Close
Close

Retailer rings up $100 million in savings through fixed asset services

RFP

Retailer rings up $100 million in savings through fixed asset servicesThis large clothing retailer has four brands, $2.5 billion in annual revenues and almost 24,000 employees, 30% of whom are full time. It operates nearly 1,500 stores in 48 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Canada. It sells merchandise nationally and internationally through catalogs, e-commerce websites and call centers.

The situation
Unreliable information in fixed asset system
The retailer realized some of the information in its fixed asset system was unreliable. For example, data about depreciable lives for tax purposes was sometimes inaccurate. As a result, the company wasn’t making appropriate decisions about depreciation. In addition, the system included property assets that didn’t exist anymore — “ghost assets” for which it was still paying property taxes.

The challenges
Volume and growth
The volume of the retailer’s operations and its ongoing speedy growth had made it more difficult to keep accurate records. That volume included property taxes in hundreds of jurisdictions, considering all the counties where the company operates. The growth was at a rapid clip: 20 new locations a month, adding hundreds of thousands of line items in the retailer’s system.

What the team did
Creating a streamlined system that works
After rooting out the cause of the problems with depreciable lives, the Grant Thornton LLP fixed asset team corrected them, and came up with a methodology and a file the retailer could import so that future changes would be made automatically.
The retailer was so happy with these results, especially an $80 million deduction related to fixed assets, that it hired the team to clean up its property tax records. That was done by re-establishing what the depreciable lives should be, similar to the fixed asset work previously done. The team helped the company file its property tax returns correctly and get to the point where it could do the work independently. The savings: several million dollars in property tax deductions in addition to the previous $80 million.

“I have worked with all of the Big Four firms as providers, and Grant Thornton has exceeded my expectations to the point that I have now outsourced all of our tax work in this area to them.”        -- Vice President of Tax

Outcome
Benefits and value achieved
With the fixed asset depreciable lives and property tax problems resolved, the company hired the Grant Thornton team to make all ongoing decisions related to its fixed assets. Like most companies, the retailer didn’t have the resources to do this internally. The team now monitors and helps maintain capitalization policies and decisions related to tax fixed assets.

When the repair regulations became final, the retailer asked the team to assess how the regs would affect its business. The team will implement the same kind of retroactive cleanup as it did on the depreciable lives — in this case, looking at repairs and dispositions. That new methodology will be layered into the continued outsourcing of tax depreciation decisions. The savings: an anticipated $10 million to $12 million in repair reg deductions, on top of the $80 million fixed asset deduction and the property tax deductions.

Contact
Joseph Brown
T +1 312 602 8580

Tax professional standards statement
This document supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document, we encourage you to contact us or an independent tax adviser to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this document is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.