Retail: Going Hi-Tech

The Indian retail sector is thriving with a three year compounded annual growth rate of 47%, making it the fastest growing sector in the Indian economy. While organized retail in India is only 3% of the total $250 bn retail industry, it is expected to grow 25% annually, driven by changing lifestyles, strong income growth, and favorable demographic conditions. It is estimated that by 2010 organized retailing will cross the $22 bn mark from the current $7.5 bn. The branded retail sector, estimated at about $6 bn makes up for only 3% of the total market, but is forecast to grow at 25-30% annually over the next four years, with plush department stores and malls mushrooming across the country. 

Retail is India's largest industry and the largest source of employment after agriculture. It also accounts for over 10% of the country's GDP. The Indian population is witnessing significant change in its demographics. And, the huge potential of this industry, which is estimated at $250 bn, has compelled global big names in retail like Wal-Mart and Carrefour to come to India. "It is not so much a question of 'unsatisfactory' penetration; India is big opportunity. There are markets such as India and China where you can see retail opportunities coming up, and there are opportunities in parts of Indonesia, Africa, and Latin America. Like everyone else, we are seeing these markets opening and developing," says, Cliff Crosbie, head of Global Retail Marketing, Nokia. A large young working population, nuclear families in urban areas, increasing working women population, and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector. 

Irrespective of the debate on FDI in retail, Indian companies are building their strength. Reliance is rolling out a nationwide chain of supermarkets as part of its $5.5 bn retail strategy. In similar lines, Pantaloon, India's largest retailer, has announced plans to invest $1 bn to expand its retail space by 2010. In its report, FICCI estimates that India's retail industry will grow to $427 bn by 2010, and the market share of organized retail will swell to 22%. 

The 'IT' Story 

Today, retailers are in favor of utilizing technologies to their business benefit. While managing costs and improving operational efficiency will always be critical in the low margin retail industry, retailers are now shifting their focus to solutions that enhance the basic customer experience and drive revenue across all channels. This revolution has been focused on the stores in recent times, but knowledgeable retailers will now demand that all technologies should have a positive impact on the customer experience across all channels. 

Retailers are seeing IT as the biggest enabler of their success. They are looking to increase their IT spending by almost 15% in 2006, allocating almost half of this increase to application software with a particular focus on tools that facilitate multi-channel customer relationships, point of sale systems, strategic merchandising, and supply chain management. The past couple of years have seen several retailers implementing solutions ranging from F&B operations to discount clothing implementing supply chain management (SCM) solutions to improve core business processes such as global sourcing, distribution, logistics, innovations, transparency and visibility in financials and inventory, and compliance and management of point of sale (POS) data. However, organized retailers have not taken well to the concept of 3PL (third party logistics) due to their apprehensions of losing control over the supply chain. Currently, the transportation is carried out partly by organized service providers and partly by truckers and local transporters. 

From a retail industry point of view, the critical activities that can be handled by IT are finance, accounting, business intelligence, vendor development and management, merchandising and inventory management, facilities management, stores management, customer relationship management, branding, marketing, sales promotion, HR, and supply chain management. In fact, having a robust and scalable supply chain that will facilitate rapid growth is one of the key imperatives for India. 

Since one of the basic objectives of retail organizations is to make data available to users and customers, proper IT implementation and superior IT infrastructure is essential to ensure that. In spite of getting minimal details, the retailer captures the right information, which flows to everyone from the back office staff to head office managers. The entire information flow must be seamless. A retail business works on a network environment because the stores connect to one another as well as to supplier sites. This is because in the retail business quick response is the key to success. 

Key Opportunities in Retail 

Logistics: The focus of major retail expansions will be around the food and grocery segment, with all major corporates entering retail through this segment. With the objective to have better control over price, consistency in product supply as well as quality, there will be huge investment in supply chain infrastructure. Worldwide, IT has been on the forefront in SCM initiatives as it plays an integral role in automation and information sharing during the whole chain. 

Merchandising: The growth in the size of the formats brings in the complexity of management of stock keeping units, which includes planning of merchandise from sourcing till phasing out of the item. The problem becomes more intricate with in-house private labels where retailers take the risk of product development and commit on the production quantities. Private label not only brings in additional margins for retailers, but also competitive edge in terms of positioning of products in respective categories. It is a big opportunity, as internationally 17% of the sales are generated through private labels. Though merchandising decisions are largely taken with human intervention, IT plays an important role as a decision support system, helping users in taking well informed decisions for merchandise management. 

