The discussion on Managing Expenses in Retail has experts from retail industry discussing on the dynamics of managing expenses & improving efficiency.
Panelists in the discussion were:
Amit D Kumar, Partner, Progress Partners
Expense management is not just cost reduction, but about creating efficiency.
- The biggest component of expenses is RENTALS.
- Expense management in retail has to be about not just reducing the cost but also about increasing the efficiency of the money spent.
- CFO’s have to leverage technology
- Three key focus areas for retailers:
- Optimizing the cost of Insurance
- Efficiency in use of power
- Engaging & retaining employees to optimize manpower costs.
What can be done to reduce cost?
Atul Daga, Chief Financial Officer, Aditya Birla Retail Ltd.
Incentivizing sales by staff can help increase sales & also reduce manpower cost.
- Rentals: Landlords need to showcase value to retailers: – show the CFO how they would be a partner in attracting footfalls.
- Manpower Consider using part-time workers for peak seasons and hours; create apprenticeship programs.
- Use Technology for : Inventory tracking, mapping buying habits, and loyalty programs which are difficult and expensive when done manually.
- Note: Share of revenue from Loyalty members is higher than from non-loyalty members. This single factor justifies technology investments.
Optimizing Costs ?
Dinesh Maheshwari, CFO, Future Retail
Contractual structures – exit clauses, minimum guarantees – these are critical cost ‘lock-ins’
- Rentals: Evaluate the exit and escalation clause in the rental agreement
- Negotiate rent –Minimum guarantee structures –based on footfall, location, availability of cinema, food court -are more flexible.
- Hardware costs are down by 80%, total technology cost is by 40 to 50% compared to previous years.
- Use this to create greater impact and efficiency of technology spend.
- Use cooling tower water for utilizing in cooling.
- Buy power from the exchanges rather from the Board.
- Resort to solar power and use power monitors.
- Get expert help in structuring your insurance coverage.
- Customer satisfaction should be the priority.
How can the CFO leverage technology?
Himanshu Gupta, CFO, Religare Wellness
Store level profitability should be used to judge if the rentals are justified.
- Use Technology for Training and empowerment of employees
- HRMS (HR Management systems) help create SOP’s which measure efficiency and quality of service and reduce role stress among employees.
- Use electronic bidding to undertake due diligence on insurance –optimize coverage not just costs. Insurance covers must be reviewed annually, not when a claim rises.
- Use chargeable fixtures: to optimize costs.
- The approach has to be: use technology to make real time data available to each process owner.
How to manage Expenses?
Jayesh Patel, Chief Financial Officer, Globus Stores
Flexibility in providing customer experiences can improve customer engagement.
- Ratio of sales and rental is to be calculated for efficient management and comparison.
- Apart from salary cost other personnel ratios are important.
- Use of technology to control inventory is imperative, the choice is what systems best fit the organizational requirement.
- Check the exclusion and inclusion in insurance policy.
- Green building design/ Led lighting.
- Optimize the high tension and low tension power mix in sourcing of electricity. Uniform power rates is required to ensure smooth functioning and reduce costs.
- Idea is to map the consumption pattern of electricity and accordingly adjust.
Management structures to create customer delight and employee engagement
Vikas Choudhary, CFO, AIMIA
Using loyalty programmes can help you reduce your marketing expense & also increase sales.
- Factors to reduce costs and gain customer loyalty:
- Revenue sharing with the developer
- Maintain a level of Customer experience
- Re-negotiate the MG and CAMP charges
- Information is key to decision making. Leverage technology to understand the customer needs and get higher share of wallet from the same rental should be the key.
- Sainsbury’s used technology to drop promotional cost to 32% from 71%. Retail is all about costs. Reduce costs and maintain the same level of service and revenue output.
- Resort to non-monetary benefits such as recognition as against monetary benefit to reward employees. This can be used tactically to reduce the manpower costs.
What are the preconditions for retailers to gain profitability?
Neeraj Raheja, Head Finance and Business Support , Westside
Negotiate rental with mall developer & set preconditions to make developer accountable.
- Calculate and manage using a sales to rental ratio. Also convert and track footfalls to sales – to improve the sale to rental ratio.
- Control attrition because the cost of training etc. is gone once the employee leaves.
- Focus on what the customer wants – e.g. English language skills are expensive and in tier 2 cities, customers are more comfortable with regional languages.
- Use data analytics so as to understand customer behavior and loyalty – push stores towards in-store up-selling, cross-selling.
- Thereby, increase the revenue without impacting rentals.
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