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Episode 10: Path to Retail Recovery: Cost Reduction Strategies (Part 1)




Announcer: Welcome to this episode of “60-second Retail” - a BDO podcast keeping you in-the-know on events and trends in retail and consumer products industry impacting your bottom line, in just a few short minutes.

Natalie: My name is Natalie Kotlyar, I am the National Leader for the Retail and Consumer Products industry group at BDO USA.  In this episode we are speaking with Ross Forman, Managing Director of the Corporate Real Estate Advisory Services group & Asif Hussain, Director of the Enterprise Operations in the Corporate Real Estate Advisory Services group at BDO USA, to discuss some strategies for how Retailers can improve their cash flow and future outlook.

What are some specific cost reduction strategies retailers are adopting, both for the immediate and the long term?

Asif: There are a lot of levers that retailers can pull to get value.  What we're seeing with our clients, is a lot of them are pursuing opportunities, cost savings opportunities in real estate and how they manage their portfolio.

A lot of them are renegotiating or restructuring their leases, getting into blend and extend deals for saving costs.

Another category that we've seen a lot of activity in and interest in is conducting audits.  These are common area maintenance audits and vendor contract audits, as well as, core value realization.

Another area that retailers are pursuing, is portfolio rationalization for both their retail sites, as well as, the supporting corporate workplaces that they manage - it's consolidation of spaces, decommissioning certain sites, store closures, subletting locations, repurposing locations for monetization opportunities.

Another area where we've seen a lot of activity in, is reducing corporate overhead.  People are optimizing the back and middle office.  Outsourcing more of those services at lower cost there.  They are lowering the cost of product returns - this is very important for retailers who have a large digital presence - and negotiating better rates for the services that they pay for already.
Those are some of the key areas that I would identify as being very popular in a post COVID environment.

 

Natalie: Thank you Asif.  So those are some really great cost reduction strategies.  Ross, is a savings only strategy enough to recover and thrive in the future? Where should retailers invest for growth? 

Ross: That’s a great question Natalie, thank you.  Cost cutting will stabilize and rationalize, but it's not going to drive growth.  As we know so far in 2020, there's been over 10,000 store closures - this has far exceeded 2019 already.  Some 6,000 of those stores belong to 29 retailers that filed bankruptcy all through August.

COVID and supply chain issues only accelerated pain that was being experienced by more traditional brick and mortar retailers.  If they're going to be able to recover and thrive, it's going to take an aggressive response, and there are 3 key areas that we would encourage retailers to be thinking about: 1) health and safety, 2) location strategy, and 3) a re-purposing strategy with health and safety.

With health and safety, we're seeing the challenges that retailers are facing in getting customers and employees comfortable in coming back to the store, and so they're investing in touchless automation, both in stores and warehouses, and it's going to provide a very clear competitive advantage.

One of the best examples that we've seen of that, is the investments that Walmart is making and how they're optimizing redesigned stores with self-checkout kiosks, where they are encouraging and mirroring their online shopping experience, tied to downloading its app.  It's going to be helping with signage and directions, easing and expanding, and helping the customer experience while they're in store.

Location strategy is thinking beyond where we went from these very high tourist, urban-centric locations to more of suburban, less tight concerning from a traffic experience where you’re not feeling as trapped.

The repurposing strategy we're seeing a lot of retailers thinking about, assets, not just selling assets for potentially underperforming stores, but re-purposing them to be warehouses and allowing these assets to be closer to customers and accelerating how they are getting customer orders faster on time to their customers.

 

Natalie: Thank you Ross and Asif. I look forward to speaking with you soon again.

Announcer: And that concludes this episode of BDO’s “60-second Retail” podcast.  Don’t forget to tune in for the next episode!  To find more information on our hosts, guests, BDO’s services, or listen to previous episodes of “60-second Retail”, please visit www.bdo.com/60-second-retail.
 

 
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