Times are tough and it is understandable that retailers are cutting costs, but some of them are going too far. Instead of eliminating waste, these retailers are also cutting essential expenditure. By doing so, they are undercutting the capabilities of their businesses.
W. Edwards Deming, the father of Total Quality Management, once said, “the most important variables in business are either unknown or unknowable.” What he meant was that most people in business focus on the numbers because they are easily measurable, ignoring less tangible elements such as customer experience, staff morale, staff skills or merchandise mix. Yet, they too are important.
To observe the result of excessive cost-cutting, one just needs to visit a department store that belongs to a not-so-long-ago privatised chain. Their management talk about business and service excellence, yet customers struggle to find a staff member willing to process their purchase. It appears that staff numbers have been drastically cut with severe impact on customer service. I am sure that their payroll has shrunk considerably, but what about the money the retailer wastes on advertising and A-grade real estate? Why bother to attract customers if they cannot make the purchase because most cash registers are unattended?
What about another loss – increased inventory shrinkage? When staff numbers are reduced, shrinkage invariably jumps up.
It is proverbial that all short term decisions have long term consequences. If your retail business is run with short term objectives in mind, you will cause lasting damage. The bad days will come to an end, but customer perception – once tarnished – will take years to repair.
The bottom line: by all means make your business more efficient, but try not to break it in the process.
– Andrew Gorecki is the Managing Director of Retail Directions, a Melbourne-based retail technology company specialising in Merchandise Management and POS software, and strategic consulting.
