What are the four biggest expense costs in retail?

As discussed in our Driving Improved Store Performance blog, operational performance in stores is a mixture of four things, one being expense costs. In this blog, we will dive deep into the four biggest expense costs when it comes to Retail. The four biggest expense costs in retail are:

• Store Labour (Payroll)
• Occupancy costs (cost of space)
• Distribution from warehouses to stores or to customers’ homes
• Marketing, depending on how promotion-driven the retailer is

The major assets in stores are inventory, space and related fixtures and fittings. We will examine each of these in turn.

As mentioned earlier, staff churn is a big issue for retailers and recruitment costs are high.  Pay is obviously a factor in reducing churn and needs to be addressed, but not the only one.

Others include:

• Giving store employees more of a career path and opportunity for promotion. Provide online access to training during and outside work hours, so that those that are hoping for a career can study in their own time, initially for the job they have, and then for the job they want next.  In your reporting, look for people that do some of the training in their own time and also train for the next job.  In your staff development planning, give them credit for making an effort outside of work time and flag them up for further development.
  
  
• People like to be successful. Provide them with the tools to be successful, such as access to past customer purchase history on a tablet, so they can offer the best advice.  In appropriate market segments provide full clienteling tools.
  
  
• When a product is not stocked in the store, or is out of stock, provide mobile devices or kiosks, so the salesperson can place a customer’s order with the shopper, wherever they are in the store.
  
  
• Ensure that any store bonus scheme recognises and gives the store staff credit for online orders entered in the store.
  
  
• You could use digital screens in store to promote C items that are not displayed in the store.
  
  
• Use labour scheduling systems together with knowledge of staff domestic arrangements and preferences, to schedule shift patterns that work best for the biggest number of people.
  
  
• New store staff take 3 to 6 weeks to get to full productivity. During that period, their sales performance averages 50% of what it will be when up to speed.  The right training can cut this time in half, thereby driving extra sales and potentially reducing churn as more new hires perceive themselves as successful, before disenchantment sets in.  E-learning and digital performance support can help this.
  
  
• Greater use of self-service options can reduce the number of staff hours needed and keep customers happy. For example, some retailers are implementing kiosk systems to process online orders returned to stores.  Marks & Spencer in the UK is a good example.  More and more retailers deploy some self-checkout systems alongside staffed checkouts.
  
  
• Terminals or kiosks can be provided to check coupons or other incentives available from loyalty schemes, or to order in store from the extended online assortment.
  
  
• Where affordable, use of RFID tags in stores greatly reduces stock counting hours.
  
  
• If you have accurate traffic counters in stores, you can calculate a shopper to store associate ratio per week or month, using total store traffic in that period divided by store hours. Analysing this ratio over time allows you to improve labour scheduling by having more of the hours worked at the right times.  Analysing it across stores highlights those that perform better or worse and Area Managers can take corrective action.

These costs are controlled at headquarters by the Property or Real Estate Department.  Stores are measured by the yield from that space, measured as sales per square foot and gross margin per square foot. The advent of omni-channel retailing now gives an opportunity to drive store space productivity by opening smaller stores that only stock A and B items, and possibly display a selection of single units of C items, which are only sold through online orders and fulfilled via click and collect or home delivery when purchased. This reduces the store selling and stockroom space needed, reduces rates, maintenance and utility costs and other costs too. You may choose to take this approach only for the smaller stores and still keep large flagship stores in big cities.

Most distribution costs are owned by warehouse management. Where it impacts stores is how deliveries into stores are performed.  Some stores get daytime deliveries and suffer increased costs through traffic delays, ease of access to stores delays, parking problems and the like. Some stores overcome these challenges by delivering to stores at night time when traffic is low, parking is not an issue and stores are unmanned, so carrying goods through the front door does not interfere with customers' shopping.

In  this blog we  reviewed how to improve customer service, grow sales,  ways to improve expense management, eliminate or reduce  costs and improve asset productivity.  We have reviewed the problems and challenges that face Store Operations and identified a range of potential solutions to be considered.