Cutting Costs: 8 Ideas to Lower Retail Expenses Without Killing Product Quality

The age-old question for most business owners is how to reduce expenses.

It’s an important, but not necessarily straightforward, issue to tackle. On one hand, cutting costs can happen in a variety of ways. But on the flip side, you could be sacrificing quality.

For many retailers, product quality is non-negotiable, even when cutting costs is necessary. And that’s a fair philosophy to stick to, considering customer satisfaction and loyalty are highly dependent upon product quality.

In fact, product quality is actually one of the biggest concerns for business managers across North America. But higher costs are often associated with higher quality, so retailers need to look at other facets of the business to reduce expenses that don’t affect their product.

Fortunately, there are cost-cutting methods retailers can lean on that don’t require a sacrifice in product quality. Here, we’ll round up a few of those methods for retailers to consider.

Focus on Customer Retention, Not Acquisition

For many retailers, customer acquisition is one of their biggest marketing goals. But turning efforts to customer retention could reap more financial rewards, and more importantly, be a more cost-efficient means of boosting sales.

It costs retailers more than five times the amount to acquire a new customer than to re-engage an existing one.

But that’s not the only monetary benefit. Repeat customers are likely to spend more, too, and that amount is likely to increase over time, according to Bain and Company. Bain and Company also reports that profits increase and operating costs decrease with this additional spending.

Retailers can improve their customer retention rates through loyalty programs, reaching out to customers who reach milestones (such as a year since their last purchase or an upcoming birthday), and improving customer service. Learn how to implement these and other customer retention strategies.

Audit Expenses and Cut the Unnecessary Ones

There are plenty of operational expenses retailers incur. And while some of these are essential, some are potentially just nice to have. Take inventory of these expenses and compare their cost to the value they provide to your business.

• Internet, phone and cable: Do you actually use these services? If so, how important are they to your daily business interactions? Check for cheaper packages, including promotions or special rates for small businesses, and research whether the same services are more affordable with a different provider.
• Credit card fees: Fees are associated with accepting credit card payments from customers, and these fees can eat into your profits. But don’t ditch this payment method altogether — especially considering the global trend of moving to cashless consumer spending. Take stock of the number of cashless purchases and what you’re paying to process those payments, then see if there’s a more cost-efficient alternative.
• Electricity and utilities: Brick-and-mortar retailers can find ways to reduce costs of maintaining their physical business. Can you lower the A/C during the summer? Do you have energy-efficient light bulbs? Small steps can add up to big savings over time.
• Other administrative costs: Depending on your business, this could include payroll services, business travel expenses, benefits costs, etc. Determine which ones are essential and if there are ways to reduce them. And to further cut costs, consider going paperless.

Rent Your Retail Space

Rent can get pretty pricy. To contribute to the cost of operating your shop, consider renting out your space for events or other retailers.

Perhaps you have a lot of space, and there’s an easy way to make room for displays from other retailers or businesses. Rent out that space, and you might even be able to negotiate a portion of the sales.

If you have a community space, such as a lounge or area with lots of tables and chairs, rent it out for events or meetings. Depending on how your shop is set up, these can be held during or outside store hours. Redtree Art Gallery & Coffee Shop, for example, has spaces available for rent.

You can also consider sponsoring events with other retailers in your space, which can in turn boost foot traffic to your store and boost your sales.

These ideas can help not only directly with contributing to the cost of maintaining the space, but also indirectly in that those individuals may be more likely to shop at your space which can help increase sales and your bottom line.

Open an Online Store

A UPS Pulse of the Online Shopper Study found that more than half of consumers shop online. The increase in multi-channel shopping — in-store, online, mobile — supports this trend, making it more important for retailers to have a digital presence.

This supports an increase in sales, but more importantly, it can help to alleviate the need to have a physical store. For retailers experiencing significant sales online, it might make sense to go online completely.

Before doing so, make sure your online customers don’t depend on the in-store experience as part of their shopping. The study found that for multi-channel shoppers, it might be important to be able to see and touch the product physically before purchasing online.

