Why Your Brick-and-Mortar Budget is Skewed

If your company's brick-and-mortar budget is a source of frustration, it's probably because there are several items devouring resources without moving your bottom line.

You might be following outdated growth strategies that are ineffective in the current market or just plain wasteful. Newspaper circulars, poorly planned store expansions and overdone SKUs will also end up costing more money than they make.

On top of that, many retailers lack efficiency in their existing stores, whether that's through too many distracting signs or wandering sales associates, who are either unneeded or need to be trained in a variety of jobs before they can be anywhere close to productive.

Of course, you probably need some of these items in your budget, but too much attention takes money away from more profitable strategies. Focusing more of your precious resources on these five areas will help sales by keeping you relevant and desirable:

1. Innovate your business model. In a mature market, it's difficult to innovate and also drive continued growth, so retailers often turn to store expansion. However, Target's failed attempt to enter the Canadian market and Best Buy's recent sale of its stores in China highlight how this can be a huge mistake.

Instead of following traditional growth strategies, focus on testing and learning from new business models — or even developing something totally original. Creatively explore how you could offer new services, better meet customer needs and solve problems. Seek out new partnerships to use the more expansive reach of bigger companies or the unique strengths of small businesses.

2. Carve out a niche. If you're a local retailer, there's no way you can compete with the quantity and pricing of big brands like Amazon.com or Wal-Mart, but you can always find something unique to offer customers. Focus on the values or services that make you a better option.

For example, your SKUs may be more limited, but you can use that to your advantage. lululemon athletica shows how creating scarcity can generate brand value and foster customer anticipation for future releases.

To determine the strengths that can shape your niche, analyze what competitors are doing well (or not) and how you could differentiate yourself. Ask your loyal customers why they prefer your store, and use their input to shape your marketing strategy moving forward.

3. Recruit great talent. The only way you can effectively innovate and carve out a niche is with a great team by your side. Hire the best marketers, merchants and e-commerce talent, and you'll spur better ideas, cut down on mistakes and attract more customers. They won't be as cheap, but their effectiveness is a worthy investment.

4. Explore your customer. You should constantly be using data analysis and customer interviews to identify and learn about new market opportunities. Study shopping habits, perceptions of your store and brand, and flaws in products and services. If you don't know your customers’ pain points, you can't craft solutions.

5. Identify complementary channels. Use a variety of channels to service your customers. Gather information on how they interact with your brand online or via mobile, and explore whether they want more education on your products or free shipping on in-store orders. Thinking through these types of questions will protect you from the pitfalls that force businesses to flatline.

Cutting costs is always a challenge, but if you're smart about redirecting resources to more profitable areas, you'll soon be enjoying the payoff of increased sales and the peace of a healthy budget.

Carlos Castelan is currently a second-year student at Harvard Business School and a leading independent consultant on HourlyNerd. His projects on HourlyNerd include several large engagements for retailers addressing topics in distribution, operations, strategy and marketing. Previously, he spent four years at Target in various roles, leading merchandising and partnership efforts for both stores and online channels.