E-mail to ask a question or write one in the binder at the Information Station (across from the bulk coffee). Check the In-Store Information Station for updates to this FAQ.

Finances - Decisions - Staff - Future

FINANCES

Are we $500,000 in debt?
Updated 4/7/08
No. We spent money, but aren’t more in debt. We don’t have additional bank loans or using any line of credit to pay our bills. Two-thirds of money we spent has been paid out; the rest is in the form of obligations that we hopefully can negotiate down. We’re not in a crisis situation financially.

Will we get any of the money we put into the project back?
Updated 4/7/08
A lot of the money we invested is unrecoverable. We will try to get money back by methods like selling purchased equipment and putting equipment to other use in current sites. Architect, staffing and lawyer fees can be expensed so that we can get a tax rebate.

Are we taking legal action to recover our damages?
Updated 4/7/08
We are already using whatever means we can to recover costs associated with the project. However, the costs of trying to get money from the developer might outweigh the return, as we are near the bottom of a long list of people/organizations he owes money to. Instead we are focusing on including possible carry back and forward income-tax breaks, seeking reductions in invoices we owe and finding buyers for equipment and supplies already purchased.

Is there anything we have purchased that we can sell to offset our damages?
Updated 4/7/08
Yes, we have paid for things like flagstone and refrigeration equipment and are working with our contractors to resell these things. Should another business go into that site, we are prepared to sell our architect's plans.

Is there anything we’ve applied to this store that we can use for another site?
Updated 4/7/08

• We have our color scheme worked out
• Practice in reviewing plans and giving feedback
• We’ve identified people to be strong management candidates
• Procedures and process documents on our intranet
• Things that need to change to go to 2 sites are identified and changed
• IT has built infrastructure and extra equipment for two stores
• Structure is built

If the bank provided a letter of commitment saying that the money would be there when we need it, and then it wasn't there, can they be held liable in any way?
Updated 4/7/08
No. The lenders that had these monies in reserve were unaware of issues between the developer and the primary lender, which was a separate lending institution than the ones that gave us commitment letters.

When will the co-op become profitable again?
Updated 4/7/08
As long as sales meet or exceed forecast conditions and we plan for debt management as well as continuing to control other expenses, we are projected to return to profitability in the coming fiscal year.

Why are we trying to open a second store if finances for the first are so tenuous as to not be able to tolerate a construction delay?
Updated 4/7/08
The Co-op is not in danger of financial ruin, but may have been if we continued waiting for MPII. The reasons for opening a second store have not gone away. Ours owners continue to vocalize their need for us to locate in their neighborhoods, the parking lot is full often frustrating owners, and the operations of the store are getting more and more demanding on the facility as well as the staff. Our long-term budgeting for this project indicated that we'd be operating at a deficit before the new store opened and began generating income to recover the start-up costs. Fortunately, measures have been taken work toward building our cash reserves in order to position ourselves to receive favorable financing when/if the next opportunity becomes viable.

DECISIONS

What was the timeline of events for this project?
Updated 4/1/08

• December, 2006 - Co-op approached by Buckingham LLC to consider locating second store at Metro Place.
• May, 2007 - Metro Place, Phase II is identified as the location of the Co-op's second store.
• September 7, 2007 - Lease is signed.
• September 17, 2007 - Per the lease, Buckingham LLC must either put money in escrow to fund the tenant improvements the Co-op is making, or the developer's bank must indicate that the funds are available when needed. The Co-op receives 2 letters of commitment from 2 different banks that showed they were willing to loan the developer the additional money to cover our Tenant Improvement Allowance.
• Last week of November, 2007 - Second store's landlord portion of construction begins. (Co-op managed this work as part of the amended lease agreement, and did so to expedite the project.)
• Third week of December, 2007 - The Co-op prepares to draw on the money for tenant improvements; there is no money available.
• December 31, 2007 - Construction contract for general contract signed; this phase of construction begins.
• January 2, 2008 - Construction stops.
• First week of January, 2008 - The bank threatens Buckingham LLC with foreclosure, giving them 20 days to respond before a hearing.
• January 28, 2008 - Buckingham LLC is able to postpone the hearing.
• February 15, 2008 - Buckingham LLC requests a new judge to hear the case.
• February 15, 2008 - The deadline for Buckingham LLC to come into compliance with the lease. After this date, the Co-op is able to terminate the lease with minimal obligations.
• Last week of February, 2008 - A potential buyer of Metro Place, Phase II makes offer to Buckingham LLC.
• March 11, 2008 - A Co-op financial report indicates that the costs associated with the delays have made the deal untenable.
• March 11, 2008 - The Board votes unanimously to terminate the lease. Lease termination document is started. Board asks management team to put together Communication Plan.
• March 14, 2008 - Buckingham LLC and the bank work out a deal to hold the site in receivership for one year.
• March 14–21, 2008 - Options for returning staff structure to one-store model considered and decided on.
• March 22–24, 2008 - Staff hired for a 2 store scenario are informed of the situation and next steps
• March 24, 2008 - Information about the termination of the lease is posted in the store and on the website.

Why did we go into business with this landlord?
Updated 4/1/08
The landlord, also known as the developer, for this property is Cliff Fisher. He is the managing member of Buckingham LLC. There is an additional silent partner.

Metropolitan Place Phase II had the best sales performance numbers according to the market report we received when we selected the site. Although we had reservations about working with this developer, the strength of the site location and negotiated lease rate and build out allowance coupled with the developer's retention of a reputable commercial broker made moving forward with that site the course of action most likely to succeed at the time of the decision.

The commercial broker created a reasonable distance between the developer and the Co-op so that we never had to work directly with the developer/Fisher. The lease and time line for the build out that was agreed to were competitive with the market at the time supporting that going forward with our plans to locate a store there was a good decision.

