Cost cutting

In the latest round of earnings from retailer's some analysts noted that the decrease in the cost lines was less than it had been. This led to some comments that profitability was in jeopardy because you can't cut cost indefinitely, and that the top line revenues had to increase.

Now mathematically speaking, the statement about cost cutting is clearly accurate in that it has a clear bottom limit. However, if you substitute the idea of efficiency for cost cutting, there would probably still be plenty of room for further efficiencies and I'm sure they will continue. Especially in retail, where better use of online advertisements and sales will reduce the cost of brick and mortar and to at least some extent the need for printed materials, as well as leading to improved inventory control and the need to carry less inventory, there is plenty of room for cost cutting in the future.

However, cost cuts once implemented do not go away. Now, if you want to see profit grow, ideally a combination of efficiency improvements and increased sales would be optimal. However, if you have reduced your costs by 85% and seen revenue declines of 90%, you have increased profitability, not only in the current period but also into the future.

I continue to maintain that we are in the middle of an ongoing technological revolution (maybe that is a bit strong) in many American businesses, where the trend to more technology and less employees is growing. This is clearly not a good thing for employment, but it is a good thing for profitability. We need to develop additional growth industries in order to address the unemployment issue, but, if you are a commercial enterprise, you are discovering ways to become more and more profitable without the need for increased personnel.

Its not a short term thing.