Generating Revenues Through Electricity Contracts
By Victor Wulc, [email protected]
With more than 1.5 million locations – and another 40,000 planned to open this year – U.S. retail and wholesale establishments make up one of the largest sectors of electricity consumption in the nation. And they’re likely to use even more within the next few years, according to the U.S. Energy Information Administration, which recently released its annual report indicating that commercial and industrial entities will lead domestic growth in primary energy usage through 2040.
With consumption – and costs – on the rise for many chain store locations, building an effective energy management strategy today will play a critical role in maintaining productivity and profitability in the future.
But what if there was a way large retail sector electricity consumers could go beyond traditional procurement approaches to reduce expenses and consumption while generating an entirely new revenue stream?
Good news. There is. And it’s a win-win for the chain store industry and the energy sector alike.
Through a unique approach that leverages load management strategies, retailers can earn profits while decreasing demands on the electric grid, reducing prices and consumption, and saving on charges that are typically passed from the utility to the supplier to the consumer.
Let’s start with the most appealing part of the equation – generating profits.
Changes in electric utility regulation have empowered retailers in many markets to purchase their power from suppliers other than the traditional utility. Chain stores now have a wider range of products to choose from and more opportunities to tailor energy contracts to meet unique operating requirements.
Many retailers have responded by selecting product structures with a fixed price for all or part of the electricity spend. These structures are appealing because they add some certainty to the overall monthly cost. But that certainty comes at a price.
To enhance pricing and supply flexibility, consumers could benefit from the revenue generating potential of load management programs.
The premise is simple: Utilities in most markets throughout the United States need consumers to cut back, especially in times of high electricity demand, in order to maintain grid reliability. As a result, various products are available that actually pay consumers to reduce their electricity consumption during such times.
Retailers specifically can benefit by:
1. Selling capacity, which is typically referred to as demand response, where the consumer commits to reducing its load at times chosen by the grid operator, typically for a matter of hours during emergency conditions. The compensation earned for providing this service is generally fixed months or even years in advance.
2. Selling energy, where the consumer reduces its consumption at times of its own choosing. Through these transactions, a certain amount of energy is sold at a pre-determined price during a defined hour or block of hours. If the market price is at least as high as the price specified by the consumer, the offer is accepted and the consumer is paid the market price for providing the promised amount of electricity.
3. Selling synchronized reserves, where the consumer provides energy by curtailing consumption for a brief period on a relatively short notice by the grid operator.
Aside from the obvious benefit of generating revenues, retailers with the assets and the willingness to take part in these programs benefit by avoiding spikes in wholesale electricity prices and by reducing risk premiums.
If you recall, customers without load management capabilities – those under fixed-price contracts – pay to be protected from price spikes. But consumers equipped to respond to those spikes and take action to avoid them don’t need to buy that protection.
Another cost-savings opportunity retailers can leverage through load management strategies is by reducing certain charges known as “pass-through costs,” which originate with the utility or the system operator and are passed to the supplier and then to the customer. These price components vary from region to region and typically include the grid operator’s cost to ensure capacity, transmission and distribution infrastructure maintenance and upgrades, and ratepayer-supported energy efficiency and renewable energy programs.
The key to reducing these charges is to understand exactly how they are calculated, which also varies from market to market. For example, a charge may be based on the customer’s demand during certain peak hours on the regional power grid or during certain peak hours on the local utility’s distribution grid. By working with your retail electricity provider to understand exactly how these charges are set, chain stores can use the load management strategies to reduce those costs or prevent increases.
In the end, the retail sector’s changing energy landscape is making it increasingly critical for chain stores to consider opportunities to more effectively procure and consume electricity. Knowing your key business drivers will play an essential role in making the right decision for your business. Be sure to talk with a supplier who takes the time to understand those important factors – like major building equipment and systems and load management capabilities – before making a decision on your next contract. Only when your energy strategy aligns with your business drivers can you make the best choice possible for your retail chain store.
Victor Wulc is the sustainability marketing director for GDF SUEZ Energy Resources, one of the country’s largest competitive retail electricity providers to commercial, industrial, and institutional customers. In partnership with Viridity Energy, the supplier delivers a wide range of customized decision-making tools that align business operations with load management strategies and provide opportunities to reduce energy-related costs. Wulc can be reached at [email protected].
RadioShack debuts new college bookstore location
FORT WORTH, Texas — RadioShack has unveiled its first branded section of a college bookstore at the University Co-op at the University of Texas at Austin, as part of the retailer’s five-year agreement with NACSCORP, which sports the retailer’s new logo.
The logo made its debut two weeks ago, when RadioShack unveiled its new concept store in New York City’s Upper West Side.
The new shop-in-shop retail space at the University Co-op opened on Friday, July 11. Additional college bookstores, from New York to San Diego, are set to open throughout fall. The deal with NACSCORP, a subsidiary of the National Association of College Stores, will allow the retailer to reach the nearly 4,000 college store customers NACSCORP currently serves with its product offering.
The college bookstore program is also part of RadioShack’s expansion into non-traditional channels through brand extension and partnership. The college market is key to engaging a new and informed consumer looking for the latest in innovation.
RadioShack’s retail space within the store consists of a 12-foot section of wall located on the first floor of the University Co-op. It is a one-stop spot for students to find brand name and RadioShack’s own exclusive private brand products and accessories.
