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Challenges for Indian Retailer

by Vivek Mehta
Senior Consultant, Retail Practice, Tata Consultancy Services

Retailing, India's largest industry and one of the biggest sources of employment in the country, generates more than 10 per cent of india's GDP. Organised retailing, however, occupies a miniscule two to three percent of the overall Indian retailing industry.

Organised retailing, which aims at providing an ideal shopping experience for the consumer based on the advantages of large-scale purchases, consumer preference analysis, excellent ambience and choice of merchandise, has been adopted in a large number of cities in India with many business houses investing in this segment.

Increasingly, the organised retail industry is realising the importance of information technology in bringing about process improvements, which would result in greater operating efficiencies and hence increased profits. But the awareness of IT systems that are available is low, resulting in poor decision-making. A number of organised retailers in India have installed solutions ranging from simple Point of Sale (PoS) systems to complex Retail ERPs.

But who are these retailers and what kind of IT systems have they employed? Broadly, one can classify the retailers into four types, namely:

Large retailers having a chain of over 30 stores: These large retailers, mainly supermarkets and departmental stores, use custom-built systems. Some of them have implemented ERP packages to take care of their back-office systems.

Mid-sized retailers handling more than 5 stores, with plans to expand to about 15-20 stores in the next two years: These retailers primarily have departmental store formats catering to a variety of merchandise. A number of them have their own private labels for all the merchandise sold in their stores. This large group of retailers has spent a lot of time and effort in implementing packaged IT solutions for PoS, demand forecasting, purchase orders and inventory management. A proven solution in many countries, which has found acceptance with many retailers in India, is Retail Pro, a good fit for retailers with 1-50 stores. Higher-end solutions like JDA, SAP IS Retail or Retek, targeted at larger retailers with more than 300 stores, have also found acceptance in India, though the payback period for such investments can be as high as five to eight years.

The manufacturer-retailer: These retail showrooms are exclusively owned by the manufacturer or are owned and managed by franchisees of the manufacturer. Some of these retail outlets also have Retail Pro for PoS as well as the back-office, while others have their software developed from vendors for the same functionalities. In this segment of retailing, it has been noticed that the manufacturer's own stores and franchisee have different IT packages, which lead to data integration problems and delayed receipt of information at the head office of the manufacturer retailer.

Small retailers with less than five stores: These could be specialty apparel retailers, discount stores or departmental stores. They usually have a vendor developed PoS system connected to an inventory system, though some of them have started using more sophisticated software packages.

What will be the future IT trends for the retail segment and how can retailers benefit from them?

The last few months have not been very good for retailers around the world. The Indian retail industry has grown just 5 per cent, compared to a 10 to 15 per cent year-on-year growth in the previous years.

In such a situation, is IT a priority area? In my opinion, it is. In the next few months, Indian retailers will try to make do with their current IT systems. New stores will be opened; different formats will be experimented with, and the existing IT systems will be extended, or additional licenses will be bought for IT applications.

In the short term, the emphasis would be on using the existing IT resources to generate more information. At this stage, retailers plan to leverage gains from their IT investments. One way of ensuring this is to have information about their customers and devise ways to get repeat business from existing customers. In order to do this, the retailer would need Customer Relationship Management (CRM) or On-Line Analytical Processing (OLAP) software to run on top of its existing database.

Customer relationship management

CRM could be used for, amongst other things, campaign management, to understand the buying patterns of 'loyalty cardholders' and the integration of multi-channel sales. There are a number of CRM packages like Talisma, Siebel, Clarify, Retek CRM, Sales Logix, etc., which could be used for this purpose. The only concern here is that the database to be analysed by the CRM package only records purchases identified through the customer loyalty cards of the retail chain, which adds up to about 25 to 30 per cent of all sales. For the retailer, the flip side to this is that he gets detailed information of the buying patterns of his existing customers and he can plan strategies to get those customers to come back to his store.

Online Analytical Processing (OLAP) tools

To analyse a wider spectrum of data, retailers could use OLAP tools in order to segment the sales and carry out behaviour analysis. OLAP tools that could be used are Arthur Planning, Oracle Analyser, Adaytum, Cognos, Business Objects, etc. These OLAP tools are very versatile and can analyse the sales data from the PoS and determine the trend of sales for the categories and sub-categories of merchandise sold from the various stores. This analysis would enable the retailers to understand the type of merchandise sold, the frequency of sale, the geographical spread of the sales, and also provide 'what if' analysis for projected sales, price changes, etc. Retailers can then increase sales by providing the correct merchandise and devising promotion strategies.

