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How to Cut Costs Without Sacrificing Customer Experience in Retail


With increasingly slim profit margins, brick-and-mortar retailers are searching for ways to cut costs. While upping your prices and shedding employees are some obvious cost saving ideas in retail, doing so puts you at risk for disappointing customers and sending them into your competitors’ loving arms. According to a recent study by McKinsey, the most costly in-store operating expenses are: (1) labor, (2) rent, (3) marketing, and (4) energy, so why not start there? This article will show you how to slash expenses in those four key areas while keeping your customers’ affection.


Reducing Labor Expenses in Retail

Let’s assume your workforce is already as lean as necesssary to provide your customers with the service they deserve. If that’s the case, turn your attention to workforce management. Off-the-shelf software and solutions can help with important tasks like monitoring employee attendance and managing payroll. But today’s operations executives are taking a data-driven approach and turning to machine learning tools that reveal what’s happening in individual stores. This allows them to decrease labor costs, improve customer service, and keep employees happy.

Specifically, some retailers are turning to advanced workforce optimization tools to reduce labor expenses. The first step in that battle is simply having an easy way to understand what exactly your costs are. We’ve discussed platforms like WorkJam, which provides a top-down overview of labor costs, and Jolt, which helps food retailers track labor spending. Once you understand what areas are hurting your bottom line, you’ll have a better idea of the cost saving ideas in retail that work best for your business.

Other retailers are innovating by using AI tools to ensure that their store teams are focusing on the most important tasks to drive profits. At CB4, we crunch retailers’ POS data to reveal high demand for specific SKUs in individual stores. When an operational issue is holding back sales of a high demand SKU, we send the store manager a recommendation to fix that issue. Once the problem is resolved, we’ll report back to you on how sales have grown as a result of your floor team’s actions.

We’re just beginning to uncover the range of machine learning and AI applications in retail. If cutting labor costs is at the top of your to-do list, be sure to invest in software that delivers swift ROI with an inspiring, user-friendly interface that your store teams will embrace.


Lowering Your Rent Costs in Retail

For more cost saving ideas in retail, you’ll want to take a close look at your retail leases. There are two primary methods to consider for lowering rent costs across your brick-and-mortar chain. First, you can renegotiate your commercial lease. Second, you can close underperforming doors to preserve customer experience in the doors with higher sales volume.

Of course, it’s not easy to renegotiate a commercial lease. But “the terms of your lease can act like a slow leak in your tires or can leave the door open to incur huge expenses when the unexpected happens,” according to Forbes. The risks of keeping a problematic lease are something you can’t take lightly.

In a recent interview, Dale Willerton, CEO and founder of The Lease Coach, reveals how to successfully renegotiate your lease, even before it’s set to expire. To renegotiate mid-term, you must communicate about the current health of your business with your landlord. If you hope to have a future at your current location, don’t just tell the landlord that you need rent abatement. Be up front and show them whatever proof is reasonable.

When your lease is about to expire, Willerton recommends you take the mindset of the customer. In this transaction, you are. Don’t let your landlord assume you’re going to renew. Let them come to you and make them “work to re-earn your tenancy.” Ask them what they’re prepared to do to keep you. What types of incentives are they willing to provide? Assuming you’ve been a good tenant, the landlord will be motivated to have you re-sign your lease, and perhaps be a good source of additional cost saving ideas in retail for you.

If you’re a stellar negotiator who’s already gotten the most favorable rental agreements possible, then you might consider the next option: closing underperforming doors. Although it may sound unpalatable, leading retailers are opting to take this route in order to maintain an excellent customer experience at their most promising locations.

Gap, for instance, recently announced plans to shutter its weakest stores. Gap revealed the plan just about a year after Banana Republic, which falls under Gap’s umbrella, also shuttered a large handful of underperforming stores. Since closing their weakest stores, Banana Republic has reported four straight quarters of same-store sales growth. Closing weak stores frees up valuable resources and energy to enhance customer experience in doors where business is more promising.


Decreasing Retail Marketing Costs

When your marketing budget is lean, you’ve got to focus on the customers you already have over acquiring new ones. That’s because it’s five to 25 times more expensive to reach a new customer than it is to retain an existing one, according to Harvard Business Review.

Return customers buy more over time, as your operating costs to serve them decline. Furthermore, they refer others to your company and may even pay a premium to continue to shop with you rather than switch to a competitor. Bain & Co. finds that increasing customer retention by 5% produces over 25% more profit, thus making consumer loyalty one of the most effective cost saving ideas in retail.

To build retention, you’ll want to focus on customer experience. This can include:

  • offering a loyalty program
  • featuring amenities like beverages, free WiFi, and comfortable seating
  • providing complimentary services like free, in-store events
  • training your employees extensively so they can serve customers and spread brand love.

The most innovative retailers aren’t thinking of customer experience as merely an add-on to bigger plans—they’re building the customer into their DNA by hiring senior level executives whose sole goal is to focus on customer experience. Just 39% of companies either have one or more senior-level executive leading the charge on customer experience or have a similar “customer-first” mandate. For brick and mortar retailers, that number should be 100%.

Retailers looking to re-leverage their marketing budgets should think lean and focus on deepening their relationship with existing clients before targeting new ones.


Saving on Energy in Retail

Executives searching for cost saving ideas in retail find that conducting energy audits at all locations across their chain pays off. According to McKinsey & Co, energy audits can identify opportunities to reduce energy consumption by 20 to 30 percent, and by as much as 50 percent.

That said, if you’re determined to spend less on energy, you should be prepared for a long and detail-oriented battle. McKinsey states that the process relies on small, accumulated changes in equipment, operating parameters, and policies throughout your chain. You’ll also have to be cautious of how these changes affect store operations and customer experience.

For a deeper exploration of this topic McKinsey & Co’s “Turning Down the Cost of Utilities in Retail” is a comprehensive resource. It will tell you how to make the right demand reduction choices and show how you can measure your efforts’ effects on customer experience. More importantly, McKinsey demonstrates how you can use ROI modeling to plan different rollout scenarios and provides guidance on embedding new energy-saving processes into your operations and purchasing organizations.


The Last Word

It’s not easy to uncover effective cost saving ideas in retail while focusing on customer experience. Target the costliest areas by reducing labor costs, lowering rent, decreasing retail marketing spend, and getting savvy with utilities.

Go for the low-hanging fruit first—take advantage of a data-crunching workforce management tool to target challenges at store-level. Next, rethink your marketing agenda and eliminate initiatives targeting new clients. Then, set your sights on utility consumption at all locations across your chain, understanding that the process may be long and arduous, but will ultimately pay off. Finally, don’t disregard the power you have to negotiate with your landlord or leasing company. They want you to keep your lease as much as you do. Rest assured that done smartly, none of these things will negatively affect the way your customers perceive your brand.

Learn how CB4 improves customer experience and increases revenue by enhancing in-store execution.


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