"The college consumer is one of the most connected consumers out there, and what better way to introduce the reinvigorated RadioShack brand to this audience than to go where they are, and give them what they need to make their technology not only work for them, but to make their lives more fun," said Joe Magnacca, CEO of RadioShack Corporation. "Non-traditional locations like this one at the University Co-op can serve as a gateway to a new generation of consumers for RadioShack, where we can begin to stake our claim as being the go-to source for the technology they need."
"Unique franchise opportunities like this college store location at the University of Texas allow RadioShack to work with local entrepreneurs to help bring our brand to life in a way that truly resonates for consumers in a localized market. And in Austin, no one knows better how to serve UT students than George Mitchell," said Marty Amschler, SVP of franchise at RadioShack Corporation. "We’ve worked with George to develop a relevant mix of products that will excite and serve the needs of University Co-op customers."
"We’re thrilled to have the chance to work with an iconic brand like RadioShack to add the consumer electronics category to what we can deliver for our customers," said George Mitchell, president and CEO of the University Co-op. "We’re giving students a convenient choice for their CE needs by featuring the best of the best that RadioShack has to offer with this concept. Our students are able to visit the University Co-op to grab something they need, or perhaps even something they didn’t know they needed when they left for class that day."
Blending the Physical and Virtual Store Experience
There has been a recent trend in retail of new dynamic store formats that make the physical store experience more closely mirror the virtual store experience. Examples include Staples “omni-channel” stores that feature kiosks offering access to Staples’ full product inventory and RadioShack’s new concept store in Manhattan that includes interactive product fixtures such as display speakers that customers can test with music from their own personal devices.
As customers continue to blend channels and supplement their lives with constant connectivity, a similar blending of the virtual and physical store environments makes sense. A large percentage of customers are entering the store having already performed basic product research online, and will not appreciate having to hunt for goods or information that were available at the click of a mouse on a retailer’s e-commerce site.
However, effectively redesigning the physical store experience to meet the needs and expectations of digital consumers means more than throwing in some touch-screens or connecting the store to customers’ mobile devices. It means a complete rethink of what the store experience is all about, and does not automatically mean going in a “futuristic” direction. For example…
Indie retailers are getting it right (the Human Element, Part I)
Independent book and music retailers have experienced something of a resurgence in recent years while large chains operating in these verticals have struggled. Go to a large chain that either specializes in or carries book and music products, and you will typically find a wide but shallow assortment of popular, mainstream writers/performers, genres and publishers/record companies. If you want to poke around to find older or more obscure releases, you’re probably out of luck.
On the other hand, independent retailers usually have a selection of the most popular offerings, but also specialize in providing a vast array of products to satisfy more eclectic tastes. Independent record stores have especially thrived by stocking deep inventories of vinyl LPs, which are making a comeback among hardcore music fans. Customers can find almost anything they are looking for, probably place a special order for anything that is out of stock, and the neighborhood nature of independent stores means staff will often come to know their regular customers and be able to make personalized recommendations based on their individual taste and buying history.
Which brick-and-mortar retail model sounds more like e-commerce? Add in the fact that browsing in a store offers tactile rewards that a website cannot provide, and there is no contest between indie and chain retailers in who provides a more personalized customer experience with access to a wider product assortment. And the typical indie store operates using a very low-tech model. Larger chain retailers seeking to “virtualize” their store experience need to remember that e-commerce offers some very humanistic features that technology alone cannot replicate.
The customer carries the store in their pocket
Naturally, the intelligent application of technology still plays a major role in making the physical store environment more comfortable for omni-channel shoppers. And one very important aspect of applying technology intelligently is realizing just how much technology the customer carries in their pocket when they enter a store. Whether a store has any customer-facing Internet access tools (such as touch-screen kiosks) or not, most customers are now coming in fully connected to the Internet via personal mobile devices. Instead of moaning about “showrooming,” retailers can turn this to their advantage and provide a more individually tailored and responsive store experience that crosses multiple channels while saving considerable sums of money on technology infrastructure costs.
For starters, retailers can now develop mobile apps that perform many of the functions, such as price/product information, that are usually performed by in-store kiosks. And on an opt-in basis, retailers can use also location tracking to determine not only when customers are passing by or entering a store, but where they are inside the store. Retailers can then send instant mobile coupons based upon a shopper’s purchase history and proximity to certain items.
To help combat the inevitable comparisons with competitors’ prices that customers will conduct with their mobile devices, retailers can also offer on-the-spot targeted mobile discounts to meet or beat lower prices found on competitors’ website, saving otherwise lost sales and boosting customer satisfaction and loyalty.
Store associates should be part of the mix (the Human Element, Part II)
Store associates are another crucial ingredient when creating an omni-channel store experience. By arming associates with tablets, smartphones or other web-enabled devices (and making sure they are properly trained), retailers can turn them into human versions of the cookies that track and respond to customer behavior on websites. Some higher-end retailers have already pursued this strategy, using web-enabled devices to empower associates to recognize customers and have full access to their preferences and history the moment they enter the store.
However, the pervasiveness of omni-channel activity, both in retailing and in consumers’ private lives, necessitates retailers of moderately priced and even discount goods to start giving their store associates virtual capabilities. As prices in general have come down, customer experience has become more of a differentiator, and it is easier than ever before for consumers to choose to shop at a slightly pricier retailer to obtain vastly superior customer service and satisfaction.