B2B software

For manufacturer-retailers and other retailers who promote their own private labels, the need in the current context would be to monitor the complete manufacturing and supply chain. This can be done through vendor management software, which utilises the Internet for accessing the details. This B2B site would entail confirming the garment design to the vendor by the retailer, monitoring the fabric purchases from the fabric vendors, monitoring the stitching and delivery of the apparel to the retailer's delivery centre (DC), and the invoicing and payment to the vendors by the retailer. Accessing the Internet from any location could do all this. The vendors would enter the relevant data from their end. This would help reduce costs and ensure the availability of merchandise at the stores.

Collaborative planning and forecasting (CPFR) tools

The use of collaborative planning and forecasting tools (CPFR) would help control costs for the vendor and the retailer, as production would take place after taking into account the planned merchandise requirements of the retailer. This would be a Web-based system, and can be built to suit the needs of the retailer and the vendor.

Hence, the short term IT needs of the organised retailer would revolve around his ability to service the customers in a better manner by using CRM and OLAP tools, and to reduce costs by using Web-based systems of vendor management and CPFR.

In a longer timeframe of 2 to 3 years, what should the retailer do on the IT front to retain his competitiveness?

To meet the growing needs of the future, there is a need now to take stock of the present IT infrastructure and look at the requirements for the future. The requirement of the future would be to evolve IT as a strategic enabler for the organisation.

With reduced business due to the weak economic situation in the country reducing sales and productivity, retailers need to look closely at their internal systems and procedures. Non-value-adding activities need to be weeded out and replaced by efficient systems and procedures. This exercise would help retailers to define the efficient functionality required for the future. Having defined the functionality, retailers need to understand how information technology would support the efficient implementation of the revised systems and procedures in terms of computer systems, hardware, software and networking. Retailers also need to understand how the IT systems would be integrated and networked across the country's stores and the head office of the retailer.

With the projected growth of organised retailing in India, large to mid-sized retailers need to upgrade their IT systems and take into consideration the technology trends — some of which are currently nascent, but which will evolve to become important assets for the future.

Retail ERP packages

In the future there would be a need to evaluate if retail ERP packages like JDA, SAP IS Retail and Retek are suitable for Indian retailers. These products have an integrated solution for demand forecasting, merchandising, replenishments, supply chain, etc. Most of these packages have built-in CRM, OLAP tools, collaborative planning and supply chain systems that are tightly integrated with the merchandising and forecasting functionality. Though the flip side is that these packages are costly, the return on investment takes longer and expertise to implement the systems are gradually being developed in India. Hence, it would be a good idea to evaluate these packages, determine the cost-benefit analysis, and wherever possible, source the software from one vendor organisation that would provide all the functional requirements of the retailer from an information technology perspective.

The Indian experience in implementing Retail ERPs has been difficult due to the lack of trained ERP package implementers in India. Hence, the cost of implementation has gone up, as package experts have to be brought in from abroad. But this is true for all ERP implementation in India, whether in the retail sector or in the manufacturing sector. In the past, manufacturing industries also faced difficulties in implementing ERP packages specifically meant for the industry, but over time, with expertise in the packages and in their implementation building up within India, the success rates of such implementations have increased. Hence, over the next two to three years, Retail ERP expertise will grow and will be able to support the needs of Indian retailers, who in that timeframe would have progressed up the learning curve on the benefits of information technology.

Business optimisation software

a. Product pricing software

One of the most critical challenges faced by retailers carrying thousands of products / SKUs is 'pricing' — the ability to price almost all the products suitably, all the time, so that sales of even individual items yield a net profit. The advent of sophisticated price optimisation / revenue management techniques offer significant prospects for enhancing profitability.

DemandTech and Khimetrics, two US-based software product vendors have come up with products that help retailers to optimise the prices of their products. These companies have been beta testing their software product with some of the retailers in the US. The advent of pricing decision support techniques for the retail industry has opened up various possibilities for the retailers. Though it will take some time for such products to come to India, retailers here need to understand the features of the products and how these products can help them in their pricing decisions.

b. Merchandise optimisation software

Retailers still have difficulty in ensuring that customer requirements are fulfilled. There are a large number of occasions when customers have found that the items are not available when they visit the stores. Increasingly, from a retailer's perspective, there are times when goods are sold at marked-down prices. Now a new set of software applications has been developed which apply sophisticated data processing techniques to existing inventory and sales data to accurately determine future patterns of supply and demand at the item and store level. These types of business optimisation software are still at a nascent stage in terms of usage. But in the years to come these software applications will be used by a large number of retail organisations.

