March 18, 2019
Energy Efficiency Helps Retailers Increase Profits and Improve Customer Experience
These are difficult times for the retail sector. The list of iconic retailers that have filed for bankruptcy protection and/or closed multiple store locations in the past few years continues to grow. Sears, K Mart, Toys R Us and Brookstone are some of the larger and more recent examples. But the crisis in retailing isn’t limited to the big players. All across America, small and medium-sized retailers are feeling the crunch. In many towns and cities, there is an alarming number of vacant storefronts on downtown streets, shopping malls and highways.
Economists cite various reasons for the problems being faced today by brick-and-mortar retailers, from the growing popularity of online shopping to changes in consumers’ buying habits. But for a retailer to survive in the current business climate, he or she must take advantage of every opportunity to do two things: First, bring shoppers into the store by improving the customer experience; and second, increase the profit margin on the items those customers buy by reducing the costs of operating the store.
When we’re talking about retail, we’re looking at one of the largest and most diverse segments of the economy, encompassing everything from the mom-and-pop store on the corner to the megamall on the highway. According to a recent government study, the U.S. retail sector comprises more than 650,000 buildings that collectively spend more than $20 billion a year on energy. And the consulting firm McKinsey reported recently that energy is the fourth largest in-store operating cost for retailers, behind only labor, rent and marketing. Depending on the size and age of the store, its retail format and the climate zone in which it’s located, McKinsey estimates that energy can account for between 4% and 9% of total in-store operating costs. There is even a greater variance between food and non-food retailers, since the energy consumed by refrigeration or freezer equipment in the food sector accounts for an even greater percentage of operating costs.
The difference between energy and other operating costs is that energy costs can be reduced without negatively impacting the customer experience. If a retailer cuts labor costs by reducing the number of employees, customers may be affected by having fewer salespeople on the floor to assist them, longer lines at the cash register or products missing from shelves waiting to be restocked. If a retailer reduces marketing expenses by cutting back on advertising or trimming discounts, customers are less likely to be aware of the store or take advantage of its sales. However, a retailer who reduces his or her energy costs through efficiency measures will not only realize significant financial savings but may enhance their customers’ shopping experiences at the same time.
Reducing a store’s energy bill is arguably the most cost-effective way of lowering operating costs and increasing profit margins without the need to increase sales. Retail profit margins are razor-thin to begin with, so anything that expands them is welcome news for store owners. How much of a financial impact can energy efficiency have on profit margins? According to a 2018 study by the international consulting firm Carbon Trust, a 20% cut in energy costs can represent the same bottom-line benefit as a 5% increase in sales.
Energy efficiency can have a positive effect on a retailer’s profits beyond the obvious benefit of lower operating costs. We mentioned earlier that retailers have to improve the customer experience as a way of bringing more customers into their stores and keeping their loyalty. One of the best ways to do that is to create a comfortable and welcoming environment in their stores through better lighting and climate control.
Improving your store’s atmospheric comfort while reducing its energy use are the twin advantages of energy efficiency. Heating, ventilating and air conditioning – HVAC, for short – is the single largest energy expense for a non-food retailer, accounting for up to 45% of a typical store’s energy use. Depending on the size, age and efficiency of your current HVAC system and your local climate, a new high-efficiency HVAC system could reduce your heating and cooling costs by 20% or more. Those savings are enhanced by government and utility-sponsored incentive programs that offer rebates or financing options for the installation of new high-efficiency HVAC systems. In addition to energy savings, a new HVAC system offers automated controls that precisely regulate temperature, humidity and air circulation levels to achieve maximum comfort.
Shoppers want to be comfortable while they’re in your store; they’ll stay longer and be more likely to make purchases if they don’t feel overheated or if the lack of air circulation makes the store stuffy. In fact, a recent survey conducted by the customer experience consulting firm Riptide Partners suggests that comfortable shoppers spend more money. Of the retail shoppers surveyed for the study, 70% said they would go elsewhere if a store is too hot, too cold, or too stuffy. In addition, customers who were shopping for a specific item in an uncomfortable store were also more likely to purchase only that item without browsing for other products.
Comfort is also important for your store’s employees. Working in an environment that’s neither too hot nor too cold leads to greater employee satisfaction and higher productivity. Employees will also be able to focus more of their time in assisting customers and making sales than fiddling with thermostats or opening and closing windows.
Lighting in a retail store does more than simply brighten up the space. It can create a certain mood, highlight the store’s products and define the store’s character, whether that’s upscale, trendy or quaint. The right lighting will make customers feel comfortable and put them in a better frame of mind to buy. For a non-food retailer, lighting can account for 30% or more of the store’s electric bill. Upgrading to LED lighting is the most economical way to reduce energy costs while enhancing the shopping experience. LEDs can cut lighting expenses significantly, first because they use 30% less electricity than fluorescent fixtures, and second because they can last three to five times longer than fluorescents. But just as important from the retailer’s perspective, LEDs provide the flexibility to design a lighting system that reflects their store’s character and creates customer comfort by precisely controlling the three elements that have the greatest impact for retailers: Brightness, temperature and color.
Brightness is measured in lumens and is the determining factor in deciding how much light is needed in a certain area. Choosing the right amount of brightness for your store’s lighting needs – and for each section within the store – impacts everything from safety to aesthetics. The color temperature of lighting – what some people might refer to as “warmth” – is also a factor in retail lighting systems. LEDs can be purchased in a wide range of options – giving you greater flexibility in choosing the level of “warmth” that’s perfect for the atmosphere you’re looking to create. In addition to light temperature, light color is important to businesses that want to bring out the true natural colors of the items being displayed and sold – like the red of an apple in a food market or the blue of a dress in a clothing store. LEDs are superior to other forms of lighting when it comes to color accuracy.
The other advantage of LEDs for retailers is their long life. Few things are more annoying to shoppers than having to avoid aisles in a store because employees are on ladders replacing light fixtures or having to park further away because crews in bucket trucks are working on the parking lot’s light poles.
Retailers are facing enormous challenges in the 21st century that can only be overcome by a strategic approach to increasing sales and reducing operating costs. Energy efficiency offers a unique and cost-effective opportunity to simultaneously achieve both goals.