If it’s not feasible to maintain a brick-and-mortar all year, consider opening a pop-up shop to create the in-store experience your online shoppers crave. Find out how to do just that our Ultimate Guide to Pop-Up Shops.

Reduce Shipping Costs

Image Credit: Sticker Mule

Especially for ecommerce-focused retailers, shipping is a necessary expense. But there are ways you can minimize these costs.

Jim Burns, director of marketing of products at Shorr Packaging, says that shipping costs don’t come from just the weight, but the size of the package, too.

“Many retailers who ship a lot of product can improve dimensional weight in their shipments, which can greatly reduce costs,” he says. Reducing box height by just six inches could save up to $6 in shipping per package — and those cost savings really add up.

How can retailers do this? Mainly, remove excess materials that fill voids inside the boxes. Tyler Dishman, president of ecommerce retailer Discount Filters, did just that by reducing the amount of retail-quality packaging. In some cases, he says, you can also get a discount from the manufacturer for purchasing without any retail packaging — doubling your savings.  

Burns offers another insightful tip: Use one type of box that can be resized multiple ways. “This cuts down on the number of stock box sizes and can be a less expensive option.”

Boxes aren’t the only shipping option. If your product isn’t put at risk for damage, investigate the cost of using shipping bags (or poly mailers). These are smaller in size and weight than cardboard boxes, and can also be cheaper and easier to store. Investigate vendors like Sticker Mule, which offer options for branded shipping bags that still look high quality but can cut your costs.

Take a look at your shipping company, as well. Dishman negotiated a favorable freight rate with FedEx Smartpost. Though not as quick as ground delivery, it can be a good option if speediness of delivery isn’t going to be a detriment to the customer experience. “The freight savings from renegotiating our contract improved our bottom line by probably 25%,” Dishman says.

Take Advantage of Business Relationships

Have you been a loyal customer to your vendors or suppliers for years? Oftentimes, retailers can negotiate a new, lower rate for the same products. Bulk pricing could be an option, or the vendor can throw in free shipping.

For retailers purchasing through a third-party supplier, see if you can get straight to the manufacturer. This could yield better pricing and information about and access to their other products.

Rug & Home, a home goods retailer based in the Carolinas, purchases materials from manufacturers directly. Their profit margin is 10–15% higher than industry standard, and Anachal Gupta, principal of the company, attributes it largely to this strategy.

Automation

Although it requires some work and investment upfront, automation can be worthwhile. Essentially, if there’s a task that’s repeatable, there could be an opportunity to automate it.

Automation helps retailers save time and effort, which ultimately results in reduced costs. Dishman’s business has benefited from automation.

“Data entry — inputting receipts, uploading tracking numbers and many other types of traditional manual entry — can be easily automated,” he says. “Doing this will spare you from having to continue hiring workers as you grow.”

This also frees up existing employees to contribute to the business in more impactful ways, helping grow instead of simply maintain business.

Data entry isn’t the only task that retailers can automate. Tasks related to marketing (including these email automation ideas), payroll, shipping, reporting, invoicing, inventory management and various administrative duties can also fit the bill for automation.

For more ideas, check out these nine creative ways to automate your business with the IFTTT app.

Outsourcing

Courtney Albert, manager at retail consulting firm The Parker Avery Group, offers outsourcing as one of her tips to reduce costs. “An example would be using a third-party distribution channel, such as a shop within a shop. This equals less overhead of a brick-and-mortar shop, but still get[s] your goods in front of the customer.”

Another suggestion is to outsource your logistics and supply channel instead of maintaining your own distribution center.

Albert warns against outsourcing quality control, though. “This could be a mistake if quality of product is a high priority.”

Cutting Costs: How Will You Reduce Expenses?

The opportunities for outsourcing vary depending on the size of business, type of product, sales model and other characteristics, so what works for one retailer may not work for another.

As is usually the case, there is no one-size-fits-all solution for cutting costs while maintaining product quality. Problem-solve the areas where your costs are generating the least value so you have more capital to focus on growing your business.