Efficient Retail Business

11 November 2014
How to add 5% to the bottom line ...

According to the Bureau for Economic Research (B ER) retail survey, retail sales growth remained fairly weak during the second quarter of 2014, with an average annual rate of only 2.8o/o year-on-year growth between January 2013 and March 2014. As such, South Africa's retail sector remains under constant pressure to minimise costs, improve profits and stay ahead in a highly competitive marketplace.

Out-of-the-box strategy
Given the dismal economic outlook and, consequently, little hope that retail sales growth will recover significantly in the near future, retail businesses need to think outside the box to cut costs and increase profits. "Becoming more energy efficient is one of the simplest ways to cut costs and increase profits. In retail businesses, reducing energy consumption can directly increase margins without the need to increase sales. In fact, a 20o/o cut in energy costs through energy efficiency measures represents the same bottom line benefit as a 5o/o increase in sales. A 5o/o growth in the bottom line through the adoption of simple energy efficiency measures would be a welcome relief for the retail sector," says Dr Peter Mukoma, Head of the Private Sector Energy Efficiency (PSEE) programme at the National Business Institute (NBI).

Beyond economic benefits
"Apart from economic benefits, achieving optimal levels of energy efficiency in a retail environment has other benefits that extend to social and environmental advantages of reducing energy consumption, reducing reliance on fossil fuel supply and minimising the effect of climate change. Increasingly, consumers are also becoming highly sensitised to the issues of climate change and energy security, and they expect their suppliers to behave in a responsible manner. Consumers are actively choosing to spend their money with retailers who are taking positive steps towards environmental protection. In the same manner, many retailers are actively seeking out and favoring business partners and suppliers who share their values November 2014 SA Real Estate Investor and ethical commitments. For any supplier to the retail industry, implementing energy efficiency as a fundamental business strategy is increasingly going to mean the difference of whether your business is on the preferred procurement partner list or not," adds Dr Mukoma.

Low and no-cost tactics
Focusing on low and no-cost measures and actions which will have the quickest payback is a good starting point. For example, in one PSEE client case study, a leading retail store launched an energy awareness programme focused on changing employee behaviour, and achieved a 20o/o reduction in energy costs within the first year. Since then, energy consumption has been included as part of the store management performance indicators as well as a regular item on the staff training agenda. A key point made under the PSEE programme is that many low hanging fruits, which will have no or low cost implications, can deliver immediate benefits, but are not necessarily being leveraged - for example staff training and behavioural change in terms of energy usage are not addressed strongly or often enough.

Leverage quick wins
In the retail environment, the best energy saving opportunities exists in lighting, heating, ventilation, air-conditioning and refrigeration. Proportions of energy use will vary according to the type and size of the store, for example, food retailers tend to have higher refrigeration costs, while a clothing retailer may have greater air-conditioning and heating costs. "Regardless of energy spend make-up, the key opportunities to save energy and reduce costs lie in switching off all energy consuming equipment when not in use, performing regular and scheduled maintenance to ensure that all equipment works at optimum levels and also to implement energy saving measures as part of maintenance operations, ensuring that any planned store refurbishment takes into account relevant energy saving measures at the same time, and finally, changing human behaviour for the better through training and education," explains Dr Mukoma.