year. The pandemic had a lot to do with it, as did a flurry of new programs designed to further enhance the typical customer’s convenience factor in doing business with Amazon. After that $125 billion quarter, another quarter of $100 billion+ is anticipated for Q1 2021.

Despite a business model built around delivery, Amazon has also been busy integrating digital and brick-and-mortar. Late in 2020 it gave customers the option for convenient pick-up of online orders at either its physical stores or Amazon Hub locations. It has also added features such as Amazon’s Map Tracking, Amazon Share Tracking, Amazon Photo-On-Delivery, and Amazon Estimated Delivery Window.

But as Starbucks and Costco, among others, have made clear, enhancing the convenience of food is the game to win in 2021. Amazon has employed machine learning to make sure that the food its Amazon Fresh stores source from manufacturers, distributors, and local farmers is optimized in every way – in terms of freshness of supply, inventory management, and efficient and timely delivery. And Amazon One contactless payment will become available for anyone who wishes to install it on their mobile device throughout 2021.

Covid-19’s lasting effects may include customers consciously seeking out convenience, and retailers will continue to up the ante on convenience in search of an edge on the competition. At this point you are wondering why a VDC advisory firm is focused on the brick and mortar retail sea change? The drastic brick and mortar portfolio transformation to convenience requires a digital platform to rapidly implement this change – any retailer who experienced 2020 first hand would agree that the speed in adapting to changing consumer preferences was a key driver to success, and the only way to make that happen effectively is through a digital platform.

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