Every retailer looks at ways to cut costs from time to time. There is usually a blitz when times are tough but it is something that should be continually reviewed. When the blitz happens, arguably amongst the most important contributors to the business are cut first – advertising, marketing, training, staff costs, etc. When it comes to staff costs, the shop floor is often the first to come under scrutiny until someone raises the point that by cutting one middle manager, 10 sales positio
ns can be saved.
This is why middle management is such a risky place to be.
Occasionally a senior manager cops it but since this is the level at which the exercise originates, it is ‘not done’ to shaft your fellow executive.
Is there another way to cut costs?
Take a minute to do this exercise. The following are typical divisions in a retail operation in alphabetic order:
Accounts/admin
Buying
HR
Leasing
Logistics/warehousing
Marketing/advertising
Merchandise planning
Operations/selling
Senior Management
Strategy
Technology
Visual Merchandising
Now against each of these place a 1, 2, or 3 based on the following criteria:
1. Cannot do without
2. Can do without but it would be difficult
3. Can do without
For example, it is hard to imagine any retailer being able to survive with no operations division even if it is a self service format while leasing could be handled part time in some instances by someone in finance.
When you have ranked the divisions, sort them by number and look at the 3’s.
What would happen if you wiped out an entire division or reduced it significantly?
Extreme caution and planning needs to be exercised but having one division less will not only lead to significant ongoing savings but you will eliminate red tape and empire building.
If you have a division that does not directly contribute to the bottom line, there is a tendency in some instances for the head of the division to build an empire.
They are normally specialists in what they do and they simply have nowhere else to go within the organisation.
So in order for their job to get bigger and gain importance the division must grow.
Do not be surprised if one of the 3’s falls into this category.
In the group of 2’s, some of the work can probably be handled cost effectively by a third party or other staff within the organisation.
It is (almost) impossible to handle this from within the organisation. Outside impartial people who are free of baggage and who have done it before need to be involved.
Some jobs will need to change, others will require massaging, and managing the change can be minimal if the matter is handled carefully.
So what is being proposed is an alternative to the traditional way of cost cutting.
Wipe out or reduce a division or two, morale will actually improve in the organisation and costs will come tumbling down – for good.
Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702
