CEOSpeak: Energy

Given the ongoing economic crisis, retailers are under more pressure than ever to operate more effectively and get more out of their existing assets. Perhaps no area of store operations offers more opportunity for savings than energy. Despite the potential for savings, however, the why and wherefore of energy management remain a mystery to many top executives.

“Energy has never gotten the high-level attention it deserves,” said Dean Lindstrom, president, Novar, Cleveland. “But my experience has been that once a CEO understands and realizes the potential opportunities for savings, he or she wants to take action right away.”

Most important, according to Lindstrom, is for a CEO to understand that energy costs, similar to labor costs, are something that a company can have control over as opposed to being a budgeted item year after year.

“It’s pretty simple: A company can do something about energy, or spend more money to open more stores to get the equivalent results,” he said. “You’re talking about a return on investment of 20% to 40% on initial energy-related technology and equipment. On an ongoing basis, in terms of strategic energy-management programs, the ROI can be 100% or more.”

Lindstrom noted a company’s energy strategy has to be consistent with its overall business strategy.

“For that reason,” he said, “the chief executive should be the one to drive the strategy.”

With so much on their plates, chief executives obviously don’t have time to get into the nitty-gritty of energy management. But essentials they need to know, according to Lindstrom, include:

• Energy prices are volatile. Crude oil was selling at $100 a barrel in spring 2008, and by July, it had jumped to $150 a barrel. By November, the price had fallen to about $47.

“The takeaway here is that energy prices are extremely volatile,” Lindstrom said. “This is not one of those things a company should just sit back and do nothing about. It calls for a strategy.”

While downward spikes may offer some relief, they are only short term, according to Lindstrom.

“Energy prices will only go up over the long term because there is not enough growth in generation capacity to keep  up with the increases in demand,” he explained.

• Sustainability makes good business sense. A holistic energy strategy will help retailers understand how sustainability ties directly into their income statement.

• Abroad energy-management strategy can deliver significant earnings per share results quickly. “For example, we have put the numbers together for specific cases, outlining actions we have taken and what additional things could be done, with the total result being an extra five cents on a company’s EPS,” Lindstrom said. “The financial returns on energy management are very strong.”

•  Technology is only part of the solution. Too many people believe that energy-management technology in and of itself is the answer, and that it will provide magical returns year after year.

“Energy-management technology is a tool,” Lindstrom explained. “It’s the central nervous system for the building. If you don’t do something with it, it just collects dust.”

Instead, retailers should consider technology as the first piece of a comprehensive strategy. It is key to helping retailers understand how their existing portfolio is operating.

“There also needs to be ongoing commissioning, monitoring and control of what is happening, literally on a daily basis, either done internally or by an outside expert,” Lindstrom said.

• To get the most out of energy management, work with experts. Very few, if any, retail companies have the resources to keep up with the volatile energy market from a skills-set, technology or knowledge standpoint. The need for a dedicated resource is made even more urgent by the fact that energy-related technology and tools change daily.

“Retailers’ core business is selling merchandise, not being energy management experts,” Lindstrom said. “A chain, even the most energy-savvy, can only do so much internally. You need dedicated, strategic partners—experts—to help you on a long-term basis in a collaborative fashion. That’s how a company will get a maximum return on its energy-management investment.”