Table of Contents
- Key Highlights:
- Introduction
- Understanding GNFR and Its Financial Implications
- GNFR Ratios: Insights by Channel and Company Size
- The Case for Strategic GNFR Management
- The Path Forward
- FAQ
Key Highlights:
- A significant opportunity exists in the UK fashion retail sector to reduce Goods Not for Resale (GNFR) costs by an average of 7%, amounting to £276 million in annual savings.
- The research underscores a troubling lack of strategic leadership focus on GNFR, which can enhance operating profits without requiring further investment in sales or staff.
- Many retailers, especially those in the mid-market, are overlooking GNFR optimization as they grapple with operational costs amidst growing economic pressures.
Introduction
The UK fashion retail sector faces a tumultuous landscape characterized by rising operational costs and stagnant sales growth. In such a challenging environment, where clothing and footwear sales are projected to increase by only 2.3% by 2026, retailers are turning their attention to overlooked areas of expense that hold the potential for substantial savings. A recent report by CCS McLays, in collaboration with Retail Economics, positions Goods Not for Resale (GNFR)—the products and services essential for daily operations but not sold directly to consumers—as a critical area ripe for restructuring. The findings suggest that through increased governance and strategic oversight, retailers could mitigate some of the pressure on their margins while also fostering innovation and enhancing operational resilience.
Understanding GNFR and Its Financial Implications
What Constitutes Goods Not for Resale?
GNFR encompasses a broad array of essential supplies and services that retailers require to operate effectively without being sold to end customers. This category includes items like packaging materials, store consumables, point-of-sale (PoS) materials, office supplies, and IT services. While integral to the functioning of retail operations, GNFR often remains a blind spot for many retailers, experiencing a lack of strategic attention from leadership teams.
This oversight is alarming, especially given that GNFR spending in the UK fashion retail industry is projected to reach £3.9 billion in 2025, marking a 2.2% increase year-on-year. The structural trends driving this increase are significant and reflect a combination of persistent inflation in packaging costs, rising wages embedded in GNFR contracts, and the growing demand for packaging and materials associated with returns management.
The Financial Opportunity
According to the findings of the CCS McLays and Retail Economics report, the potential for GNFR optimization represents a financial boon for the sector. By implementing a more structured and disciplined approach to GNFR, retailers could achieve an 8% boost in operating profits. This could be realized without any additional storefronts, sales personnel, or customer price hikes, leading to a remarkable comparison: the £276 million in potential savings equates to the profits generated by an additional £5.9 billion in sales.
Barriers to Effective GNFR Management
Despite the clear potential benefits, a significant gap remains in how effectively retailers manage GNFR. The study identifies several critical barriers that hinder retailers from diving deeper into this area. Notably, 24% of retailers cite a lack of leadership buy-in as the foremost obstacle to improving GNFR cost control. Additional challenges include resource constraints (22%) and issues with supplier market structures (21%).
Further analysis reveals that trading updates predominantly concentrate on merchandise costs, which overshadows the equally important non-merchandise expenditure that puts additional strain on margins. This misalignment underscores the necessity for retailers to adjust their focus and advocate for a more integrated approach to GNFR management.
GNFR Ratios: Insights by Channel and Company Size
Differences Across Channels
The research indicates that the GNFR cost structure varies markedly depending on the retailer's operational model. Online retailers typically exhibit GNFR ratios that are two to three percentage points higher than their store-based counterparts. This disparity can be attributed to the e-commerce framework, where costs associated with packaging, order fulfillment, and returns scale directly with transaction volumes. Consequently, online retailers must develop nuanced strategies to optimize their GNFR spending, taking into account these variable costs that are essential for successful ecommerce operations.
The Impact of Company Size on GNFR Management
Another significant insight from the report is the impact of a retailer's size on GNFR efficiency. Notably, 90% of mid-sized retailers (£250-500 million turnover) view GNFR as a blind spot. As organizations transition into this mid-market sector, they encounter challenges in prioritizing GNFR effectively. Many can identify areas ripe for efficiency improvements but fall short in implementing accountability measures necessary for driving progress.
