When He Decided to Buy the Store, Outsourcing Paid Off | Article

sold signAt luxury goods retailer Stanley Korshak, opulence is the order of the day. The Dallas, Texas, store has earned a reputation for upscale shopping and outstanding customer service. Shoppers stroll along glistening granite floors perusing designer labels, hand-tooled shoes and diamond-studded gowns. Wealthy shoppers come from all over the world, including one client who travels from Paris — couture capital of the world — to purchase suits.

When Stanley Korshak’s parent company decided to sell, store President Crawford Brock leapt at the chance. He painstakingly developed a buy-out plan that included outsourcing the retailer’s back office functions to smooth the transition.

Brock had spent his entire career in the high-end merchandising industry. Recruited from Florida State University’s business school by Neiman Marcus 26 years ago, he managed the company’s posh Beverly Hills location and sought advice from Stanley Marcus himself. Although he was a retailing expert, payroll was not his strong suit.

The Need to Find a New Service Provider

The previous owner of Stanley Korshak was the Rosewood Corporation, which performed all payroll and employee benefit tasks, then charged those costs back to the retailer. As the transfer of ownership neared completion, Brock knew he had to make a decision: Continue to have Rosewood perform the back office functions or shop for a new supplier.

He hired a human resources manager to research outsourcing options. “We compared the cost of what our parent company had been charging to the cost of outsourcing,” Brock says. “It was going to be much more efficient to use a third party than to bring in new people and train them.” The company was charging Stanley Korshak $100,000 annually to perform the payroll tasks. Brock ended up saving $60,000 a year by outsourcing.

In addition to saving money, the company saved time by eliminating the need to find prospective employees, then screen, interview and train them for new jobs. Outsourcing really made sense in the slow economy, when falling revenue precludes hiring additional staff.

According to Mike Atwood, industry president for manufacturing, distribution and retail at Everest, companies changing ownership often turn to outsourcing to help smooth the transition “It’s a logical route to take when a company is going through a big change,” he says. Increasingly, retailers are looking at business process outsourcing as “an interesting idea even if they aren’t in the midst of change. It is an offering that is getting out of the development stages and into the marketplace,” says Atwood.

During the three years that Brock planned the purchase, he developed a close relationship with the bankers who had agreed to help finance the transaction. He kept them informed of his decisions, including his idea to save operating costs by no longer using the parent company to process payroll and administer employee benefits. “If I’m an investment banker, I like that. It shows smart business thinking,” says Atwood.

A Proven Track Record

Stanley Korshak chose ADP as its payroll service provider. Human Resources Manager Susan Zetley was familiar with the company from her work at a previous employer and knew ADP had done good work for the Rosewood Corporation as well. After talking with ADP representatives in detail about Stanley Korshak’s needs, Brock felt it was the right service provider to use.

Based in Roseland, New Jersey, the company pays approximately 30 million people each pay day. It also submits employers’ quarterly payroll tax returns to about 2,000 U.S. federal, state and local agencies and issues more than 43 million year-end tax statements in North America.

Brock wanted as little disruption as possible in the store’s day-to-day operations. “I wanted the change to be invisible to employees. Most employees didn’t even realize the change, he reports. “There were no negative reactions. Only positive ones,” he says.

“I would have heard about it if something went wrong,” says Allen Niemynski, district manager for ADP’s employee service division who spearheaded ADP’s acquisition of the new account. “ADP wanted to keep the account and would have reacted immediately to solve any problem if there had been one.”

Niemynski says ADP “pretty much did everything from the get-go.” The company took over virtually all of Stanley Korshak’s back-office functions, including managing the store’s employee payroll, filing its taxes, and instituting a new time and attendance reporting program. In addition, ADP set up a new retirement program for the store’s 95 employees.

The store uses ADP’s human resources information system that provides integrated tracking and reporting information about each employee, Updating the store’s time and attendance program made record keeping easy. When employees arrive or depart, they swipe personalized badges through a time-keeping device that automatically records the exact amount of time they have been at work.

“Time theft is a big issue for many companies,” says Niemynski. “The number of minutes lost by employees who arrive late and leave early adds up and shaves profits. We tell clients they can save hours and hours a year by tracking those lost minutes. The service pays for itself.”

ADP helped Brock identify a new supplier for the company’s health care insurance and took over the administration of Stanley Korshak’s employee retirement accounts. Representatives from the service provider who specialize in retirement plans sat down with Brock and brainstormed about what kind of program he wanted his employees to have. Next, they wrote the new plan from scratch, including requisite legal documentation, and identified a financial institution where employees’ retirement contributions would be deposited. ADP automatically withholds the contributions from each employee’s paycheck.

The previous plan offered mutual fund choices from only one investment company. In addition, employees often had to pay fees for changing their investment decisions. Under the new plan, they have investment products from 13 companies to choose from and pay no fees. Because it is under Stanley Korshak’s direct control, the company can control costs and finds it easier to administer.

Stanley Korshak and ADP have been working together since July 2002. New to the outsourcing world, the store and its managers have benefited from the service provider’s willingness to create a partnership from the ground up. “They didn’t know exactly what the end product would look like,” says Niemynski. “We’ve worked very hard to create something that they like and are comfortable with.”

Confident that its service levels will remain high, ADP does not have contracts with clients. “We’re only as good as the last payroll we’ve processed,” says Niemynski. “If our customers are dissatisfied, they go elsewhere. So it keeps us on our toes.”

Lessons from the Outsourcing Journal:

  • Outsourcing can pave the way for a smooth transition of ownership, becoming an integral part of the strategic plan to acquire a company.
  • Outsourcing back-office functions allows retailers to focus on the mission-critical activity of selling merchandise, which becomes particularly important during an economic down turn.
  • By bringing in experts to educate them about the variety of benefits programs available, management makes more informed decisions.
  • When a service provider performs functions not directly related to selling merchandise, a retailer can leverage its ability to accomplish key business goals in less time.

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