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.

Warehousing: As retailers take control over the inventory

management as well as distribution across the supply chain, warehousing will

play a pivotal role in the distribution process. Advanced computerized systems

such as Real Time Warehouse Control Systems would offer enhanced integration of

information flow on a real time basis, leading to more accurate inventory

planning processes and elimination of wastages.

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