It's a shoppers market and unless you are Apple, it's tough to protect the bottom line. The rising popularity of e-commerce, smartphones and deal sites, coupled with a downturn economy, has forced shoppers to become more like detectives -- looking for great merchandise at low prices. In fact, just this week USA Today discussed the "new rules" for back-to-school shopping, which included "pre-shop online" and "bring your smartphone."
To give retailers some credit, most of them have already brought down the costs of their merchandise through hard-fought supplier negotiations. But are there sources of savings that can significantly improve the bottom line being left untapped?
The answer is an emphatic YES. The non-merchandise spend (aka store operations), offers significant cost saving opportunities. Examples of this type of spend include facilities, window cleaning services, cash wrapping, ink cartridges etc. So why aren't retailers focusing on saving in these categories? Retailers are aware of the opportunities, but are unable to exploit them effectively. Let's take a look at what's holding retailers back:
High Attrition Rate (churn rate) -- Retail companies experience high turnover year-round, making it difficult to keep track of employee spending and ensure that best practices are carried out company-wide.
Distributed Workforce -- Retail companies typically have many stores in numerous locations plus the potential of online retail posts and franchisee-owned locations. This makes for a very diverse, distributed workforce -- another barrier to achieving timely visibility into the local spend, and maintaining key performance indicators, like corporate discounts, fast approval times and enforced budgets.
Varying Understanding of Technology Among Users -- Ideally, every employee has some basic understanding of business applications, but that's not often the case with an underemployed and/or younger workforce (including kids home from college).
Franchise-Owned vs. Corporate-Owned -- In a retail franchise model, owners often lack the tools to manage their own business spend. It's up to corporate to give franchisees the tools to better manage spend, stay on budget and improve margins -- as well as protect the brand at the store level.
Growth/Consolidation -- Retailers open and close locations more frequently than any other industry. This makes it harder to control spend happening locally.
Informal Processes -- Because of all the above factors, retailers often have loose, informal processes for procuring non-merchandize items/services and expense management. This can result in: multiple vendor contracts with different pricing; too many contracts or contractor paid relationships; after-the-fact approval of purchases as opposed to pre-approvals; poorer sales forecasts; inaccurate receipt and delivery; and, arguably the worst offense of all, inability to review spend data in real-time.
We will not belabor the challenges, as they are obviously well known. What is not well known is that the technology has now advanced to meet and exceed these challenges. Just make sure that the technology solution you select comes bundled with functionality and the following best practices:
- Requires little or no local IT expertise. Any solution that requires on-site IT staff is unreasonable for the retail model.
- Decidedly easy to use across ALL your user base not just the tech-savvy users and non-merchandise spend categories such as store operations, temporary labor, marketing and printing, and facilities maintenance.
- Templates for best practice approval workflows for retail-specific hierarchies, such as store, district and headquarters. Pre-approving purchases in shorter windows of time will rein in cavalier spending and help stay on budget.
- Ability to monitor budges at any and every level; this includes store, project, region or corporate.
- Optimizes orders based on actual sales by taking into account current spend data, and ability to forecast based on historical data.
- Weaves into daily life by supporting mobility. This will enable store and regional managers, often on the road between locations, to approve expenses and sign-off on budgets anywhere they go.
- Adapts to new processes and therefore leads to rapid-fire adoption. For testing purposes, if your company has brought in a new spend management system or solution, select a "task force" of individuals across your company, at different levels and from different departments, to test out the solution before deploying it company-wide.
So CFOs and CPOs, stop sifting through the general ledger and spend reports to find savings opportunities. Technology can be your best ally to improve the bottom line in these tough times. Are there any unique retail challenges that I missed? If you're a retailer, what are you doing to manage spend? Please let us know in the comments.
-- Rob Bernshteyn, CEO, Coupa