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How Retailers Can Use IT for Cost Optimisation

Technology

Feb 9, 2022 - 4 minute read

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Melania Sulak Content Marketing Manager

She specialises in writing and overseeing a broad range of content tailored to meet the needs and interests of IT B2B sector readers.

See all Melania's posts

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IT is often seen as a cost centre in retail, where it could be a profit generator. Harnessing this capability has made cost optimisation a hot topic recently, where shifting consumer demand from physical to digital channels is putting increased pressure on retail economics, not least in-store.

In fact, recent research found that pre-tax profit margins for European retailers (in France, Germany, Italy, Spain, Switzerland, and the UK) have fallen from 6.4% to 4.5% in the last 10 years — and this figure is expected to drop to 3.2% by 2025. So, it will pay to consider what technologies can add business value in the new retail reality.

Cost Optimisation — What Retailers Could Be Doing Better

Cost optimisation is an important part of the digital transformation journey. It’s the strategic, business-orientated practice of striving to reduce costs while maximising business value from introducing digital solutions.

Since the onset of COVID-19, cost efficiency has moved even further up the list of retailers’ priorities due to the emergent logistical challenges associated with the impact of the global supply chain volatility due to the pandemic. Retailers are quickly learning that they could benefit from a more future-proof approach to cost optimisation.

In an effort to keep their businesses afloat, many retailers have been turning to certain crisis-induced cost reduction measures; not all of which have proven beneficial in the long term, and many of which have hit their workforce harder than anticipated. These ‘quick fixes’ included pay cuts, furloughing employees without pay, contract renegotiations, etc.

Although these measures undoubtedly provided some budgetary relief, they can’t be considered long-term sustainable solutions to challenges that are only likely to become more complex. Such actions may even prove counterproductive if cuts made only exacerbate the need for more resources to manage digital growth and its impact on the physical store.

As such, retailers should consider how implementing cost optimisation measures with the aid of IT solutions can help their businesses not only turn the corner but thrive in the new retail reality.

IT Solutions to Budgetary Concerns

Gartner’s research findings on the topic of retail cost optimisation focus on the changes retailers can make to how they approach budget planning and resource allocation now and beyond the pandemic.

The changes they discuss are ones which would enable retailers to leverage digital innovation to ensure that their cost optimisation efforts will be successful and sustainable for the long-term.

Fulfilment Adjustments

This measure would entail the reconfiguration of existing physical assets in a way that would make them better able to support digital commerce fulfilment models.

A digitally-orientated fulfilment execution approach can be used to optimise costs by:

  • Scaling online fulfilment by introducing changes to accommodate microfulfilment models,
  • Shortening supply chains by partnering with suppliers located closer to your operational bases,
  • Listing your business on select marketplaces to optimise the management of inventory lifecycles and to scale your online presence.

Data-Driven Merchandising

Merchandising is another area where IT innovation can make a measurable difference in terms of time and cost savings. To this end, retailers have started using AI-based merchandising solutions to improve inventory management. AI and data analytics can be used to create streamlined store and channel inventory plans and the actionable insights from eCommerce.

Retailers should consider optimising their inventory management practices by implementing AI, ML, process automation, and advanced analytics solutions. Employing these technologies can enable retailers to make more precise, data-based decisions much more quickly — leading to less risk and lower costs.

Augmented Workforce

With the increase in online customer interactions, retail organisations can save costs and increase operational efficiency by augmenting aspects of their work processes with technology solutions.

Today’s consumer is looking for highly personalised and convenient services that enable them to interact with brands on their own terms. To accommodate this, retailers could consider introducing chatbots, virtual assistants, text notifications, and other automated customer contact solutions.

As mentioned above, another area of the retail business that could be cost optimised using technology is inventory management. Switching out manual inventory practices in favour of automated processes can help retailers reduce operational costs while increasing accuracy and efficiency.

Enhanced Visibility

Digital productivity tools such as instant messaging and video calling can facilitate closer collaboration with staff, while also helping to lower costs associated with paper-based processes.

Collaborative platforms and digital communication channels contribute to greater organisational transparency and help employees access the information and resources they need much more quickly. Having the right information at the right time, as well as facilitating seamless cooperation throughout the workforce promotes process efficiency and accelerated problem-solving — all which can support cost optimisation goals.

Payment processing is another potential area where digital solutions facilitate better cost management. Re-evaluating payment processing practices can enable retailers to identify where and how the payments journey can be optimised to ensure seamless and secure transactions.

Summary

The means through which retailers can cut costs vary depending on the size of their organisation, type of products they offer, their sales model, and other important factors.

However, despite these differences, the common denominator for all retail organisations seeking to optimise their costs is digital enablement. There are various ways in which retailers can use IT for cost optimisation. These include initiatives around their approach to fulfilment execution, data-driven merchandising, augmented process management, and transparency.

Moreover, introducing digital improvements can help retailers avoid having to employ hard-hitting and unsustainable solutions such as pay cuts or layoffs, while also helping to drive greater precision and efficiency.

References

1. 14 Ways for Retailers to Use IT to Optimize Business Cost. Gartner. June 2020.

For more information on how the smart use of technology can help your retail business stay ahead of the pace of change, download our industry report: “Top 5 Retail Tech Trends for 2022”.

Finops Stickad Blog430x300
Melania Sulak Content Marketing Manager

She specialises in writing and overseeing a broad range of content tailored to meet the needs and interests of IT B2B sector readers.

See all Melania's posts

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