Control your expenses better than your competitors. This is where you can always find the competitive advantage.

- Sam Walton
Founder - Walmart

A profound statement by Sam Walton, founder of the best and most efficient retail brick and mortar store chain with an overall turnover of $130 billion. Walmart is what it is today due to its focus on understanding various costs drivers and diligently working to reduce it one metric a time…

I am sure you are wondering that “I am no Sam Walton”. Yep, you are not one today. There is nothing stopping you from becoming one within your organization, your product line, your brand, your segment, your industry and market.

Wait. It all starts with the store or a chain of stores under your responsibility.

Are you surprised at soaring operational expenses in your retail outlets? If Yes, then read on…

Controlling the operating expenses can make or even break a business. Operation heads in retail outlets are the business leaders with core responsibility for improving the bottom lines, to cut down the overhead costs, and manage the operations within a lean budget.

In retail segment, operating costs indicate the bottom line savings and profits whereas business overhead costs indicate infrastructure and equipment operating costs. It is important to give attention to all the possible aspects contributing to the operating cost.

It is a well known fact that most of the outlets fail to pay attention to their unnoticed expenses which is also the reason for increasing operating cost: Be clever and take precautionary actions to avoid huge losses in your operations!

Hidden costs impacting profitability

It would be actually shocking to know that these indirect expenses play a major part in increasing the operating cost and thereby increasing the overall expenses.

The economic efficiency of any retail outlet is determined by their ability to minimize cost and maximize profits. Operational managers are obliged to look out for ways to minimize the expenses and increase the productivity.

Unnoticed fact

Many Retail outlets fail to pay attention to the following expenses which is also the reason for increasing operating cost:

  • Electricity expenses
  • Maintenance expenses
  • Machine repair expenses
  • Loss by fire and other natural calamities

Cost and its crux

Cost is a function of output. As the output of the firm changes, the overall expenses of the firm also undergo change.

Overhead costs are considered as indirect costs, which has the more scope for creating assets for business by reducing the operations costs. They take a larger part of the total expenses and are a source of trouble to any retail outlet.

Reasons for escalating operating costs and their impact

Operational Challenges

Its impact on Retail Operations

  • Process non-adherence in using equipment’s
  • Excessive wear and tear of equipment’s, breakdowns, risk of accidents
  • Revenue leakages
  • Unexplained increase in energy bills and surprise expenses on equipment maintenance
  • Quality compliance
  • Negative customer experience and dissatisfaction
  • Ineffective monitoring practices
  • Ineffective manual monitoring leading to month-end unexpected cost escalations

Four environmental challenges leading to escalating operating costs

In any Retail business, some of the commonly faced challenges are as follows:

1. Fluctuating commercial energy rates

The unit cost of electricity used for commercial purposes undergo frequent revisions. This leads to increase in the electricity expenses. Energy consumption patterns should be monitored and analyzed to find out ways to reduce the consumption.

2. Erratic power fluctuation

Fluctuations in Power Supply may lead to serious impacts on the electrical appliances leading to breakdown. It also affects the overall power quality. Resolving such issues would always cost more and thereby increase the expenses. There are smart tech based tools to monitor and indicate such power fluctuations.

3. Risk of accidents

Unmonitored or improperly maintained electrical appliances may sometimes lead to fire causing significant damage to the retail outlets. Such accidents can be identified before they occur to prevent the heavy loss by using new age business intelligence tools.

4. Revenue leakage due to process non-adherence by employees

The employees may forget to switch off the electrical appliances while leaving the retail outlet leading to increase in electricity expenses. It is good to have an automated alert system to remind the ON/OFF status of the appliances.

Statistics indicate that operating expenses of retail outlets are increasing year after year, which needs to be reduced in all possible ways.

Five effective solutions to reduce operating cost in retail outlets

  1. Automate what is possible
  2. Move operational data to the cloud
  3. Adopt new user-friendly software tools
  4. Invest in intelligent technology solutions
  5. Monitor energy consumption patterns

Make “Operating Cost Reduction” a core competency, and growth will not be far behind. To do so leverage on the available low-cost indigenous technology solutions. Want to increase your profitability?

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