Was there any way we could have known about or prevented this situation?
Updated 4/1/08
We crafted the lease to clearly outline the developer's financial obligations. Additionally, we received two letters of commitment from two different banks that showed they were willing to loan the developer the additional money to cover our Tenant Improvement Allowance. Once it became clear he could not meet his obligations to his primary lender, the TIA money was no longer available to be paid to us. Even if we were to be in this situation again, there is no way we could predict or control the developer's personal financial situation.

If this was a good deal for the Co-op when we signed the lease, why isn't it now?
Updated 4/1/08
The developer's many delays increased our expenses (staffing, legal fees, contractor costs, and material and supply cost increases) and prevented us from producing a store whose sales were planned to help offset these expenses. The Metro Place II site was scheduled to be open in March, but it would have taken—at the most optimistic—four months to open from the time construction could have started again. The additional expenses related to the developer's delays have resulted in an even longer time before we could plan to become profitable, and the Board has determined that the risk of proceeding under those circumstances was too great.

If the second store process were less secretive, wouldn’t we have been warned away from working with the developer?
Updated 4/1/08
Disclosing that Metropolitan Place was the site before the vote would likely not have changed the process significantly. We had been warned about dealing with that developer before we signed the lease and, accordingly, we placed a number of safeguards into the deal. The site met more criteria than any other site we had considered, and the lease we crafted was good for what we planned to address and to protect our interests. There was no way to anticipate the developer's personal financial situation.

The 2006 vote to open a second store explicitly stated the location as Monroe Street, and our chances of securing that site seemed to have been severely affected by conducting all negotiations openly. The process used for the most recent vote was created, in part, as a response to that.

Was our decision to not purchase based on our finances or other factors?
Updated 4/1/08
Finances. We invested a good amount of time and energy investigating the viability of purchasing the site. But two factors made the deal too risky for us: the amount of upfront cash needed on a property that has yet to be proven as a successful retail site; and that the Co-op would be responsible for the entire build out amount (we'd receive no TIA, as we would be the developer of the property as owners). In March, a reputable buyer made the first offer on the retail space. In order to compete for the space at that point we would have had to match that offer, which was more than we were prepared to do.

STAFF

Will people lose their jobs at the Co-op because of this?
Posted 3/25/08
We are now overstaffed for one retail site because we have hired additional employees and restructured some existing staff in anticipation of opening this downtown store. We have created a severance package to help people voluntarily make the decision to leave if they were already on the fence. On April 3rd if we find that we have not been able to reduce expenses enough through voluntary departures, we will have to look to other options such as increasing employee contributions to benefits, pay or hour cuts, or involuntary layoffs. We won't know how much farther we'll have to go after the voluntary reductions are made until we know how many positions are opened up and how much money we can save with those voluntary reductions.

How many people will need to leave in order for us to successfully return to profitability?
Posted 3/25/08
We currently estimate we have to remove $25,000 from our monthly personnel budget in order to reach the 24% labor to sales for budgeted ’09 fiscal year. This translates into different numbers of people depending on the wages and hours of people who voluntarily leave or change their position. It is our goal to accomplish as much of the needed change as we can without forcing people to leave their employment, though if all else fails it is a possibility. We estimate anywhere between 7 and 15 positions need to be vacated.

FUTURE

Is there anything the owners can do to support the Co-op?
Updated 4/7/08

• Continue to shop and take advantage other co-op services like catering and Co-Shop
• Pay off your equity
• Buy gift cards for gifts
• Tell others about the Co-op
• Participate in the Co-op—keep informing us of what you'd like to see, make suggestions for improvement

Can we host a forum so that members can ask questions directly of the decision makers?
Updated 4/7/08
The BoD has set two dates Friday, 4/18, 5:30pm–7:00pm; and Sunday, 4/20, 2:00pm–3:30pm. These member sessions will review the following areas of concern:

• Finances - sunk cost recovery, debt management and return to profitability.
• Staffing - the impact of ramping up and decelerating capacity building
• Risk management - The steps we took to protect the interest and assets of the Co-op

What did we learn? Is there anything we could do differently next time?
Updated 4/7/08

• We will need evidence of the money available for the Tenant Improvement Allowance from the bank before we begin construction
• Consider retain a leasing/ buyer agent to support the site and project negotiations. Use an expert in the field
• When planning the next site we will explore the cost benefit of involving a project manager prior to final negotiations, preferably one who specializes in opening grocery retail businesses
• Conserve advertising resources until closer to opening date
• Capacity building of the organization administratively in advance of second retail staffing
• Design/build doesn't work for this organization. Working with having a budget for the project, designing a plan supporting those budgeting assumptions and hiring a contractor that can work with in the budget constraints would be a more systematic approach

What would we do the same in our next effort?
Updated 4/7/08

• Hiring from within the organization, providing opportunity for staff advancement as well as Co-op service continuity
• More clearly identify the new site costs separately from on-going operations for better monitoring of the cost of expansion distinctly from impacts on the operating retail

What is the soonest we could be working on opening another site?
Updated 4/7/08
This is a hard question to answer. We've started looking for other sites already, but it is impossible to know when we might be able open another store. Any proposal that might support the recovery of the organization sooner than later will be weighed on its own individual merits.

Why should co-op members have confidence in the Board and management?
Updated 4/7/08
We remained in the deal as long as the Board and management judged that there would be more benefit than reasonable risk in doing so; when the risk began to outweigh the benefit, the board made the decision to walk away from the deal. The fact that the developer did not have the money that he was legally bound to provide us was something that the board and management had no control over. Willy Street Co-op is a very strong business; sales have grown to be four times what they were when we opened our current site and membership has increased to 17,000. We will take the experience we have gained in this process to move forward to securing a successful and profitable second site.