It’s not hard to understand why many retailers and brands are trying to cut costs. Cost-cutting is especially critical in today’s retail environment as retailers and brands find themselves torn between costly omnichannel initiatives and increasingly demanding consumers. In a recent article, we predict this cost-constrained environment will only worsen, as a recession looms on the horizon.
What is hard is getting cost-cutting right: knowing what to cut and how to cut so it drives lasting benefits. In fact, an Economist Intelligence Unit survey of dozens of large brands and retailers shows that, on average, companies achieve only 59% of expected savings from cost-reduction programs.
Kurt Salmon’s cost-takeout methodology is based on a holistic assessment of each company’s business model to identify cost-reduction opportunities. We assess the company enterprisewide by benchmarking spend in key areas, such as the corporate organization, indirect, marketing and store labor expenses, as well as within each function by analyzing operations, including merchandising and planning, finance, IT, and product development and sourcing.
These reductions are built on a strong foundation of process, system and organizational changes to support long-term corporate objectives like meeting key financial and investor targets, maximizing ROI, managing through challenging economic environments and generating cash to fund growth initiatives.
We ensure that each cost-reduction project has these five keys to success:
- Executive leadership. Creating and communicating the vision, goals, commitment, consistent messaging and follow-through to ensure benefits are sustained.
- Alignment. Ensuring that initiatives support the overall strategy and organization’s capabilities to make certain that savings are achieved without sacrificing activities central to performance.
- Metrics-driven approach. Ensuring that savings are tied to the budgeting process to drive behavior and accountability.
Visibility. Carefully examining potential cost-takeout benefits and risks, setting clear objectives, establishing stakeholder ownership and creating cost transparency.
Controls. Effective project management, clear accountability, change management, and balancing short- and longer-term savings.
Our cost-takeout assessments are structured into three major phases: data discovery and executive interviews, analyzing and benchmarking costs, and building a roadmap to implement opportunities. Kurt Salmon’s deep operational expertise means we are often selected as trusted implementation experts for our clients’ cost-takeout projects.
CASE STUDIES: COST TAKEOUT IN ACTION
One multibillion-dollar specialty retailer had over 50 active mills and more than 300 active fabrics weighing down its balance sheet—simplifying this and improving internal processes helped reduce cost of goods by 3% to 5%. The retailer also redesigned the sales floor to accommodate more of each item, reducing nonproductive sales areas and revamping its backroom operations. In pilot testing, the retailer reduced labor hours by 10% and overall baseline labor costs by 3% to 5%.
The company also analyzed payment terms across more than 2,000 vendors and found that more than 90% of them required payment in under 60 days. By renegotiating payment terms and instituting formal guidelines, the retailer improved its working capital by $20 million.
Global Distribution and Logistics Optimization
A multibillion-dollar global direct-to-consumer retailer facing increasing distribution and transportation costs partnered with Kurt Salmon to identify cost-reduction opportunities that could be achieved while maintaining or improving customer service. Kurt Salmon identified more than $30 million in savings by reconfiguring the company’s distribution network and implementing cost-reduction solutions.
A multibillion-dollar global brand saved more than $100 million by reducing styles by 20% to 40% and simultaneously reducing headcount aligned to a brand-based structure, removing some of the inefficiencies inherent in region- and channel-based organizational silos. This SKU reduction also helped reduce development, labor and marketing content creation costs.
SIDEBAR: KURT SALMON’S EXPERTISE
Kurt Salmon’s deep retail experience and broad knowledge of every facet of a modern retail organization help us bring a holistic, cross-functional approach to cost-cutting, uncovering hidden interdependencies and savings opportunities and developing innovative ways to save. With nearly a century of retail and consumer experience, we have worked with 30 of the world’s top 50 retailers and scores of global and specialty brands to design and align how they operate to shape and satisfy their customers’ desires—now and in the future.