Mobile computing

The use of mobile computing for optimising inventory and supply chain efficiencies have been enabling retailers to reduce costs. WAP (Wireless Application Protocol)-enabled, handheld personal digital assistants (PDA) and mobile phones are becoming increasingly important for retail operations. With the use of mobile computing, inventory positions of actual stock in hand at the stores can be entered in the mobile handheld devices and transmitted to the back-office computers for verification of stock. Similarly, supply chain efficiencies can be increased by ordering items through WAP-enabled PDAs, which will reduce the timeframe for the supply of stocks.

B2C

The growth in B2C retailing has not taken off in India, primarily because of the apprehension in the minds of the consumer about the security of the payment systems and the efficiencies of the supply chain. The consumer is concerned about the fact that the articles ordered might not reach him due to inefficiencies in the logistics of delivering the product to his home/office. Over time, these inefficiencies will also be removed, and over the next two to three years, retailers will have to cater increasingly to this channel. They would need to start building the IT infrastructure to enable such transactions over the Net.

Retail exchanges

Various retail exchanges have been set up in the US and in Europe. One of them is the World Wide Retail Exchange, which enables retailers to interact with vendors and with other retailers for B2B transactions. Such exchanges help in reducing transaction costs. They need to be set up in India too.

Overall, in the long run, Indian retailers need to look at an integrated IT support system to take care of their information requirements. Indian retailers would have to plan their IT requirements keeping in mind these future developments. They need to start now so that they are prepared when business picks up in the months ahead.
- 30 Sep 2006, 11:47 pm
Mamta Mamta wrote: > by Vivek Mehta > Senior Consultant, Retail Practice, Tata Consultancy Services > > Retailing, India's largest industry and one of the biggest sources of > employment in the country, generates more than 10 per cent of india's > GDP. Organised retailing, however, occupies a miniscule two to three > percent of the overall Indian retailing industry. > > Organised retailing, which aims at providing an ideal shopping > experience for the consumer based on the advantages of large-scale > purchases, consumer preference analysis, excellent ambience and > choice of merchandise, has been adopted in a large number of cities > in India with many business houses investing in this segment. > > Increasingly, the organised retail industry is realising the > importance of information technology in bringing about process > improvements, which would result in greater operating efficiencies > and hence increased profits. But the awareness of IT systems that are > available is low, resulting in poor decision-making. A number of > organised retailers in India have installed solutions ranging from > simple Point of Sale (PoS) systems to complex Retail ERPs. > > But who are these retailers and what kind of IT systems have they > employed? Broadly, one can classify the retailers into four types, > namely: > > Large retailers having a chain of over 30 stores: These large > retailers, mainly supermarkets and departmental stores, use > custom-built systems. Some of them have implemented ERP packages to > take care of their back-office systems. > > Mid-sized retailers handling more than 5 stores, with plans to expand > to about 15-20 stores in the next two years: These retailers > primarily have departmental store formats catering to a variety of > merchandise. A number of them have their own private labels for all > the merchandise sold in their stores. This large group of retailers > has spent a lot of time and effort in implementing packaged IT > solutions for PoS, demand forecasting, purchase orders and inventory > management. A proven solution in many countries, which has found > acceptance with many retailers in India, is Retail Pro, a good fit > for retailers with 1-50 stores. Higher-end solutions like JDA, SAP IS > Retail or Retek, targeted at larger retailers with more than 300 > stores, have also found acceptance in India, though the payback > period for such investments can be as high as five to eight years. > > The manufacturer-retailer: These retail showrooms are exclusively > owned by the manufacturer or are owned and managed by franchisees of > the manufacturer. Some of these retail outlets also have Retail Pro > for PoS as well as the back-office, while others have their software > developed from vendors for the same functionalities. In this segment > of retailing, it has been noticed that the manufacturer's own stores > and franchisee have different IT packages, which lead to data > integration problems and delayed receipt of information at the head > office of the manufacturer retailer. > > Small retailers with less than five stores: These could be specialty > apparel retailers, discount stores or departmental stores. They > usually have a vendor developed PoS system connected to an inventory > system, though some of them have started using more sophisticated > software packages. > > What will be the future IT trends for the retail segment and how can > retailers benefit from them? > > The last few months have not been very good for retailers around the > world. The Indian retail industry has grown just 5 per cent, compared > to a 10 to 15 per cent year-on-year growth