A look at the Retail industry

Overview of the industry

The retail industry is one of the largest industries in the world both in terms of the number of people it employs as well as the number of establishments. The industry is more evolved in the US and Europe , and consequently, most major retailers are based out of the US or Europe . 

Global players  

The top 5 global retailers, based on size, 

1. Wal-Mart ( USA )  

2. Carrefour ( France )

3. Royal Ahold (The Netherlands )

4. The Kroger Co. ( USA )

5. The Home Depot ( USA )

The retail industry has undergone a dramatic change over the last few decades. What started out as a regular “mom and pop” type store, morphed to huge departmental chains and specialty stores. Now, with a mouse click, you can get the same items delivered at your door step. Welcome to the e-Retail industry.

The retail industry is also emulating other industries with respect to shakeouts and consolidations. This is happening both in the US and Europe markets. Retailers are also in a globalization binge by expanding into North America and Europe , as well as into emerging markets like China and India . Another trend that has a big impact is the concept of global sourcing where retailers are turning to developing countries to supply goods. Some of the developing nations stand to benefit from this trend and the retailers are also able to procure goods at a cheaper cost. Lean retailing is another concept where inventories are kept to a minimum leading to the need for accurate demand forecasting as well as quick supply. Time has become a precious commodity today and to avoid wasting time in long queues at the checkout counter, retailers are providing self-check out counters for consumers.

Operationally, the retail industry is characterized by low margins, as low as 1% in some cases.  Moreover, the industry has been through a rough stretch thanks to the depressed state of the global economy and is just starting to get out of the woods. In addition to this, there are seasonal swings which can be in the form of the holiday season, back to school season and so on.  So, any initiative that can reduce costs and increases operational efficiency will be welcomed with open arms by this industry

Technology Trends

Given that there are numerous changes being witnessed in terms of the industry, it is not surprising that application of technology to the industry is becoming increasingly sophisticated. Cash registers and point of sale counters were considered a huge technological leap a few decades ago.  But today, there are many  interesting technologies  are finding application in retailing.

Recently, Wal-Mart, well known for its early adoption of IT, unlike the industry general, has directed its top 100 suppliers to equip their shipments with radio-frequency-identification tags by 2005. These chips can automatically transmit information about the contents of the shipment allowing Wal-Mart to reduce supply chain costs. RFID tags can also help simplify the checkout process if every item in the store has a RFID tag attached to it.

Wireless networks and applications will also become important for usage inside the stores by the retailer’s staff. This, along with voice over IP and voice recognition applications, will make communication and tracking far simpler than it is today

Smart Cards can contain a haven of information for the retailer about a consumer’s buying and spending patterns. Retailers can then make customized pitches to individual customers thereby raising the customer service levels.

Where will the retail business and IT meet?

Retailers, unlike the BFSI companies, are not early adopters of IT. Yet they have managed to harness IT as a strategic lever to offer better shopping experience, streamline operations and cut costs. All the leading retailers view IT investments as a value enhancer for the business enterprise and a key differentiator of service levels.

The chief software requirements of a retail enterprise can be broadly classified into the following categories

• Merchandise planning and management software
• Vendor management software
• Logistics & warehousing software
• CRM software
• Financial and administration software

Some of the typical requirements of retailers have been depicted pictorially.

Looking at it from the IT service providers’ side, there are many companies that can offer IT services in the retail space. Almost all of the IT majors, both global and local have a retail practice. Companies like JDA Software are focused on the retail industry. There are other companies that provide point solutions like e-commerce, billing systems, e-marketplaces and so on. Besides this, there are smaller players in the Indian context that are carving a niche for themselves in the retail space like Netkraft, Mphasis, Polaris Retail Infotech, and Retail Integrated Technologies.

And what does it mean for Indian software vendors?

In conclusion, Indian software providers with focus on the retail industry will have a multitude of opportunities. The current focus of this industry is on automation of processes as opposed to optimization of processes. Moving all or some of the existing applications to an Internet based platform, implementing e-commerce applications, and business intelligence tools will be opportunities for IT service providers to exploit.

The critical success factors in this industry will be a very good understanding of the retail business, an intuitive grasp of what the user needs and finally, offering tailor-made solutions. It is very important to offer innovative solutions which can enhance customer shopping experience through demand side innovations. This requires close association with leading retailers or associations with consultants in the retail space.

The takeaway here is that Indian software providers have to quickly assume the mantle of knowledgeable experts in the retail industry and should offer value-based services proactively.