The benefits of leasing for the retail industry
While much is often made about the so-called decline of the UK retail industry, this sector still managed to generate £421 billion in revenue in 2021 while employing some three million people.
However, retail businesses are also facing significant challenges in the current economic climate, as rising inflation impacts negatively on consumer spending and regular base rate hikes increase the cost of borrowing.
For retailers that want to invest in growth while optimising their cash flow management, leasing may be particularly effective and offer a number of advantages. We’ll explore these in a little more detail below:
#1. Outsourcing Obsolescence
Obsolescence (which describes the process of becoming obsolete, outdated or unfit for purpose) is a significant issue for retailers, as it usually drives large and recurring capital expenses.
For example, let’s say that you operate an iPad till system at the point of sale (POS) in order to enable self-checkout. The hardware included in this system will have a finite shelf life and can be expensive to replace, depending on the size of the system and how many screens are being used.
If you source this type of hardware through a leasing arrangement, however, you can upgrade your system without incurring huge capital costs.
This rule applies universally throughout your retail business (including back-end systems and hardware), as you look to minimise the cost and impact of obsolescence while outsourcing the responsibility for this to third parties.
#2. Enjoying More Predictable Terms and Improved Cash Flow Management
Not only does retail leasing lower your risk and require less capital, but it also creates more predictable terms that make it far easier to manage your working capital.
More specifically, it creates transparency and a sense of surety in an important aspect of your business, while ensuring that cash doesn’t remain tied up in old, outdated or inadequate equipment.
Similarly, a maintenance contract with the supplier will ensure the upkeep of the relevant equipment and provide coverage for any unscheduled repairs throughout the terms of the lease period.
Overall, this translates into much easier and more effective cash flow management over time, simplifying the process of managing your finances and using your resources to their optimal potential.
#3. Develop a Cleaner Balance Sheet
From a financial perspective, lease payments are generally considered a viable and often crucial business expense (as opposed to being a long-term debt commitment).
As they’re categorised as operating expenses, leased assets are also recorded on your company’s income statement rather than its balance sheet.
This creates a much cleaner and more transparent balance sheet, and one that’s less burdened with debt or the impact of heavy capital expenditure (especially when launching your retail venture).
This also means that your balance sheet will be viewed far more favourably by potential investors, which could help to unlock funding and growth in the future.
#4. All-in-One Offer for the Complete Supply Chain
In some cases, you may find yourself needing to invest in multiple assets to power your retail business, perhaps within a relatively short 12-month period.
For example, you may want to lease the very latest EPOS (Electronic Point of Sale) system for your retail store, while also investing in warehouse equipment and the necessary systems to secure the premises.
This would require a considerable capital investment without a lease, while traditional agreements may be unable to make provision for such sweeping demands.
At GRENKE, however, you can enter into a Master Lease agreement, which can include multiple assets for your retail business and save you significant sums of money. It also comes with preferential terms, and is ideal for retailers who want to position leasing at the centre of their business models.
#5. Enjoy Superior Time Management
Retail is different from a number of alternative industries, not least because businesses have to be completely customer-centric and focused on delivering on the needs of individual demographics.
However, meeting the needs of individual consumers can take up a huge amount of time, from handling payment queries and resolving issues to developing (or sourcing) products that fill relevant gaps in the market.
This should be a key strategic focus for you and your workforce, as it will have a direct impact on optimising turnover and the potential lifetime spend of individual customers.
Because of this, it makes sense to lease equipment and commit more of your time and money into optimising the overall customer experience.
After all, this will reduce the amount of time required to create incremental savings through capital expenses, all while ensuring that the equipment remains at optimum performance.
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