Multi-formats: As retailers grow big and consumers' expectation change, they will have to come up with different formats offering different value preposition to consumers. Managing of stores across formats, cities, regions and even countries through a single merchandising office can be a daunting task without requisite IT infrastructure to facilitate the flow of information between stores, warehouses and the central merchandising office.

Customer Engagement: With increasing options in terms of formats and increased penetration of the stores, customers will always have the option to select from many stores. Retailers will have to devise multiple ways of retaining their customers by bringing in events, loyalty programs, and better customer servicing through deeper understanding of consumers' preferences. 

Multi-channel Retail: On the lines of international models, there is an evolving model of Click and Bricks, wherein brick and mortar retailers are strengthening their presence through supporting channels like Web stores for reaching out to new customers as well as servicing of existing customers. All these other supporting channels like Web, catalog or Kiosk rely heavily on technology for execution. 

Store Experience: Apart from basic store process automation, the technology can be deployed for better consumer experience in the store. For instance, information kiosks within the store for comparing between different models of technology products can be a big differentiator for consumers to shop from a particular store. 

Similarly, even simpler technology initiatives can make consumers' in-store shopping experience more meaningful. 

Retail Applications 

With large corporate houses entering the retail sector and the consequent entry of IT professionals from other industry verticals, awareness levels of IT managers in the retail industry have grown. There is still a need to display the benefits that accrue from implementing ERP and CRM applications in a retail organization. 

Oracle Retail is spending considerable time and effort to create awareness about the availability of IT applications and the consequent benefits to retail organizations. Sun Microsystems has recently unveiled its solutions for the retail industry, called JAVA Composite Application Platform Suite (CAPS). Java CAPS provides a comprehensive integration platform to build and manage SOA-based composite applications that enhance, aggregate, and leverage the customer data within them, enabling companies to achieve a single customer view. 

Though there are a whole lot of applications to help the retail business, CIOs of retail houses feel that there should be a proper communication between retailers and solution providers. Says Chinar Deshpande, former CIO of Pantaloons, "Solutions are available, but there should be a proper dialog between product, IT, and business groups." RK Singh, CEO of Influx group says, "Many a times we use IT and feel that the expenditure incurred is too high if we compare it with the value of its benefits." In similar tone, Arun Gupta, CIO, Shoppers Stop, puts it this way: "Our problems are in rupees, but the solutions are in dollars." In Shoppers Stop, they have completely revived their IT system twice in last ten years. 

CIOs of retail industries are aware of the need of ERP and CRM applications. As businesses grow, they feel the need for a flexible IT infrastructure to run their business more effectively. They have started to realize that IT is a fundamental aspect of a responsive business, and that this is possible only when their core ERP and CRM applications start to communicate in real-time and receive data as soon as it is captured. This, in turn, is possible only if they implement a service-based infrastructure. "Using service-oriented process integration, a single-view composite application can access customer data held in customer relationship management (CRM), enterprise resource planning (ERP), financial, and legacy applications," says Priyadarshi Mohapatra, general manager, Retail Practice, Sun Microsystems. 

RFID as Savior 

In a retail store, RFID assists in inventory management. All items in a retail outlet sport read-only tags that contain the product code and its description, including the batch number, expiry date and price. The shelves, exit gates, and warehouses are fitted with sensors that read the information from the RFID tag and help in updating the inventory system in real-time. This way it helps in total asset visibility and tracks the inventory stocking. It also ensures better process control for products in the store. In warehouses and container depots, containers are marked with RFID chips that contain details of origin, destination, and other details. Entry and exit gates, vehicles, and cranes are fitted with an antenna that senses the RFID tags, and records and updates the system to check for any deviation in the schedule. With precise tracking of the location of pallets and containers within the warehouse, it is easy to pinpoint unscheduled movements. The system also considerably helps reduce costs and time for check-in and check-out. 

There was only one issue with RFID technology-it was unable to work on vessels holding liquids or made of metal. Now Wal-Mart's tech team and its vendors have overcome this problem, inviting major deployments. In India Globus, Pantaloons, and Madura Garments have already Started testing RFID. 