For smaller retailers, the situation is compounded by limited resources and a reactive approach to GNFR management. In contrast, larger retailers—often with established procurement practices—demonstrate stronger strategic control over their GNFR spending. Such structural advantages provide them with better opportunities to translate even minor efficiency improvements into meaningful profit enhancements.
The Case for Strategic GNFR Management
Executive Support and Accountability
Optimizing GNFR is more than just cost-cutting; it requires a commitment to embedding governance structures that promote visibility and accountability across the supply chain. The report emphasizes that meaningful progress hinges on establishing clear senior ownership over GNFR processes. With executive teams playing a pivotal role in setting ambitious goals and compliance standards, there is a path toward more integrated procurement approaches that reject peripheral treatment of GNFR.
Reinvestment in Innovation
Crucially, the report notes that 35% of retail leaders would reinvest any savings generated from GNFR optimization into innovation and transformation efforts. This positioning transforms GNFR management into a strategic enabler for long-term growth and resilience, allowing retailers to not only recover costs but also invest in business evolution. Strategic reinvestment can facilitate the development of innovative products and services, improve customer engagement, and streamline operations.
Addressing Mid-Market Challenges
Richard Lim, CEO of Retail Economics, notes the acute challenges facing mid-market retailers who are squeezed between rising operational costs and the need for ongoing innovation to remain competitive. The overlooked £276 million opportunity in GNFR presents itself as a strategic lever that can drive not only margin improvements but also opportunities for investment in growth-enhancing initiatives.
The Path Forward
Strategies for Optimization
To harness the potential of GNFR, retailers must pursue specific strategies aimed at improving visibility, consolidating suppliers, and strengthening governance. These strategies not only provide immediate cost savings but also establish a framework for sustained competitive advantage. Companies can start by engaging in a thorough evaluation of current GNFR expenditures, identifying areas of inefficiency and implementing new best practices tailored to their unique operational realities.
Leveraging Data and Analytics
Implementing data analytics can also drastically enhance the management of GNFR. By analyzing purchasing behaviors, inventory levels, and supplier performance, retailers can make informed decisions that optimize their spending and mitigate risks associated with price volatility and supply chain disruptions. This data-driven approach leads to better negotiation outcomes and more strategic supplier relationships.
Cultivating a Culture of Improvement
Finally, cultivating a company culture centered around continuous improvement in GNFR can unlock transformative potential. Establishing initiatives for training and development around GNFR management can empower employees at all levels to take ownership of their spending and adopt a proactive approach.
FAQ
What is GNFR, and why is it important to retailers?
Goods Not for Resale (GNFR) encompasses all the non-merchandise items that retailers need to operate but do not sell directly to customers, such as packaging materials and office supplies. Effective management of GNFR is crucial as it represents a significant area of expenditure that can impact a retailer's overall profitability.
How can retailers achieve cost reductions in GNFR?
Retailers can achieve cost reductions by adopting a more systematic and strategic approach to GNFR management, improving visibility and governance, consolidating suppliers, and utilizing data analytics to drive efficiencies.
What are the main barriers to improving GNFR management?
The primary barriers include a lack of leadership buy-in, resource constraints, and complexities in supplier market structures, making it essential for retailers to prioritize senior involvement and accountability.
Can optimizing GNFR lead to increased innovation in retail?
Yes, savings generated from optimizing GNFR can be reinvested into innovative and transformative initiatives, helping retailers stay competitive and adapt to changing market demands.
How does the size of a retailer influence GNFR management?
Larger retailers typically have more established procurement practices and exhibit better strategic control over GNFR spending. In contrast, mid-sized and smaller retailers face greater challenges in managing GNFR effectively due to resource limitations and a reactive approach.
In conclusion, to navigate the complexities of today's retail environment, businesses must leverage all available options—particularly overlooked areas like GNFR—to pave the way for sustainable growth and profitability. By enhancing their focus on this critical aspect of operational management, UK fashion retailers have an opportunity to redefine their financial future amidst ongoing economic pressures.
