Zen and the art of cost cutting
Retail property teams are under severe
pressure to drive capital efficiency and reduce costs. One
consequence is that consultants across the property value chain are
facing downward pressure on fees - Tesco’s 20% to 50% cuts being
the most public example. So how can retailers find a sustainable
balance that enables cost reductions and drives efficiency?
When cost cutting works...
EC Harris carried out a poll of major UK retailers
and two themes emerged:
Standardisation:
Cost
cutting is effective when the delivery approach and processes are
streamlined and store formats are thoroughly standardised (see
figure 1). Sainsbury’s ‘Deliver for Less’ programme has made
significant improvements in these areas over several years, thereby
reducing external consulting requirement in both scope and
complexity.
Implementation:
In a similar vein, Asda’s
property team have developed a highly effective programme and
supply chain setup that makes it easier for external consulting
teams to deliver projects. Lower fees have been a rational outcome,
alongside an increase in the volume of projects as they become more
affordable to the business.
The most compelling insight is what happens to
programme spend when the simplification / standardisation journey
is successfully negotiated. In some instances, 30% savings on
per-store capital spend are achieved.
When cost cutting doesn't work...
As all seasoned programme managers recognise, if
the knowhow around format and implementation is not captured or
communicated effectively with delivery partners, the likely outcome
is painful, prolonged fire fighting. Teams find themselves
overwhelmed with day-to-day project issues and no time to fix the
programme foundations. In this environment, aggressive cost cutting
can make matters worse.
The second scenario is less common, but we
have all seen it. Teams get so involved in developing the ‘perfect’
format that the retail vision is lost and an overengineered format
becomes cumbersome and expensive, making it impossible to
transition into a cost effective production line. This ‘gilding the
lily’ approach is resource intensive on all sides, making the
pressure on fees counterproductive unless the fundamental
requirement to simplify and standardise is tackled first.
Achieving healthy and sustainable returns
The bottom line is clear - leading retail
property teams will take the current drive for value as an
opportunity to revisit and improve the fundamentals of delivery
i.e. streamlined end-to-end processes; an industrial strength
supply chain; clear roles and responsibilities; robust handovers
and decision gateways; strong supporting technology; tight
performance management and, of course, the right skill sets within
the business.
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