Every retailer manages complexity.

Store formats differ, channels have different economics, regional preferences are real and so forth. There is also the internal complexity of products and that has to be managed accordingly.

Some of that complexity is intentional and strategic.

But a lot of it is the result of accumulated drift; exceptions that became the norm and inherited processes that date back to the dark ages. That drift is costing retailers a pretty penny.

We call this cost The Variance Tax.

The Variance Tax is the total combined cost (in labor, margin erosion, lost time, error rates and other related factors) of maintaining complexity that exists for historical or operational reasons rather than strategic ones.

A few examples…

1. Product creation calendars in apparel are typically a “cut and paste” from the previous season. Over time, calendars read like a job description more than a governance tool, riddled with exceptions that have become the norm. Nobody revisits the calendar because the team is too busy executing against it. Further, it does not help when multiple seasons are in flight at once.
2. A store leader cites “unnecessary versioning” of store formats that have been kept upright but deliver no commercial impact. The variation is there while the value is not. The challenge now is to root out the versioning that isn’t required and then re-standardize accordingly.
3. A specialty retailer operates owned stores, ecommerce, marketplaces and wholesale on different pricing models, margin expectations and forecasting cycles. A customer shopping across those channels sees inconsistency at every turn and has a different relationship with the brand depending on the touchpoint and channel.

In all cases, the variation was not irrational when it was activated. At the time, the introduced complexity probably had real logic behind it. The issue is that our business is so laser-focused on “what’s next” that no one stops to audit the number of and cost associated with exceptions and variations accumulating over time.

If you added up every hour your team spends managing variation that has no value, the number would make your CFO squirm.

And here is the thing: The Variance Tax rolls right up to leadership. I can count the number of times leaders say to me that they are in constant firefighting mode because of the complexity. The tax is wildly corrosive when it eats up the valuable hours needed to fix the root causes of the problem.

Just how many panic cycles do leaders need to fall into before they say enough is enough? It is no longer acceptable to just firefight. Instead, you need to remove the kindling from within your four walls.

The odd thing is that we celebrate variety as if it is an Olympic sport. So many store formats, strategies and products with so much complexity that you could consider each one a snowflake.

But even with their variations, snowflakes are still made from the same thing.

And the same goes for the retail business.

Core fundamentals are the common threads that drive performance, and variation without value is an unnecessary tax.

So the question is, how much of The Variance Tax are you paying?