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March 24, 2025
Productivity in Retail at a Crossroads: Are Cost Inputs More Important Than Expense Management?
In a comprehensive look at the current state of productivity in the retail sector, Forbes contributor Jill Standish covered a variety of key issues currently facing the industry as a whole. The impending surge of generative AI adoption in the retail industry was a major topic of discussion. Meanwhile, sobering statistics revealed that 54% of retail companies were experiencing negative growth, and Accenture’s analysis showed that retail productivity was ticking upward at a sluggish rate of just 0.3% per year.
Standish called out the recently somewhat-revived Sears as an example of revolutionizing the retail landscape in 1888 via the release of its iconic catalog. Although Sears remained a household name and is still well-known despite having filed for bankruptcy in 2018, the point the contributor made was largely that it was innovation — and spending money in the hopes of making more money back on that investment — that drove Sears’ fortunes to greater heights, rather than a laser-sharp focus on narrowing expenditures.
“The Sears of the 1880s understood this shift. By introducing its glossy catalog, it reimagined both its day-to-day work and how it delivered value to customers, making it easier for them to access inventory and capturing market share in the process. Today’s retail leaders should adopt a similar mindset: long-term growth comes from reinvesting in the organization and in people to build skills, increase technology fluency and expand knowledge across the business,” Standish wrote.
Cost Inputs vs. Cost Management
The Forbes piece underscored the notion that many contemporary retailers are too dialed in on the cost management side of the productivity equation, trimming expenses in traditional fashion as they ask questions related to facilities expenditures, potential duplicate or redundant work practices, etc.
Citing Accenture data, Standish offered an alternative: shifting the conversation to cost inputs, and how best to maximize these investments. According to said data, the top 25% of retailers are driving productivity growth of greater than 4.5% annually because they are focused on this side of the balance sheet.
That same analysis from Accenture suggested that for every 1% in increased cost inputs undertaken by high-productivity retailers, 1.3% in revenue gain is achieved.
“One European retailer took the step of analyzing its organizational structures and processes to then pinpoint 100 possible opportunities where it could positively impact its productivity. It used those findings to then invest in its supply chain, warehouses and new delivery options, and is now seeing a significant boost in productivity,” Standish added.
GenAI as a Retail Productivity Multiplier
GenAI has been dominating conversations in the retail business lately, and for good reason.
GenAI can reduce the time spent on retrieving information from emails and knowledge-sharing platforms by 30%, cut down the time it takes to produce a business plan by 37%, and trim back time spent dealing with assisting customers by 14%, per Accenture. Those time savings, Standish suggested, could be put to use by having human employees engage in more creative work that AI agents may not (yet) be capable of conducting, leading to significant productivity gains.
However, the Forbes writer was very clear in emphasizing the idea that GenAI technology was best utilized in tandem with human expertise and should not be considered a wholesale replacement for human-driven productivity or engagement.
“Lastly, retailers need to think about GenAI as a partner in growth. That means prioritizing the people who will be driving this change. Highly productive retailers will be those most likely to focus on ongoing training and upskilling, recognizing that the best results come from combining human expertise with GenAI. By integrating their teams into this process through training, they’re also building trust, which is crucial when faced with change,” Standish wrote.
Discussion Questions
Should retailers shift focus to cost inputs, and how best to allocate or boost internal expenditures, rather than expense management?
With staffing being an oft-cited concern at many big-box retailers (and attendant aisle clutter or poor merchandising being a common result), what concrete solutions beyond hiring can be instituted to increase productivity at the store level?
What headwinds remain in the GenAI space if retailers are to adopt a hybrid human-AI productivity model? Are there examples of retailers who are making this partnership a reality in a successful manner (or examples of the converse)?
Poll
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Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Frank Margolis
Executive Director, Growth Marketing & Business Development, Toshiba Global Commerce Solutions
Cathy Hotka
Principal, Cathy Hotka & Associates
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Managing expenses and dealing with higher input costs are both critical for retail. And there are creative things that can be done on both fronts – although there are limits to how many cuts can be made without impacting the business. However, the productivity ‘stool’ has 3 legs, and the other one is the revenue line. The gains here have fewer limits, even if they can be difficult to engineer. What’s a killer in this higher cost environment is having the cost line outpace the sales line, and it’s this equation retailers need to make balance.
Of course a less alarmist interpretation of this data would be that – “sluggish” or not – productivity is the highest it’s ever been. But back to the question. Productivty, as we’ve defined it, is a ratio; I won’t presume to know whether the numerator is more important, or the denominator – and how can we possibly generalize across the whole retail sector? – and I don’t think that’s the problem, anyway: the problem is that too many people fixate on one side, or the other, without recognizing it is a ratio. Short-term and – here – simplistic metrics…the same old, same old problem..
Yes, focusing on numerators and denominators will kill you. We increase productivity if we cut store labor by 50% and only lose 25% of sales.
The question “Are Cost Inputs More Important Than Expense Management?” is essentially a misguided one, as it only targets part of the efficiency calculation. There is only 1 metric that most companies should target improving, and that is net margin. Let them pull whatever financial levers they want to improve this metric, but one is not more important than another.
Some retailers took cost-cutting too far by reducing the number of associates on duty, resulting in perceived out-of-stocks and theft. The pendulum needs to swing back to customer satisfaction.
Boy, that was a long, long road to a really simple conclusion. No business, retail or otherwise can expense manage their way to success. So the smart thing is always to automate non-customer facing functions and allocate existing expenses in a thoughtful, team-oriented way.
No one wants to be the next Walgreens
Have I said it too many times? In retail, labor is an asset, not an expense.
Human-AI productivity models can enhance productivity by automating routine tasks while allowing human employees to focus on more complex and creative tasks. By providing humans with data-driven insights, it can also improve decision-making. In addition to fostering innovation, this type of collaboration may also result in a more personalized customer experience.
The implementation of these models can, however, present a number of challenges, for example, ensuring the privacy and security of data, which is vital to maintaining trust. It is also possible that employees may show resistance to AI because they fear job loss or are uncomfortable with integrating it into their workflows. For organizations to effectively utilize AI technologies, they must also invest in training and upskilling their employees.
The best Merchandise Financial Planning systems these days employ sophisticated AI/ML engines which greatly enhance inventory productivity and grow revenue when in the hands of talented merchandising and planning teams. That results in less dead inventory to manage both on the balance sheet and on the selling floor, while serving up more of what the customer wants. No retailer ever cut their way to success, but they can manage inventory much more effectively which has wins on all sides of the equations.
This is not a case of “either-or” but rather “yes-and.” Managing expenses is critical to maintaining a tight balance sheet and prioritizing spend and focus. Layering on clarity around how investments are being spent should already be part of leadership discussions. Knowing which areas of the business are generating the greatest outcomes must be a cross functional responsibility. The two greatest expense areas for retailers are often overhead (real estate and staff) and inventory. Both of which are major areas for discipline. Many retailers have been focused on streamlining their footprints and looking at SPSF (sales per sq foot) performance. In addition, they are looking at SKU management. Performing SKU rationalization periodically can help brands focus on the performing products and weed out the lower productivity inventory. In this highly competitive, more complext business universe, retailers not only need to “get in shape” but need to “stay in shape” with ongoing performance management.