Margin Squeeze at Retail? Here's How to Stay Ahead
Retailers are no strangers to pressure—but in 2025, the margin squeeze feels tighter than ever. Between rising input costs, shifting consumer behavior, continued supply chain disruptions, and a highly competitive landscape, many retailers are seeing profitability erode—even when sales are steady.
While these challenges may feel external, the solution often begins internally—with financial clarity, operational discipline, and a proactive plan to protect margin.
At Greenleaf Partners, we work closely with retail operators to help navigate this complexity. As a fractional CFO and accounting firm, our focus is on building the systems, reporting, and strategies that allow retailers to maintain healthy margins—even in unpredictable markets.
If your retail business is feeling the squeeze, here’s how to assess what’s happening—and what to do about it.
What Is a Margin Squeeze?
A margin squeeze occurs when your costs increase faster than your revenue—and you can’t raise prices fast enough or cut expenses deeply enough to maintain profitability.
That pressure might come from:
Increased COGS due to rising material, manufacturing, or shipping costs
Operating expense creep across labor, rent, tech, or marketing
Price compression from competitors offering discounts or undercutting
Inventory inefficiencies, such as excess stock or high markdowns
Over time, margin erosion affects more than your P&L. It impacts cash flow, restricts investment in growth, and makes it harder to plan with confidence.
But the good news is: It’s manageable—with the right visibility and response.
Step 1: Identify and Control Your Cost Drivers
The first step in reversing margin pressure is knowing exactly where your costs are rising—and why.
Start with a line-by-line cost analysis. For many of our retail clients, this includes:
Vendor cost trends over the last 6–12 months
Freight and logistics costs, especially for imported goods
Labor and payroll by department
Store-level fixed vs. variable expenses
Packaging, fulfillment, and returns handling
Once this is mapped, you can segment your costs into:
Non-negotiables (e.g., rent, utilities)
Negotiable spend (e.g., supplier terms, shipping options)
Controllable areas (e.g., staffing levels, hours, waste)
From there, we help clients prioritize the top 3–5 opportunities for cost improvement—without compromising quality or customer experience.
Example strategies:
Renegotiate vendor contracts based on volume
Switch to local sourcing to reduce freight
Use labor modeling to optimize staffing around foot traffic or sales peaks
Audit tech stack for underused platforms or duplicate spend
Step 2: Revisit and Strengthen Pricing Strategy
Raising prices is often necessary—but it’s rarely straightforward. In today’s environment, consumers are highly price-aware, and retailers are fighting for every conversion.
The key is to use pricing as a strategic lever, not a blunt tool. That means:
Understanding elasticity across SKUs: which items can tolerate increases, and which can’t
Using bundling or tiered pricing to increase perceived value
Applying cost-plus or value-based models depending on the category
Introducing limited-time offers to test higher pricing in short windows
We work with clients to analyze SKU-level margins, historical discounting patterns, and customer LTV to help them raise prices where justified—without triggering churn.
Tip: Pricing isn’t just a sales lever—it’s a financial strategy. Even a 1–2% price increase, when targeted correctly, can materially improve gross margin across high-volume items.
Step 3: Improve Inventory Management and Turnover
Excess inventory doesn’t just take up shelf space—it ties up cash, increases markdown risk, and drives up storage costs. On the flip side, stockouts hurt sales and customer loyalty.
Retailers under margin pressure need to get sharper about inventory:
Forecast based on demand patterns, not just past sales
Use sell-through analysis to inform purchasing
Implement just-in-time ordering where possible
Monitor aging inventory and build strategies to clear it efficiently
We help clients build 12-month inventory and cash flow models that connect purchasing decisions with forecasted revenue. This allows for better planning, fewer surprises, and more strategic use of working capital.
In many cases, solving a margin issue isn’t about selling more—it’s about buying smarter.
Step 4: Prioritize High-Margin Products and Channels
Not every SKU is worth pushing. Not every channel is worth scaling.
We help retail clients run profitability analyses across product categories, brands, locations, and channels. The goal is to understand where margin lives—and focus energy accordingly.
This may lead to:
Phasing out low-margin or slow-moving SKUs
Doubling down on private label or exclusive products with better margins
Shifting marketing spend toward high-margin categories
Redirecting sales efforts from wholesale to DTC (or vice versa)
In an era of rising costs, focusing on revenue quality—not just quantity—is a critical mindset shift.
Step 5: Automate and Streamline Where Possible
Technology can be a powerful tool for margin protection—if implemented thoughtfully.
Here’s where we see ROI for most retail operators:
POS and inventory integration to track stock levels and reduce shrink
Labor management software to align schedules with sales patterns
Digital marketing tools to improve campaign targeting and reduce CAC
Automated reporting dashboards to catch trends early and inform action
We often help clients identify tech stack gaps or redundancies, negotiate better contracts, and streamline reporting so they can act faster with less manual effort.
The goal isn’t to eliminate human decision-making—it’s to support it with better data and faster tools.
Step 6: Build an Early Warning System
Margin erosion doesn’t usually happen all at once. It builds slowly—across months of cost increases, promotional creep, and operational drift.
That’s why we help clients build margin dashboards and KPI scorecards that track:
Gross margin % by category and store
Trade spend and promo ROI
Inventory aging and turnover
Contribution margin by channel
Expense vs. revenue growth rates
With this kind of visibility, leadership teams can see the squeeze coming—and respond before it cuts too deep.
Retail Margins Are Under Pressure—But Not Out of Your Control
Running a retail business in today’s environment is undeniably challenging. But it’s not impossible.
Brands that maintain healthy margins aren’t doing it by chance. They’re doing it by:
Understanding their numbers
Making decisions grounded in data
Aligning operations, pricing, and inventory
Having financial discipline and operational flexibility
At Greenleaf Partners, we bring that discipline and insight to the table. Our fractional CFO and accounting services are designed for retailers who want to operate smarter, grow profitably, and stay resilient in a changing market.
How We Help Retail Clients Navigate Margin Pressure:
Channel and SKU profitability analysis
Cash flow and working capital planning
Inventory forecasting and demand planning
Pricing model optimization and scenario planning
Expense audits and vendor renegotiation strategies
Dashboards for real-time margin visibility
