Go Green, Not Red, this Holiday Season
The holiday shopping season is upon us. For retailers, these last three months of the year signify a marathon of competitive sales strategies to increase foot traffic and maximize profits.
According to the National Retail Federation, the holiday season can represent as much as 30% of annual sales. To adapt to shifting consumer trends and meet peak season demands, stores plan to increase both hours of operation and staff onsite.
Retailers such as Gap and Target have already scheduled hiring events across stores nationwide. In 2016, seasonal retail employment increased by 641,000 from October through December to support extended store hours. Many stores even stay open non-stop for the last few days before the holiday.
By focusing on sales strategies to capture the largest share of consumers, retailers often overlook the costs required to do so — because as store hours and foot traffic increase across retail sites, so do waste volumes and energy consumption.
Retailers spend over $21 billion per year on energy, a large portion of which hits during peak shopping season — and over $3 billion of these expenditures could be avoided through efficiency measures.
By planning early and creating a pre-holiday checklist to manage these cost areas, retailers can ensure a happy holiday season for businesses and consumers alike. Retailers can follow the following five strategies to minimize energy and waste costs.
1. Big data brings big savings. Before the holiday season begins, retailers should have established benchmarks for both energy usage and waste volumes to efficiently adjust for increases. Utilities can help retailers assess energy usage and provide recommendations for low cost efficiency measures and connected equipment.
As more equipment, including thermostats, lighting controls and machine sensors, come online and provide constant streams of data, retailers gain a more transparent view of energy usage and opportunities for significant reductions.
Additionally, for waste, retailers who have their own, individual waste services should be familiar with typical waste volumes to prepare for increases. If dumpsters are regularly filled pre-holidays, these retailers should temporarily increase service levels with their haulers before the holidays to avoid unsightly pileups and extra fines.
2. Turn that thermometer down. Retailers go out of their way to accommodate customers and create an optimal environment to make the hectic shopping experience a little more enjoyable. Busy shoppers, however, are unlikely to notice minimal heating or cooling changes that bring in big savings. Turning the thermostat down or up by just one degree across various sites can save millions of dollars.
If you have a control system, ensure that your set-points and schedules are adjusted to reflect the holiday hours. Relying on staff at each location to adjust them leaves room for error and you run the risk of having your assets on 24×7.
3. Go green on holiday displays. With increasing competition to stage elaborate window displays, retailers often underestimate the costs and requirements of additional plug loads to power holiday lighting and special effects around the clock. To mitigate the stress on existing power sources within stores, retailers should seek out energy efficient power products from online marketplaces run by utilities and local suppliers.
4. Maintenance comes first. Retailers should make sure all assets – lighting controls, heating and cooling systems, or refrigeration – are running optimally prior to peak season. Ensuring planned maintenance is completed and that all assets are commissioned correctly will reduce the chance for unplanned downtime on critical operational assets. Having an air handling unit with a damper stuck open wastes energy and is an unnecessary distraction for store managers during the most critical time of year.
5. Embrace waste year-round. Most of retail waste is recyclable. For many retailers, the holidays correspond to moving more products, creating more packaging and consequently increasing waste volumes. This influx of waste is accompanied by longer hours and more people, which means less time and space to collect it. The biggest mistake retailers make is assuming that their recycling programs are functioning well and that employees are separating materials properly. Many companies start a waste or recycling program, train their employees once, and never touch it again. But, these programs need constant attention.
Creating well-founded recycling and waste reduction programs year-round is the foundation to a greener holiday. This includes proper bin placement, ongoing employee training and clear signage for disposal locations within the store to enable new employees, and distracted employees, to maintain existing recycling programs.
From resetting HVAC controls to adjusting waste and recycling services to account for more inventory, retailers can better prepare for their busiest season through data and best practices. Last year, holiday retail sales increased 4%in 2015 to $658.3 billion. To ensure strong profits this year, retailers must not only adapt to consumer demands, but also increase their efforts to reduce energy costs, improve waste programs and be more sustainable. This will decrease overhead and ensure a greener and more profitable holiday season.
Jamie Daubenspeck is director of facility technology, Ecova and Kristin Kinder is manager of waste solutions, Ecova.
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Moody’s: No letup in sight to off-price growth
Off-price retailers will remain among the top performers in the U.S. retail industry during the next 12 to 18 months.
