Rethinking Expenses: How Retailers Can Transform Costs into Strategic Investments

Which Definition Do You Use for the Word EXPENSE?

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.

I can think of lots of things that 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 over 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 wanted to.

If we all had the ability to predict our futures we could plan our lives accordingly and perhaps avoid insurance premiums altogether. Wouldn’t 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 had to 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 it a good idea and potentially save you thousands in the long run.

Do you really need an architect? How about a CPA?

These services among others are all 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 all types of insurance.

Inventory Planning: A Retailer’s Financial Foundation

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 Role of the Merchandise Plan

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 responsible for developing revising and maintaining the merchandise plan.

Outsourcing Inventory Forecasting

For many independent retailers however outsourcing the inventory forecasting function is a better business option. This may make sense on several fronts. 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 an afterthought but rather a time-tested results-oriented firm that delivers proven results.

Benefits of Outsourcing

The cost of outsourcing pales in comparison to supporting an in-house planning department.
– No payroll expense so therefore no added benefits expense.
– No hidden agenda as is often the case with intra-company planners.
– Service bureaus don’t play politics rendering the plan emotionally neutral with regard to company agendas.

The consultant assigned to the account should be an independent objective third-party observer that 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.

Quantifying Savings

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


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

Ritchie Sayner

Ritchie Sayner

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