Retailers are under increasing pressure to rethink their energy strategies as costs soar.
Last week’s decision by department stores House of Fraser and Deben-hams to pass on the soaring cost of energy to their suppliers demonstrates retailers are feeling the pinch from utility company price hikes as much as consumers.
HoF insists the move is a sign of the times. A spokesperson for the group said: “It is our strong belief that we are only implementing a trend that our peers across the sector will be compelled to follow in the near future.”
HoF says that it is facing a 59% hike in energy costs next year and is for the first time expecting concessionaires to support it in trying to meet the increase.
Following its acquisition by the Highland Consortium in November 2006, HoF began a £250 million investment and refurbishment programme. But HoF says that without support from concessionaires on energy costs it may have to slow this down.
The upside for concessionaires is that the business will offer a rebate whereby 50% of the energy charge will be refunded for concessions that show a 5-9% sales uplift next year, while those showing an uplift of 10% or more will get all their money back.
Meanwhile, Debenhams says it will ask concession partners for a small energy surcharge to help with rising energy costs.
A spokesman said: “We are committed to a mutually beneficial relationship with our concession partners. We have a strong marketing, promotional and advertising calendar planned in the months ahead which will drive footfall into our stores and in turn into the concessions as well. We have also outlined a new rebate scheme for outperformance that will reward our partners.”
Supplier reaction has been less than sympathetic. Surcharges for energy are understood to already be included in the commission that concessionaires pay. And as one supplier told Drapers, concessionaires’ energy consumption in department stores is not monitored. Energy consumption is often monitored by store for shopping centre retailers which then pay their landlord a calculated surcharge.
Another supplier said: “We all have to deal with this problem, but asking for contributions for energy is like upping the commission. What will happen is that in stores where there is a high sales density, suppliers will go with it, but in lesser performing stores concessions will pull out and the retailer might find it harder to get good brands into stores.”
Whether other retailers will introduce similar charges remains to be seen but rising energy costs are hitting all retailers across the high street and more bad news is yet to come.
The government is planning to introduce legislation to encourage businesses to cut down their energy consumption. As part of the Carbon Reduction Commitment, which will come into force in 2010, businesses will have to pay for certificates which will give them carbon emissions allowance for their energy use. The pot of money from the certificates will be distributed to businesses that have reduced their energy consumption.
Marks & Spencer has been at the forefront of looking at the problem with its Plan A strategy aimed at cutting energy use by 25% by 2012. This week the company also launched M&S Energy which will supply energy to domestic customers and reward them with store vouchers for cutting their energy use.
The business opened its first eco-store in Bournemouth last October which featured cost-cutting measures including lights that switch off when no one is present.
HoF is also looking at long-term solutions and is implementing a strategy to cut energy consumption by 20% in a year which includes looking at using efficient lighting technology.
Nick Hollingworth, chief executive of Austin Reed, which operates 70 stores in the UK says that a long-term attitude shift is the only solution. He says: “Energy costs will hopefully come down but there needs to be a fundamental change in attitudes towards energy consumption.”
Cutting the costs:
Andrew Lawrence of energy consultancy Gainwell Futures, which advises businesses on energy strategy, says: “Retail wastes more energy than most industries. Small things like having your shop door open wastes a lot. Traditionally retailers chose lighting based on aesthetic quality. Using lower energy light bulbs or PIR lights which switch off automatically is inexpensive but retailers do not like the idea of dark spaces as it is not inviting. But does a store need to be fully lit at night? Retailers should be focusing on energy reduction and not squeezing the supply chain. The public is more aware of the issue and expectations are rising.
“To change all your lighting and systems is expensive but retailers need to examine what the cost effective ways of cutting back emissions are.”
Top energy saving tips:
Carry out an energy audit to highlight where energy is being wasted
Turn off lights after hours in stores and window displays – make sure security and cleaning staff do the same
Use a timer on heating, air conditioning, ovens and microwaves
Use automatic doors, or air curtains – a flow of air directed across a doorway which can provide a barrier between cold outside air and warm inside air
Check how energy efficient appliances are before purchase