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VOL. 9 | NO. 24 | Saturday, June 11, 2016

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ServiceMaster commits to Memphis with plans for tech-centered headquarters

By Madeline Faber & Bill Dries

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For the first time in years, the Peabody Place mall was packed. On June 3, hundreds of ServiceMaster employees and a handful of business and government leaders ushered in One ServiceMaster Center, a multimillion-dollar headquarters for Memphis’ fourth-largest public company.

Memphis Mayor Jim Strickland called it “the most significant headquarters announcement Downtown in a generation,” while ServiceMaster CEO Robert Gillette said that “a new building in the heart of the city’s revitalization zone” was the best fit for his growing company.

ServiceMaster’s conversion of Peabody Place will revitalize Downtown’s office market. The company’s relocation from East Memphis flips the dominant narrative about Downtown’s exodus of major office users.

The 328,000-square-foot mall, which has been shuttered since 2012 and was largely empty for several years before that, will be reinvented to accommodate 1,200 corporate ServiceMaster employees spread across four levels of Class A office space.

The announcement put to rest five months of speculation about whether the residential and commercial services company would relocate all 2,200 local employees to a larger city like Atlanta or Dallas.

Corporate Collaboration

ServiceMaster, which has been headquartered in Memphis since 2007 wants the next 10 years of the company’s growth to be identified by technology innovation.

To facilitate collaboration, cubicles will be scrapped in favor of “neighborhoods” that cluster employees around specific research areas across four floors.

The most unique aspect of One ServiceMaster Center will be the innovation center, where people will be racing to figure out the next big tech disruption to the home services market. The 20,000-square-foot annex could be open as early as next April, according to Jamie Smith, vice president and chief information officer at ServiceMaster.

The innovation center will rise in the space that previously housed Tower Records, a California-based music chain that closed all of its U.S. stores in late 2006 after filing for bankruptcy twice in less than three years.

Smith said the irony is not lost on him. Online media streaming disrupted the retail music industry, and Tower Records folded. ServiceMaster faces the same choice: shift to tech or be left behind.

People working in the innovation center will be racing to figure out the next big tech disruption to the home services market.

Roughly a third of the center will be rentable co-working space that is open to the public. Smith said startup companies could receive a small amount of seed money from ServiceMaster, which will have the first right of refusal on what is developed.

Another third of the center will be flexible event space for hackathons, coding boot camps and other tech gatherings. The other 40 percent will be used by ServiceMaster employees working on “moonshot” opportunities.

If an employee has an idea that makes it through a committee, they will be given the space and time to pursue it, Smith said.

“It might not even look like something ServiceMaster does,” he said.

The company wants to innovate and capitalize on that, not wait for startups backed by venture capitalists to erode ServiceMaster’s businesses with new inventions.

The last move of this magnitude was in October 1995, when AutoZone Inc. moved its corporate headquarters from a converted J.B. Hunter department store at 3030 Poplar Ave. to a new, eight-story building on Front Street with a river view.

AutoZone employees clad in red shirts quickly became a noticeable part of the Downtown streetscape, bolstering daytime foot traffic. Twenty years later, the goals of a robust Downtown office environment go beyond building a bigger lunch hour.

Leslie Gower, vice president of marketing for the Downtown Memphis Commission, said ServiceMaster’s presence will help lure other innovation pursuits (large-scale office users), and the startup incubator will create the next class of small businesses to help grow the Downtown core.

“The key for building an office campus that is desirable for creatives and startups is density,” she said. “A dense, closely knit environment of bright professionals allows for collaboration and sharing of ideas, which is essential for innovators.”

Downtown Disruption

For years, the Downtown office market has seen its share of tenants migrate to East Memphis – and sometimes beyond, as was the case when Pinnacle Airlines Corp. moved its headquarters from Downtown Memphis to Minneapolis, Minn. Pinnacle took with it 600 jobs and left behind a 170,000-square-foot vacancy at One Commerce Square.

Last year, the DMC launched a marketing campaign to repackage Downtown as a haven for startups and creative entrepreneurs. The traditional, large-scale office users were expected to return after smaller businesses built up capacity.

As part of the “My HQ is Downtown” initiative, the DMC has hosted after-hours events and happy hours to sell Downtown as a creative campus that is more inviting than East Memphis’ spread-out office towers.

The initiative seems to have been more successful than was originally anticipated.

“With all the space that we looked at, we were very cognizant of livability for our employees, commute time, what kind of space we could build out for them and availability of parking,” said Mary Kay Wegner, senior vice president of service and operations for Terminix, ServiceMaster's largest brand. “It's what's happening outside that space that creates that holistic work environment. We were able to best accomplish these things with Peabody Place in Downtown Memphis.”

ServiceMaster’s move Downtown is a big win for the office underdog.

The East Memphis office submarket, which is centered around Ridgeway Road and Interstate 240, commands 40 percent of Memphis' total office market. It has the newest buildings and highest rents in the market. Over time, the Downtown location drifted into Class B status.

When ServiceMaster moved its headquarters from Illinois to Memphis in 2007 it landed at Ridgeway Center, located in the heart of the East Memphis submarket. The company currently occupies 360,000 square feet across four traditional office buildings.

