Retailers struggling with falling margins in challenging times are often tempted to cut 'expensive' items such as IT budgets or staff.

But they should be wary of cutting the wrong overheads - because doing so can put a dampener on growth. For many companies, the greatest savings are found by examining the smaller, less obvious costs.

“Retailers should instead look to protect themselves by reducing wasteful spending in non-core operating expenses such as insurance, recruitment, advertising, office supplies, merchant card fees, telecommunications, cleaning and energy costs”, suggests Michael Salih, a principal consultant with Expense Reduction Analysts. “These costs can easily be cut by negotiating on contracts, switching suppliers putting fair usage policies in place.”

Reducing costs is not just about going to a cheaper supplier, he says. You can in the majority of cases generate savings without affecting or disrupting standards of service through changing suppliers. "Good relationships in any line of business are fundamental, and the one with your supplier is no exception."

By finding ways to work more efficiently with suppliers, retailers can dramatically cut costs and these savings go straight to the bottom line, says Salih.

"For example, based on an eight per cent gross profit margin, you would have to increase sales by $625,000 in order to match the same impact on the bottom line of $50,000 savings on costs.”

Salih cautions that in order for any cost reduction program to succeed, management needs to first develop an organisational culture that challenges costs.

“Everybody should be responsible for challenging business overheads, from the receptionist booking a courier to senior management reviewing their nationwide logistics supply.”

So how do you go about controlling these costs?Salih offers the following tips...

Insurance

Have you worked out the latest level of cover you need? Is it more or less than last year? Watch out for automatic annual increases by insurers. You can save by consolidating your policies in a single package. Allow time to investigate and negotiate your insurance policies before the renewal deadlines. Make a note of when policies are due as many brokers wait until so close to the renewal date to contact their clients that they leave little time for negotiation.

Recruitment

Following a sustained period of economic growth and a tight labour market it is not surprising to find that your business is dealing with a number of different recruitment agencies. Find ways to consolidate services and rationalise the number of firms and then renegotiate rates in order to generate savings. At the same time look to improve recruitment processes and the quality of candidate recruited.

Advertising

Don't just take your agencies word for it. Conduct regular research to ensure that your advertising budgets are being used effectively. Remember that outstanding advertising creative work generally costs no more than ordinary creative. Having said that, ensure that you are not funding the creation of campaigns that win awards, but do not sell your product.

Office Supplies

You may be buying the same goods from different suppliers. Coordinate the spending of different departments to maximise discounts through bulk purchasing power. Decide on a comprehensive product range and stick to it. Be wary of stationery cupboards. While they may seem an easy way to deal with this “chore” item, they often cede control of the ordering and stocking to the stationery company.

Merchant Card Fees

Negotiate with your incumbent bank supplier before, if necessary, putting the job out to market. Ask your supplier to re-assess their rates and services based on your:

* Total transaction rates value per annum
* Average transaction size - and:
* Number of transactions that are card present (i.e. card swiped) and card not present (i.e. over the phone or internet). This is an important point as the latter are charged at a higher rate because of the higher risk factor.
* Rental fee charge for the eftpos machines.

Says Salih: “If you do decide to change suppliers it’s usually not a particularly hard change to make. Often retailers stay with a supplier even when dissatisfied because the concept of changing over hundreds of eftpos machines is far too daunting to even contemplate.”

Telecommunications

Be aware of flag falls or connection fees per call, and your call duration, when assessing telecommunications contracts. Most businesses have low call durations, which means the flag fall is a large part of the cost of the call. How many lines do you really need? Asking yourself some questions can save you a lot of money. Personal use of office and business mobile phones by employees can be as high as 30 per cent of overall call expenditure. Sophisticated software can assist you to stop paying for personal calls made on business phones.

Cleaning

Ask your staff regularly whether cleaning services are meeting their requirements. To ensure a cleaning contract or, in fact, any contract, meets your needs, make sure the contractor knows what you expect. Let them know if there is a problem but also give them feedback if things are going well.

Energy

Review electricity consumption over the past twelve months to create a detailed load profile. Then negotiate the best tariff based on assumed trends and risks and the optimum length of contract. Be aware of the expiry date on contracts as suppliers often revert to a much higher penalty rate once the contract expires. Look at a comprehensive range of lighting control systems. The choice is endless, from occupancy detectors to photoelectric sensors for measuring natural light. These can save as much as 20 per cent in costs.

Says Salih: "It’s important that cost cutting should not be allowed to become the 'flavour of the month'. Remain motivated to keep costs in check on a regular basis. If a cost-management 'culture' is not established, employees will quickly allow your 'push' to fade away. Monitoring your cost-management strategies is also vital.

“You need to watch that staff members don’t slip back into old habits, the supplier charges correct prices, and service matches the agreed specification,” concludes Salih.