That’s according to a new report from Moody’s Investors Service. The outlook is not as positive for department stores, which will continue to struggle as they seek to level the playing field with both off-price and online vendors.
Moody’s expects operating income in the off-price sector to grow 6.9% in 2017 and 5.4% in 2018. Department stores will see operating income decline 9.3% this year and 2.7% in 2018.
“Off-price retailers continue to outperform other sectors of the U.S. retail industry largely because they offer the kind of lower-cost, higher-value products and shopping experience many consumers are looking for,” said Moody’s analyst, Christina Boni. “Off-price stores are far outstripping department stores, which in contrast are still struggling with outmoded formats and supply chains that can’t keep pace with customer demand.”
The report noted that department stores are mostly taking the right steps to resurrect their businesses, but it’s too early yet to know how well they’ll succeed. In particular, department stores been exploring new ways to drive traffic through e-commerce offerings and partnerships to spur growth. While Kohl’s Corp. has its own online platform, for example, in addition it offers Amazon products at 10 of its stores and accepts Amazon returns at 82 of its locations.
Despite their lack of e-commerce penetration, off-price retailers have succeeded where department stores have foundered due to their focus on delivering major label brands at significant discounts to value-hungry consumers, Moody’s said. Off-price vendors also outperform the broader universe of U.S. apparel-focused retailers.
While apparel sales make up the bulk of their sales, off-price retailers have been increasing their product mix in the higher-growth and less competitive home products category. Moody’s estimates that home product sales at off-price stores grew 9.9% in 2016, compared with 7.8% for the off-price sectors overall growth.
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What Retailers Need to Know About Their Energy Bill — and How to Lower it
Energy is the fourth largest in-store operating cost for retailers, with the average 50,000-sq.-ft. retail building spending around $90,000 each year on energy costs. Retail building managers are constantly trying to better regulate their buildings’ energy costs, so understanding where those charges come from can be extremely beneficial.
Commercial utility charges are different compared to a residential customer. For commercial daytime peaking customers, on-peak electricity can costs up to twice the price of nighttime electricity, or more. Unlike homes, shopping centers and other retail buildings are charged for energy consumption plus peak demand. So, what is this extra demand charge on utility bills and what is the best way to lower it?
Uncovering the mystery of demand billing
While residential electric rates essentially charge only for the kilowatt-hours (kWh) consumed each month, retail buildings’ utility bills are calculated based on energy consumption and peak demand. See the breakdown of energy usage as kWh and demand charges as kW in both the supply and delivery sections of the bill.
Tip: There may be more than one type of demand charge listed (on/off peak, seasonal, coincident).
Energy consumption is based on the total amount of electricity used by the customer, however the demand charges are based on the highest rate of electrical use, which occurs during a 15- or 30-minute period during the billing month. Many retail businesses don’t realize that demand charges can make up to 70% of the utility bill. This peak demand for electricity can be traced to modern heating and cooling needs, with air conditioning making up 40% of a building’s peak electricity needs.
Due to demand for air-conditioning, electricity tends to be most expensive during the day when the demand on energy is the highest and the electric grid is closest to its maximum capacity. Because shopping centers are open during peak energy hours, finding relief from high electricity costs can be tricky.
How to lower the utility bill
Time of use rates (TOU) can offer significant savings to retail managers that can use technology to shift energy use to off-peak periods. In fact, according to the Edison Electric Institute, off-peak electricity is the only form of energy that has stayed the same cost or gone down in the past 30 to 40 years, while daytime electricity has continued to increase.
What if a retail building does not have a TOU option and the energy charges are similar during both day and night periods, otherwise known as a “flat rate” or “blended rate”? Those terms can give the impression that electricity costs the same both day and night. However, energy providers are either charging a higher overall flat rate, and/or demand charges. Demand charges are typically charged to consumers to cover the costs of building and maintaining the power infrastructure needed to provide energy to retail facilities during peak demand hours. To reduce costs the consumer can reduce energy consumption during peak demand periods and/or negotiate a better flat rate.
Negotiating a better rate
Negotiating a better rate first requires knowledge of the building’s monthly Load Factor (LF). A high LF is good and will tell retailers how sensitive their retail facility is to demand charges. A perfect LF of 100% would mean the retailer is using the same amount of energy both day and night all month.