While total vacancy across Downtown's Class A space came in at 22 percent in the first quarter, vacancy hit a historic low in the East submarket at 3 percent, according to first quarter data from CBRE.

When reports first surfaced in recent months that ServiceMaster was looking for about 275,000 square feet of Class A space, Memphis shuddered.

"If they want true Class A space, it doesn't exist," Ron Kastner, senior vice president of CBRE, said when ServiceMaster's next step was unknown.

All signs pointed to ServiceMaster either leaving Memphis or contracting with a developer to build something from the ground up.

The company threw a curveball when it announced the move to Peabody Place.

Gillette said Peabody Place was the right fit to foster his vision for a revamped company culture that puts technology and collaboration at the forefront: It is large enough to fit 1,200 corporate employees under one roof; it has the potential to be a world-class work environment to attract the next wave of tech talent; and it’s located in the center of an energetic part of the city.

“We knew we had to create a workplace that sparked innovation, collaboration and a digital transformation we need to grow,” Gillette said.

The 22-screen Muvico theater and the bowling lanes of Jillian’s entertainment lounge still remain. Peabody Place’s developer and owner, Belz Enterprises, will add glass to the circular brick facade and update lighting and HVAC systems.

The entirety of the adjacent Peabody Place garage, which holds 1,000 spaces, will be reserved for ServiceMaster employees.

The total cost for the building’s conversion has not yet been revealed.

ServiceMaster will handle the tenant buildouts with a goal of having all employees moved in by the end of 2017. San Francisco-based Interior Architects and Memphis-based Looney Ricks Kiss are collaborating on the multimillion-dollar redesign. Besides the conversion into Class A office space, ServiceMaster is working toward LEED certification for the building.

And ServiceMaster is slated to receive a “long list” of incentives, according to Phil Trenary, president of the Greater Memphis Chamber. The DMC, the Memphis-Shelby County Economic Development Growth Engine and the state of Tennessee all have a financial role in keeping ServiceMaster in town.

Specific dollar amounts were expected to surface in Nashville at a Thursday, June 9, meeting of the state funding board, with an EDGE meeting later in the month on the local incentives.

Technology First

“ServiceMaster is in the middle of an exciting transformation,” Gillette said. “We're changing the way our company goes to market.”

Since Gillette took the helm of ServiceMaster in 2013, he’s emphasized a tech-first approach to how the company’s six brands – American Home Shield, Amerispec, Furniture Medic, Merry Maids, ServiceMaster Clean and Terminix – are accessed and integrated.

The relocation would have been considered unlikely just three years ago, to the month, when Gillette arrived in Memphis as the company’s third CEO in 2 1/2 years.

Gillette comes from a background of working for large corporations with divisions that cover a lot of diverse functions. And he knows technology, specifically the value of tech in both sales and manufacturing.

His resume includes being CEO at First Solar Inc., a global manufacturer of solar cells and power plants. He was president and CEO of the two of the largest divisions of Honeywell International – aerospace and transportation systems – for 12 years. Before that, he was at General Electric for a decade, including acting as general manager of the company’s South American plastics division.

He came on board when ServiceMaster division TruGreen was losing money and had to be cut free or seriously restructured. It was the first of several challenges Gillette faced. And he didn’t hesitate to tell investors and analysts during his first earnings call that the problems were “largely self-inflicted.”

“Unfortunately, we did this to ourselves,” he said. “Right now, we’re focused on stabilizing the business, then getting it back on a path toward growth and improved profitability.”

Five months later, Gillette announced the spinoff of TruGreen, saying he and his team had managed to boost the company’s performance but that TruGreen was “on a different earnings growth timeline from the rest of ServiceMaster.”

TruGreen president David Alexander said at the time the company’s call system and door-to-door marketing methods just weren’t getting the job done, resulting in a two-year drop in revenues and in the all-important head count of both new and returning customers.

Gillette made other changes, including grouping the separate franchise services – ServiceMaster Clean, AmeriSpec, Furniture Medic and ServiceMaster Restore – under one heading and converting its Merry Maids home-cleaning business to franchises.

Terminix began acquiring other companies in late 2014 with three Canadian companies coming under its wing in about a year.

In a restructuring of ServiceMaster in February 2014, 65 people were laid off and 40 vacant positions were eliminated in the Memphis headquarters.

The restructured ServiceMaster Global Holdings Inc. went public four months later.

Shortly thereafter, the company began adding in-house tech employees to handle technology work it had been outsourcing.

In the last two years, ServiceMaster has hired several hundred IT employees, according to Gillette. With the new headquarters, more tech employees are on the way.

The technology focus of the company points at its problem in recent years – flexibility in its customer offerings and speed in adapting to change.

The move to a digital marketing and social media strategy had been second banana in company culture to phone banks and door-to-door sales of rigid packages in the case of Terminix and TruGreen, instead of a la carte offerings.

The thought was that ServiceMaster’s best known brand, Terminix, could help its other well know brand, TruGreen. In the end both proved to be behind the curve when it came to technology.

The new headquarters seems to be an acknowledgement that the residential and commercial services offered by ServiceMaster require innovation as well as technology aimed specifically at customer retention – a critical element in industries that sell services.

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