COVER STORY
ENERGY MANAGEMENT The smart business decision By Marianne Wilson
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he evidence is overwhelming: Energy management makes good business sense, and can lead to significant — and highly measurable — savings. In fact, it’s one of the most cost-effective investments a retailer can make, allowing a company to reduce a big expense and, in some instances, also improve the shopper experience. There is no mystery as to what makes energy management such a key priority: Energy is the fourth largest in-store operating cost for U.S. retailers on average (after labor, rent and marketing), according to a report by McKinsey & Company. While overall energy costs can differ significantly based on retail sector, location, store age and other factors, investing in solutions and technologies that conserve, monitor and control energy use can lead to reduced operating costs for nearly all retailers. Indeed, when retailers conduct energy audits
for their stores, they typically identify opportunities to reduce energy consumption by 20% to 30%, the McKinsey report noted, and sometimes even higher. “Energy might be more of a controllable expense than the average CFO realizes,” said Erin Hiatt, senior director, sustainability and innovation, Retail Industry Leaders Association (RILA).“ Starting the conservation with the energy manager will open up a lot of opportunities that finance may not be aware of.” But reduced operating costs are only part of the story. Multiple surveys bear out that a commitment to the environment is becoming a must-have for many shoppers. More than 60% of respondents in an Accenture Strategy study said they gravitate toward businesses committed to improving the environment. The Conference Board Global Consumer Confidence Survey, conducted in collaboration with
FAST FACTS • According to the United States Department of Energy (DOE), retail buildings account for the largest energy costs of any commercial sector in the country. • On average nationally, lighting and HVAC in a typical retail building represent about 60% of total use, which makes these systems the best targets for energy savings. For grocery stores and convenience stores, however, refrigeration may use up to 40% of the property’s total energy, according to the EPA’s Energy Star program. • The biggest potential opportunities for savings in the retail environment are in demand reduction, particularly from investments in energy-saving technologies, according to McKinsey & Company. Technical changes can reduce energy consumption by 20% to 30% in the case of HVAC equipment and as much as 50% for lighting. • Small changes can make a difference. H&M examined the impact of open versus closed exterior doors on foot traffic and energy consumption. Finding that closed doors have no discernable impact on foot traffic and have an estimated average per store energy savings of 77,522 kWh and estimated average per store cost savings of $9,987, the fast-fashion giant implemented a closed-door policy in 2016.
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Nielsen, revealed that 69% of North American respondents felt it either extremely or very important that companies implement programs to improve the environment. More and more companies agree. A growing number of retailers and other businesses now see resource management and green energy choices as a win-win: Doing the “right thing” by combatting climate change is good for business and they are publicizing it more than ever, according to a report by Deloitte Insights.” “For businesses that have not yet incorporated resource management and cleaner energy sources into their corporate strategies, the imperative is growing,” stated the Deloitte Resources 2019 Study. “It’s no longer just a way to please current customers and shareholders and cater to new generations, or just a way to save costs. It’s both. Energy management is a win-win, and there’s no time to lose.” Procurement: Many businesses are becoming more flexible in their approach to cutting costs, such as by boosting participation in demand response energy programs, according to Deloitte. And in response to customer demand for cleaner energy sources, nearly half of the businesses surveyed are seeking to procure more electricity from renewable sources. “Energy procurement is becoming a strategic financial decision,” said RILA’s Hiatt. “If an energy team has been pursuing the same type of procurement strategy for a long time, it should be challenged by finance to examine renewable energy options.” Hiatt added that the renewable energy market is evolving very quickly, with more procurement options available with each passing month. “CFOs should be asking energy teams what is going on with respect to renewables,” she said, noting that renewable energy merits investment as much for its financial attributes as its ability to support a retailer’s sustainability goals. JULY/AUGUST 2019 CHAINSTOREAGE.COM