in the previous years. > > In such a situation, is IT a priority area? In my opinion, it is. In > the next few months, Indian retailers will try to make do with their > current IT systems. New stores will be opened; different formats will > be experimented with, and the existing IT systems will be extended, > or additional licenses will be bought for IT applications. > > In the short term, the emphasis would be on using the existing IT > resources to generate more information. At this stage, retailers plan > to leverage gains from their IT investments. One way of ensuring this > is to have information about their customers and devise ways to get > repeat business from existing customers. In order to do this, the > retailer would need Customer Relationship Management (CRM) or On-Line > Analytical Processing (OLAP) software to run on top of its existing > database. > > Customer relationship management > > CRM could be used for, amongst other things, campaign management, to > understand the buying patterns of 'loyalty cardholders' and the > integration of multi-channel sales. There are a number of CRM > packages like Talisma, Siebel, Clarify, Retek CRM, Sales Logix, etc., > which could be used for this purpose. The only concern here is that > the database to be analysed by the CRM package only records purchases > identified through the customer loyalty cards of the retail chain, > which adds up to about 25 to 30 per cent of all sales. For the > retailer, the flip side to this is that he gets detailed information > of the buying patterns of his existing customers and he can plan > strategies to get those customers to come back to his store. > > Online Analytical Processing (OLAP) tools > > To analyse a wider spectrum of data, retailers could use OLAP tools > in order to segment the sales and carry out behaviour analysis. OLAP > tools that could be used are Arthur Planning, Oracle Analyser, > Adaytum, Cognos, Business Objects, etc. These OLAP tools are very > versatile and can analyse the sales data from the PoS and determine > the trend of sales for the categories and sub-categories of > merchandise sold from the various stores. This analysis would enable > the retailers to understand the type of merchandise sold, the > frequency of sale, the geographical spread of the sales, and also > provide 'what if' analysis for projected sales, price changes, etc. > Retailers can then increase sales by providing the correct > merchandise and devising promotion strategies. > > B2B software > > For manufacturer-retailers and other retailers who promote their own > private labels, the need in the current context would be to monitor > the complete manufacturing and supply chain. This can be done through > vendor management software, which utilises the Internet for accessing > the details. This B2B site would entail confirming the garment design > to the vendor by the retailer, monitoring the fabric purchases from > the fabric vendors, monitoring the stitching and delivery of the > apparel to the retailer's delivery centre (DC), and the invoicing and > payment to the vendors by the retailer. Accessing the Internet from > any location could do all this. The vendors would enter the relevant > data from their end. This would help reduce costs and ensure the > availability of merchandise at the stores. > > Collaborative planning and forecasting (CPFR) tools > > The use of collaborative planning and forecasting tools (CPFR) would > help control costs for the vendor and the retailer, as production > would take place after taking into account the planned merchandise > requirements of the retailer. This would be a Web-based system, and > can be built to suit the needs of the retailer and the vendor. > > Hence, the short term IT needs of the organised retailer would > revolve around his ability to service the customers in a better > manner by using CRM and OLAP tools, and to reduce costs by using > Web-based systems of vendor management and CPFR. > > In a longer timeframe of 2 to 3 years, what should the retailer do on > the IT front to retain his competitiveness? > > To meet the growing needs of the future, there is a need now to take > stock of the present IT infrastructure and look at the requirements > for the future. The requirement of the future would be to evolve IT > as a strategic enabler for the organisation. > > With reduced business due to the weak economic situation in the > country reducing sales and productivity, retailers need to look > closely at their internal systems and procedures. Non-value-adding > activities need to be weeded out and replaced by efficient systems > and procedures. This exercise would help retailers to define the > efficient functionality required for the future. Having defined the > functionality, retailers need to understand how information > technology would support the efficient implementation of the revised > systems and procedures in terms of computer systems, hardware, > software and networking. Retailers also need to understand how the IT > systems would be integrated and networked across the country's stores > and the head office of the retailer. > > With the projected growth of organised retailing in India, large to > mid-sized retailers need to upgrade their IT systems and take into > consideration the technology trends — some of which are currently > nascent, but which will evolve to become important assets for the > future. > > Retail ERP packages > > In the future there would be a need to evaluate if retail ERP > packages like JDA, SAP IS Retail and Retek are suitable for Indian > retailers. These