Tip: To figure out the LF%, divide the monthly electric load (kWh) by the amount of hours in the month and then divide that by the month’s peak demand and multiply by 100.
For example, a large retail building may use 60,000 kWh per month. Assume that its monthly peak load is 182kW. First determine average load by dividing total energy use for the month by total number of hours in the billing cycle. Calculate (60,000kWh divided by 730). The average load is 82kW. Then divide this average load by the peak load. Calculate (82kW divided by 182kW). Then convert to a percent. The building has a 45% LF.
Tip: If there are time of use rates, the retailer will need to make two LF calculations, one for the off-peak and the other for on-peak.
To improve the building’s LF%, make a goal to reduce the peak kW by at least 16%. This can be done with thermal energy storage.
Thermal energy storage
Cooling, ventilation and refrigeration make up about 30% of a retail building’s total energy use. More importantly, air-conditioning is the main culprit behind peak demand. Thermal energy storage reduces cooling costs dramatically by reducing peak demand and taking advantage of TOU rates. Thermal energy storage can also be used for demand response while not affecting indoor comfort.
This cool energy storage solution works as a battery to store ice inside insulated tanks. The next day, the ice melts to cool the building. By storing cooling overnight, during off-peak hours retail buildings avoid energy consumption during on-peak hours while still maintaining the desired temperature during the day.
Let’s apply thermal energy storage to the same hypothetical retail building above with the 45% LF. A partially sized thermal energy storage system can reduce on-demand cooling needs by 40%. If 40% of the building’s peak load is cooling, then thermal energy storage can reduce the peak load by 16%. (Calculate 40% of the 182kW peak load and multiply that by the 40% cooling reduction to get 29kW. 16% of 182kW is 29kW.) Therefore, the peak load can be reduced to 153 kW. (Calculate 182kW – 29kW.) The LF would be the average load divided by the new peak. (Calculate 82 divided by 153). The new load factor after a 40% peak cooling demand reduction with the partially sized thermal energy storage is 53.5%. A full thermal energy storage would reduce demand even more providing more dramatic results.
This option can also help with air-conditioning loads and improve load factors while providing great savings by paying retailers to stop consuming energy at times when the grid is congested. The problem with this option is retailers are in the business of providing a comfortable environment for shoppers — they don’t want to cause discomfort which may cut into sales. So the best way to do demand response is transparently by combining it with energy storage. The thermal energy storage would be available for discharge when it’s time to reduce energy consumption. Demand charges would be lowered plus the utility would pay the retailer to not use energy!
One more important strategy, energy efficiency, can also reduce demand some. However, keep in mind that a more energy efficient building doesn’t necessarily mean a better building to the utility. To illustrate, a net zero building, by definition, purchases zero energy from the grid in the entire year and yet demands electricity from the grid when the sun isn’t shining. So the LF is Zero.
The Net Zero building is getting an amazing service from the Grid all year but buys no energy from it all year. With a reduced ability to charge retailers for energy, utilities must rely on more expensive fixed fees and demand billing for revenue. Furthermore, demand billing can add up. Some utilities have ratcheted pricing which means retailers carry over a percentage of the highest demand charges for the next 12 months. To help bolster energy efficiency efforts demand response and energy storage strategies can improve LF% to keep energy costs under control.
Energy bills are tricky, however if armed with the correct set of facts, tremendous savings can be uncovered.
To summarize, here are some guidelines to reducing the energy bill:
1. Start with having the most energy efficient building possible.
2. Research all the energy (kWh) and demand (kW) costs. Investigate if the utility offers any incentives, TOU energy rates or real time pricing.
3. Set a benchmark. Determine the building’s load factor and set a goal to improve it by reducing peak demand by 16%. Unless the building used the same amount of energy both day and night, there’s room for improvement.
4) Select strategies and technologies which align with load factor goals and utility rates. Keep in mind that when energy is used is as or more important than how much energy is used. Negotiate a better rate.
Mark MacCracken is CEO at CALMAC, which provides ice based air-conditioning technology that’s instrumental in the mass scale implementation of renewables. Over 4,000 sites, including malls, stores, schools, hospitals and office buildings, globally rely on Calmac’s IceBank energy storage to alleviate the high cost of cooling.
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