Point of Sale 

In the retail industry, Point of Sale (POS) solutions have replaced the PC or cash registers to a great extent. Many POS systems connect to in-store computers that, in turn, link to computers at the company's headquarters. And, POS today has come of age. "Now the POS is not only a billing machine, but has also become more intelligent. Today, POS can display advertisements and do data mining," says Sanat Rao, director of marketing, Emerging Markets, Embedded Markets Division, Intel. Also, with well-designed software, POS can provide a simple, easy-to-use mechanism for cashiers to handle just about any transaction, reducing training time, while improving productivity and customer service. Touch screens are popular in the hospitality and convenience store industry, and are rapidly gaining acceptance in other retail markets. Some businesses choose to combine other options with a touch screen POS. 

Security Concerns 

Fraud and theft, including employee pilferage, shoplifting, vendor frauds, and inaccuracy in supervision and administration cost the Indian retail industry about Rs 550-600 crore every year. This is despite the fact that most large modern format retailers use standard security features such as CCTVs, POS systems, and anti-shoplifting systems for greater control over fraud and theft. In financial terms, cost of this fraud constitutes about 2% of the organized retail sector's revenues. 

With standalone networking systems, retailers run the risk of not getting information quickly enough. According to Gupta, "We are using LAN and WAN set-up connected by MPLS and VPN. All our stores are connected through IP VPN." 

Most retailers fail to provide communication between workers, customers, managers, vendor partners, and stores due to lack of direct lines. This shortage of real-time information exchange takes a toll on the quality of service, inventory, policy changes, and management decision-making. Here a converged solution that includes data, voice, and video communications becomes essential. This can include mobile communications providing information access to workers at every level, from stockroom to store to executive offices. 

Other Technologies 

HyperCITY have deployed I-Scan solution in all its stores. I-Scan allows customers to scan merchandise as they pick products off the shelf. Once customers finish shopping, they can hand over the device to the customer service desk and cash-out quickly. 

Wal-Mart plans to invest in tags that sense the temperature of sensitive products, making sure products on the shelf are safe, rotated correctly, and in the right place. Internet protocol (IP) surveillance is picking up steam. With IP cameras going for as low as Rs 7,000, the technology is ripe for deployment. CIOs can use it to monitor remote locations over a LAN or the Internet. 

Haryali Kisan Bazaar, one of the country's first retail initiatives by DCM Shriram Consolidated, has created a retail solution in partnership with SAP and Polaris. The initiative, e-STARR (Systems and Technology in Agriculture and Rural Retail), offered a retail solution that helps Haryali serve rural customers better, while creating a strong infrastructure for operations spread over multiple locations. The SAP solutions, IS-Retail and SAP Retail store, were implemented by Polaris, which integrated it with Polaris POS and Agriculture Service modules. 

The Unconventional Player 

Except Indian Postal Department, all other players, who are in the retail area, have prior experience in some kind of business. India Post was serving people to a great extent. Now, they feel they can take up the retail business in their own way. "We have got the best network, we have got experience in servicing people, and above all we have got good relationships with them," says S Samant, GM, India Post. India Post has got 835 head post offices, 20,043 sub-post offices, and 145,975 delivery offices, thus becoming, by default, the largest retail chain in India. Though India Post is not looking at serving people with product portfolios that can match big names in the retail sector, the postal department feels no one can match their reach. Though the postal department is not very tech savvy, it has some big plans to computerize its offices. As of now, 7,488 sub-post offices have been connected with LAN and 239 administrative branches are connected to the National Informatics Center. Also, the public service department has plans to interconnect 1 lakh post offices. 

The Road Ahead 

Today, the most important development in communications that will affect retailers is the growing trend to converge voice, data, and Internet communications in one integrated system. Convergence opens the door to a wide range of benefits. For example, you can consolidate all of your communications on one managed IP network connection and save money. If you have more than one location, you can network your communications and computer systems, saving money and streamlining operations. And, you can take advantage of the ability to make calls over a managed Internet service, reducing your calling costs. A converged system also reduces administration costs, and phones in IP-based systems can be added and moved much more easily. Making the transition to an IP network is a significant step. That's why it's important to invest in communications solutions that allow you to take advantage of IP-based convergence. It's valuable to look for solutions that meet your needs for voice communications and allow you to add data capabilities gradually. Or start with traditional circuit-switched networks and then add new digital facilities as your needs dictate. As a result, retailers can control overhead and operating costs as well as meet the customer expectations cost-effectively. 

Gyana Ranjan Swain

gyanas@cybermedia.co.in