products have an integrated solution for demand > forecasting, merchandising, replenishments, supply chain, etc. Most > of these packages have built-in CRM, OLAP tools, collaborative > planning and supply chain systems that are tightly integrated with > the merchandising and forecasting functionality. Though the flip side > is that these packages are costly, the return on investment takes > longer and expertise to implement the systems are gradually being > developed in India. Hence, it would be a good idea to evaluate these > packages, determine the cost-benefit analysis, and wherever possible, > source the software from one vendor organisation that would provide > all the functional requirements of the retailer from an information > technology perspective. > > The Indian experience in implementing Retail ERPs has been difficult > due to the lack of trained ERP package implementers in India. Hence, > the cost of implementation has gone up, as package experts have to be > brought in from abroad. But this is true for all ERP implementation > in India, whether in the retail sector or in the manufacturing > sector. In the past, manufacturing industries also faced difficulties > in implementing ERP packages specifically meant for the industry, but > over time, with expertise in the packages and in their implementation > building up within India, the success rates of such implementations > have increased. Hence, over the next two to three years, Retail ERP > expertise will grow and will be able to support the needs of Indian > retailers, who in that timeframe would have progressed up the > learning curve on the benefits of information technology. > > Business optimisation software > > a. Product pricing software > > One of the most critical challenges faced by retailers carrying > thousands of products / SKUs is 'pricing' — the ability to price > almost all the products suitably, all the time, so that sales of even > individual items yield a net profit. The advent of sophisticated > price optimisation / revenue management techniques offer significant > prospects for enhancing profitability. > > DemandTech and Khimetrics, two US-based software product vendors have > come up with products that help retailers to optimise the prices of > their products. These companies have been beta testing their software > product with some of the retailers in the US. The advent of pricing > decision support techniques for the retail industry has opened up > various possibilities for the retailers. Though it will take some > time for such products to come to India, retailers here need to > understand the features of the products and how these products can > help them in their pricing decisions. > > b. Merchandise optimisation software > > Retailers still have difficulty in ensuring that customer > requirements are fulfilled. There are a large number of occasions > when customers have found that the items are not available when they > visit the stores. Increasingly, from a retailer's perspective, there > are times when goods are sold at marked-down prices. Now a new set of > software applications has been developed which apply sophisticated > data processing techniques to existing inventory and sales data to > accurately determine future patterns of supply and demand at the item > and store level. These types of business optimisation software are > still at a nascent stage in terms of usage. But in the years to come > these software applications will be used by a large number of retail > organisations. > > Mobile computing > > The use of mobile computing for optimising inventory and supply chain > efficiencies have been enabling retailers to reduce costs. WAP > (Wireless Application Protocol)-enabled, handheld personal digital > assistants (PDA) and mobile phones are becoming increasingly > important for retail operations. With the use of mobile computing, > inventory positions of actual stock in hand at the stores can be > entered in the mobile handheld devices and transmitted to the > back-office computers for verification of stock. Similarly, supply > chain efficiencies can be increased by ordering items through > WAP-enabled PDAs, which will reduce the timeframe for the supply of > stocks. > > B2C > > The growth in B2C retailing has not taken off in India, primarily > because of the apprehension in the minds of the consumer about the > security of the payment systems and the efficiencies of the supply > chain. The consumer is concerned about the fact that the articles > ordered might not reach him due to inefficiencies in the logistics of > delivering the product to his home/office. Over time, these > inefficiencies will also be removed, and over the next two to three > years, retailers will have to cater increasingly to this channel. > They would need to start building the IT infrastructure to enable > such transactions over the Net. > > Retail exchanges > > Various retail exchanges have been set up in the US and in Europe. > One of them is the World Wide Retail Exchange, which enables > retailers to interact with vendors and with other retailers for B2B > transactions. Such exchanges help in reducing transaction costs. They > need to be set up in India too. > > Overall, in the long run, Indian retailers need to look at an > integrated IT support system to take care of their information > requirements. Indian retailers would have to plan their IT > requirements keeping in mind these future developments. They need to > start now so that they are prepared when business picks up in the > months ahead.

Retail India

Challenges for Indian Retailer