When an institution considers outsourcing its campus bookstore, it’s critical to add up all the related costs and gain a firm understanding of how sales commissions will be calculated in order to accurately compare contract-management proposals and benefits.
In tallying payments to the college or university, corporate lease contracts typically exclude certain merchandise from the basis:
- Rentals of textbooks and other items
- Digital course materials
- Technology products
- Commissions from vendor programs (such as for graduation merchandise)
- Any items sold at a margin below a certain percentage
- Discounted sales
All of the revenue from those items goes to the contractor and none to the institution.
What’s Your Campus Store Worth?
The value of an independent campus bookstore is measured by more than just the net income number on the bottom line. Your store, as an integral part of the institution, supports the campus in other ways.Use indiCo’s Store Contribution Calculator to quickly estimate the full value of your store and compare it to what a typical lease contract might return for the same store.
Also keep in mind the other benefits your bookstore currently provides to the campus. These functions generate no revenue and some even add to the store’s expenses, but must be factored into the equation as they aren’t covered under standard contracts with corporate lease operators for campus bookstore managed services.
For instance, does your store help student organizations with donations for fundraisers or give discounts on supplies to campus departments? Does the store manage services such as ID cards or parking passes? Is the store picking up the entire mortgage for its building even though other campus entities share it? Think about what happens to these functions if the college store is corporately leased.
There are other direct and indirect costs associated with outsourcing that should be accounted for as well. Here are some of the typical financial and service costs:
Write-down of bookstore inventory
Any course-materials inventory that’s been adopted for the next term usually will be purchased by the corporate lease operator at cost. Materials in stock that haven’t been adopted are up for negotiation; however, the norm is for the value to be calculated at the current “national” rate (what wholesalers pay at buyback), which is below cost.
Institutions should include lost margin on products sold to the corporate lease operator at cost or less before transitioning inventory.
The corporate lease operator usually will not buy all items currently in the bookstore. It’s common for the company to ask the school to put most merchandise on sale at deep discounts to clear it out before the contractor takes over operations.
If the store has credit memos with vendors, those should be included in negotiations to determine how much the corporate lease firm will pay for them. Any loss should be booked for the final balance sheet. Bear in mind that a number of lease companies have wholesale used-book and e-commerce units that could use those credit memos, even if the store can’t.
Payouts for vacation, sick leave, and personal time
Under most corporate lease contracts, the store’s staff no longer remains employed by the institution. As a cost of transition, the school should plan to pay any remaining balances on time off and include these sums on the closing financial statement.
Buyouts for remaining vendor contracts
The store or institution may have contracts in force for point-of-sale (POS) systems, inventory control, shipping, and more. Depending on the terms, it may be necessary to buy out the contract before the transition.
Vendor contracts may include hardware as well as software and maintenance agreements. If hardware is included, the corporate lessor will not want to acquire it, so it will be up to the school to dispose of it and write down any loss.
Costs of systems to interface with corporate lease contractor systems
The corporate lease company will install its own POS and inventory systems, but these must interface with the institution’s learning management system and student information system to enable data exchanges for student charge accounts, authorized program charges, purchased access to e-textbooks and other course content, and more.
The institution should have its own information technology staff or hired programmers work with the lease company to set up, test, and maintain the interface.
If major renovation is included in the contract, the corporate lease company will cover the remodeling expense, but other costs may fall to the institution unless they’re specifically spelled out in the contract. For example, the school may be responsible for the cost of removing fixtures, possibly even ensuring the store is an empty “white box” ready for renovation.
The institution may also need to involve its own architect, planner, or project manager in the renovation, depending on local and state codes and policies.
The contract negotiation and certain transition matters likely will incur legal fees. Any contract modifications or renegotiations down the road will generate additional fees.
Additional management expense
There may be costs associated with the efforts of campus administrative managers to plan, coordinate, and implement the contract negotiation and transition. These may include travel, consultants, research, transition services, communications, and more.
Campus service and support
In evaluating contract proposals and comparing those offers to existing store operations, it’s important to keep in mind that the lease company will not automatically continue the current store hours or support of campus events. Unless specified in the contract, the company will operate according to corporate policy and profitability.
In particular, that might affect the store’s support of:
- Student orientation, parents weekend, alumni weekend, commencement, and other events.
- Faculty author book-signings and events.
- Campus events with book-signings or merchandise sales.
Any items or discounts given by a leased store to student groups or campus departments usually come out of the commissionable sales basis.
If the institution wants the leased store to support or participate in campus innovations, that will require negotiation with the corporate lease office as the store manager usually doesn’t have the authority. These could include:
- Digital textbooks or adaptive learning
- Educational technology programs and partnerships
- New business models aimed at course-materials affordability, such as price-comparison tools, third-party affiliates, and open educational resources
- Courses calling for students to obtain hands-on experience in retailing or other business activities
Institutions must evaluate all direct and indirect costs, potential reductions in service and support, and transition expenses to gain a true evaluation of contract proposals for the campus bookstore. Learn more with the Store Contribution Calculator.
If you’d like to discuss a campus store request for proposal, contact us.