Reframing Retail Expenses: Investment Opportunities for Savvy Retailers

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ex.penseik-spen(t)s. a: something extended to secure a benefit or bring about a result b: financial burden or outlay. Which definition properly describes an expense to you? Both definitions are correct so how you answer the question is a matter of perception. This is one of those “Do you see the glass as half empty or half full?” questions. I encounter many retailers so overly concerned with part (b) that they never realize the possible benefits of (a). They just have a mental block relative to expenses which unfortunately keeps them from progressing. These are the same folks that time and time again appear to step over dollars to pick up pennies.

Paying for Security

I can think of lots of things I pay a fee for that I would rather not. I bet you can too. Tops on my list used to be insurance. Life health home car disability umbrella etc. all of the insurance options seem like they could go on forever. In fact there are more than 150 different types of insurance policies that you can buy if you are so inclined. You can even insure your dog or cat if you want.

If we all had the ability to predict our futures we could plan our lives accordingly and perhaps avoid insurance premiums altogether. Would that be nice? However since most of us don’t possess the ability to accurately predict life’s day-to-day occurrences we opt for the security of knowing that if life does present a problem we can avoid a potentially hefty financial burden by being “covered” by insurance. Insurance is one of those things that most of us complain about paying for until we actually need it — and then we are thankful we have it. In fact if I didn’t have to pay for homeowners insurance I could have “saved” my keyword800 last year — but I also would have come out of pocket for $35000 for a new roof that the insurance company covered due to hail damage. That one incident represented over nineteen years of premiums.

Do you really need a lease

Negotiator?

Well not if you own your building outright or perhaps have a background in commercial leasing. Anything short of that would make a lease negotiator a good idea and potentially save you thousands in the long run.

What Services Do You Need?

Do you really need an architect? How about a CPA? These services among others are integral pieces for the financial foundation of a retail operation. They all represent specific areas of expertise that save retailers money above and beyond the perceived “expense.” Most prudent retailers wouldn’t think of building a new store without the input of a qualified architect or store designer. Nor would they attempt to negotiate a lease on their own or navigate financial matters minus an accountant or even open the doors without many types of insurance.

Another important part of any retailer’s financial foundation is a sound inventory plan. Properly constructed monitored and regularly updated this tool is every bit as vital to the success of a retail operation as the other services mentioned. The merchandise plan provides the structure for all of the buying and selling. Since inventory is a retailer’s largest asset it stands to reason that time and resources should be allocated in this area. Most larger operations have a staff of planners who are responsible for developing revising and maintaining the merchandise plan. For many independent retailers however outsourcing the inventory forecasting function is a better business option which may make sense on several fronts.

Outsourcing Can Save Money

Outsourcing the planning function usually involves hiring a service bureau that specializes in this area. I am not referring to a POS company that happens to offer an OTB module almost as

Ritchie Sayner
Which Definition Do You Use for “Expense”?

Ritchie Sayner


Published in the July/Aug 2012 issue of Shoe Retailing Today copyright © 2012 National Shoe Retailers Association Tucson AZ www.nsra.org. All rights reserved.

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An afterthought but rather a time-tested results-oriented firm that delivers proven results. The cost of outsourcing pales in comparison to supporting an in-house planning department. First of all with outsourcing there is no payroll expense so therefore no added benefits expense. There is also no hidden agenda as is often the case with intra-company planners. Service bureaus don’t play politics which means they therefore render the plan emotionally neutral with regard to company agendas. The consultant assigned to the account should be an independent objective third-party observer who brings an outside perspective void of emotion and family dynamics. He or she can draw from a wealth of experiences gained from other clients facing similar situations.

Cost Savings and Objective Analysis

In addition to the cost savings and objective analysis a good merchandise planning company should be able to quantify savings through improved inventory turnover higher margins stronger cash flow better inventory balance and increased sales.

Practical Example

As a practical example I personally have been working for nearly a year with a client that is enjoying a 13% sales increase and a 5% reduction in markdowns and has trimmed the retail inventory by nearly my keyword000000. Suffice it to say the “expense” of the outsourced merchandise planning function has paid for itself for the next several years as well it should.

Reviewing Expenses

The next time you are presented with an expense try reviewing it using the definition that includes part (a) as well as part (b). You just might find that those dollars you have been stepping over start going back into your checking account.

Ritchie Sayner is vice president of business development at RMSA Retail Solutions. Follow him on Facebook at https://www.facebook.com/RitchieSayner or email him at rsayner@rmsa.com.

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Ritchie Sayner

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