Recommendation

Hartwell should prioritize reducing store labor costs through improved scheduling as the primary lever, while running a parallel workstream on COGS, as together these two areas account for the full 5-point margin decline and offer a realistic path back to double-digit margins within 12 to 18 months.

Evidence

• Store labor is the dominant driver of margin erosion, growing from 18% to 24% of revenue over three years while revenue stayed flat
• The scheduling math is compelling: a 20% reduction in hours per store recovers $24M annually, equal to 4 full margin points on $600M in revenue
• COGS has also drifted upward as a share of revenue, accounting for the remaining roughly 1 point of decline, and is addressable through supplier renegotiation or pricing discipline

Risks and Mitigations

• Reducing labor hours by 20% without careful scheduling design could hurt customer service levels and drive sales declines that offset the savings: mitigate by piloting in 10 to 15 stores first, using conversion rate and customer satisfaction scores as guardrails before rolling out network-wide
• COGS improvement may be limited if input cost inflation is driven by factors outside Hartwell's control: mitigate by separating inflation-driven increases from discounting-driven ones before committing to a target

Next Steps

Launch a store labor scheduling audit across a pilot group of 15 stores within 30 days. Simultaneously, commission a COGS deep dive with the merchandising and procurement teams. Bring findings back to the board in 60 days with a network-wide rollout plan and updated margin recovery target.

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