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Episode 11: Improving Operating Margins & Real Estate Monetization Opportunities (Part 2)




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: Hello. My name is Natalie Kotlyar, and 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. We are going to discuss reducing overhead, improving operating margins and monetization opportunities for retailers.

Asif, what are retailers doing to reduce overhead and improve operating margins?

Asif: Thank you Natalie. Very good question. As you know, retailers typically have overheads that are between 30% to 50% of their total costs, so any reduction has an immediate bottom line impact. What do we mean by indirect costs? These are costs such as occupancy, indirect labor, cost of goods sold, technology, and other corporate expenses.

In the short run, in a post COVID environment, we do see some of those costs increasing, as retailers and companies have to invest more in technologies, and health and hygiene products.  But the key is to bring those rates down to baseline levels before COVID, and really smart programs to put more pressure and reduce those costs, even before or much, much more than the original baselines. So, a lot of retailers are embarking on programs that start with cost benchmarking for key categories.

Re-thinking space needs so that they are not occupying the level of corporate or retail spaces that they are, which space is of course a key component or driver of indirect costs.  We're talking about footprint optimization, location consolidations and direct space reductions at the HQ level.
We're seeing optimization of mid and back office functions through headcount, rationalization, or automation.

We're also seeing better controllership for reducing non-core, non-critical costs - subscriptions and non-core technology use.

And of course, the good old negotiating with existing service providers, because those service levels may have been modified in the post COVID environment.

Those are just some of the measures to reduce overheads.

 

Natalie: That is some really good advice and examples there.  Ross, what are some monetization opportunities for retailers that have large, underperforming real estate portfolios?

Ross: Traditionally monetization in the retail environment and in real estate focused on sale leasebacks and it’s still a viable option.  However, it may require a long term, not very flexible commitment by the company – and today flexibility and agility are of utmost importance.

So there needs to be a thinking about alternative definitions or ways to monetize other assets, including within real estate. From a repurposing of that asset for non-performing stores that may bring value, to thinking about what other assets there are that could be monetized – fixtures and furniture and equipment from inventory.

So, these may bring a quicker realization, with less long-term commitment that's binding the organization and it's not very agile.

Natalie: Thank you both. I look forward to speaking with you again soon.

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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