facilities

Colleges and retailers share a bloated past and a slimmed-down future

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Oct 3, 2019

As online retail has disrupted brick-and-mortar stores over the past couple of decades, analysts have realized that stores in the US are overbuilt for demand.

American higher education is facing a similar problem. As the number of high school seniors has plateaued and even declined in certain regions, campuses in the US appear overbuilt for demand—and that’s before taking into account the disruptive impact online learning may have on education in the medium-to-long term.

According to The Boston Globe, there are 23.5 square feet of retail per person in the US today—four times as much as in Britain. Stores are increasingly shrinking, as retailers realize “they can sell the same amount in about half the space,” Rick Stein, a planner and founder of the Urban Decision Group in Columbus, Ohio told The Globe.

I couldn’t help but think recently about that reality—and its parallel in higher education—as a massive and imposing Macy’s department store eyesore greeted me as I made my way off the highway en route to a meeting in Auburn, Mass.

An analysis of data in the 2016 report “State of Facilities in Higher Education” by Sightlines, a facilities management company, suggests that there is roughly 460 square feet of campus facilities per student. The 2015 report states that public campuses have 350 gross square feet per student, whereas private campuses have 600 gross square feet per student. And according to the 2017 Sightlines report, private colleges have 88,000 square feet of campus facilities per employee, while public institutions have 97,500 square feet per employee—with coverage rising fast in recent years.

Many campus leaders, unfortunately, don’t appear to have received the message that building more facilities is increasingly unsustainable as the fundamental business model underlying significant swaths of higher education breaks and the US approaches a demographic cliff in 2026 that will send enrollments spiraling downward at many institutions. According to Sightlines’ 2018 report, campuses instead continue to expand with capital investment at an 11-year high despite the overall decline in student enrollment.

To fund the building spree, according to The Hechinger Report, colleges and universities borrowed $41 billion in 2016-17—an eight-fold increase since 1987. Servicing that debt accounts for 9% of college budgets.

“Driven in recent years by ultra-low interest rates, it is unclear how long the debt trend will continue and whether institutions are prepared for the future burdens of this debt,” the 2018 Sightlines report states. On top of that, according to the 2018 report, given the age of the existing physical plant at most colleges and universities, soaring maintenance costs are on the horizon.

It’s true that labor is significantly more expensive at most colleges and universities than the state-of-the-art gymnasiums, dining halls, dormitories, and—of course—lazy rivers and climbing walls that have become the symbols of higher education’s excesses. But the fixed costs that facilities create—in debt payments, as well as operational and maintenance costs—only add to the challenges facing colleges and universities for which revenue is increasingly in short supply. The reason is that when a school is in trouble, these costs are relatively inflexible and can’t be cut easily.

It’s not just facilities of course. It’s physical plant more generally that creates costs. The costs of space, for example, contributed to Pine Manor College, a small school of roughly 450 students in the leafy suburbs of Chestnut Hill, Mass., outside of Boston, famously selling 5 acres of property to Tom Brady and Gisele Bundchen in 2013 so the school could survive.

A key question is, as online learning ascends, will the presence of beautiful brick-and-mortar campuses crack and fade away? My guess is no.

Based on research in my new book with Bob Moesta titled Choosing College, I predict that the most prestigious and elite colleges and universities, as well as flagship universities, will be just fine in their expansiveness. A key part of why some students attend college is to have the classic brick-and-mortar college experience they’ve been led to expect. That expectation appears durable for a segment of the population.

Outside of that, the story for higher education is likely to look similar to that of retail beyond their overbuilt physical plants.

As the disruptive online retailers have steadily gained ground, one way that some online retailers are improving is by opening brick-and-mortar stores whose primary purpose is to serve as showrooms for online items. Bonobos, a men’s apparel store that was once dogmatic about only selling online, started opening brick-and-mortar stores in 2012. The stores carry little-to-no inventory and employ only a few salespeople. They don’t carry the massive inventory or footprint of a traditional department store. Warby Parker and Amazon are following a similar path.

This phenomenon of a pure disruption incorporating an element of an old technology—but not the old technology in its full form— is an example of disruption’s upward march. After getting a foothold by launching among nonconsumers and those with the lowest performance needs, companies on a disruptive path pursue sustaining innovations—such as retail showrooms—to allow them to climb upmarket by doing more jobs in the lives of more demanding customers.

Postsecondary education is following a similar path.

In much the same way that purely online retail still doesn’t allow someone to try something on or play with a product to see if it really is the right fit, online learning may lack something that the physical world has as well.

One way to improve online learning may be to give it a physical component—a blended-learning option—so that students can connect with other students in-person, create community and forge a stronger network, hold each other responsible for completing, and the like.

This helps explain partnerships like the one between WeWork, the large co-working company, and 2U, the large online program manager, as well as moves by bootcamps and coding schools like Galvanize, General Assembly, and MakeSchool; and traditional universities like Northeastern setting up campuses around the globe.

As in retail, the future of higher education will likely have an important brick-and-mortar component, but one significantly slimmed down from today’s girth.

Brian Warren, a consultant at Entangled Solutions, contributed to this piece.

Michael is a co-founder and distinguished fellow at the Clayton Christensen Institute. He currently works as a principal consultant for Entangled Solutions.