Technology Driving Disruption in Retail

The Indian retail industry, the fifth largest in the world, accounts for over 10% of the country’s GDP and around 8% of the employment. A report by BCG says that the overall Indian retail sector is projected to double in 2020 to $1 tn from $600 bn in 2015. As the overall retail market is growing, there has been tremendous growth in the IT spending too. Though the worldwide retail sector IT spending market is projected to grow at a CAGR of 4.1% over the period of 2013-18, the Indian retail IT spending is projected to grow at a CAGR of 12.8% over the period of 2010-2015. Looking at the trends, 2015 is likely to be a year of unprecedented IT growth for the retail and CPG industry in India. The rising need for consumer goods in different sectors and the government’s decision to allow FDI has
given a major push to the investments in the industry. Additionally, digital customers of today want to take more and more control of their shopping experiences. Considering this, the retailers are working with a dual mandate to drive not just efficiencies but also greater innovation for the needs of tomorrow. They are moving from incremental levels of performance efficiency to building new digital business capabilities.

TRENDS SHAPING THE BUSINESS
Experts believe that the retail and CPG industry is in the midst of a ‘once-in-a-decade’ shift in the technology landscape, driven by digital technologies that are putting industries and businesses at a crossroads. The business is evolving from the ‘brick and mortar’ model to adopt technology for connecting with customers and achieving a complete seamless customer experience.
Agrees Samik Roy, Country Head, Microsoft Dynamics Business, “The focus of retailers has expanded well beyond the walls of the physical store, and now includes everything from the retailer’s website and call center to marketplaces and social networks.” In this digital era, omni-channel experience is a key expectation of consumers. Hence, building an omni-channel strategy is not an option for retailers but a necessity. In addition, in the fiercely competitive space, retailers need to provide personalized experience to customers to stay ahead of their competitors. These are the key factors driving technology investment in the sector. Prakash Balasubramanian, VP, Retail Consulting, Cognizant,
adds, “With innovation cycles getting compressed dramatically, retailers are looking to reinvent and reimagine their businesses and build the skills and capabilities required to make digital come alive.” He further adds that today retailers are much more focused on mobility, engagement with social media, along with ongoing investments in eCommerce initiatives that will drive IT investments further.

Key technologies gaining traction in the retail sector include:
#1 Omni-channel Platform: With retailers focusing on delivering multi-channel experience, omni-channel platforms are seeing an uptake in the industry. These platforms
give retailers the basic information about shoppers. It helps them measure shoppers’ behavior, provide relevant and local retail information, and create an organizational
structure than supports an omni-channel strategy. Leading retailers are rapidly making a shift to omnichannel platforms. For example, sports retailer Adidas has recently launched a fully integrated omni-channel platform while another giant Shoppers Stop is investing
in warehouse management and master data management to enable multi-channel commerce.
#2 Digital: As digital continues to touch every customer’s journey, a lot of IT spend is visible in digital marketing among retailers which seamlessly want to move from offline to online and tap customers with mobile apps, location-based services, and so on. In an interview, Shoppers Stop’s Managing Director Govind Shrikhande said, “We are targeting net 15% revenue through digital touch-points by 2020 and plan to invest `60 crore over the next three years.” He further added that the company will be investing in warehouse
management systems to strengthen its omni-channel operations. The company has recently announced plans to go digital, changing its strategy for the third time in
five years.
#3 Big Data/Analytics: Use of analytics has come out as one of the most powerful tools for retailers and is being used for a variety of purposes. A survey by The Economist Intelligence Unit finds that 78% of the respondents surveyed have seen a positive economic return from investments in data analysis however, only 46% are confident
that their firm’s analytical abilities are keeping up with data volumes.

Many retailers in India too are adopting analytics but the pace of adoption is quite slow as of now. A case in point for big data implementation is Trent, the retail arm of the Tata Group. With big data analytics, the company is able to understand its customers better. It is
also thinking of building an in-house analytics team.
#4 Mobility: In terms of technology trends, mobile adoption leads the pack. The mobile apps launched by all the big retailers are giving a tough competition to the mobile websites. Apart from leveraging mobile for targeting customers, retailers are using it to improve payment processes by making them more agile with mobile PoS, mobile wallet, mobile money to money transfers etc.
#5 Customer Relationship Management (CRM) Solutions: Another key technology trend is the use of CRM solutions to drive personalized and targeted marketing campaigns. Personalized, in-store marketing via mobile vouchers is also finding takers in the Indian retail market.

BUSINESS CHALLENGES
The explosion of technologies and the possible applications have brought huge transformations in the retail and CPG sector. Right from aggregating and analyzing
customer data to enhancing differentiation to increasing company’s ability to respond to a rapidly changing marketplace, retailers are clearly seeing technology’s role as one of an enabler, speeding up of processes, and delivering cost savings. Technology has revolutionized the way businesses operate and the customers’ expectations from retailers. But there are several technology challenges, specifically IT management, which the industry is facing:

Customer Data: Retailers have an overload of data but are unable to convert it into useful information in such a customer-centric industry. In a survey by Oracle, 93% retailers
said that they believe their organization is losing revenue opportunities, as much as 10% of revenue per year, by not being able to leverage the information they get. Transparency & Tracking: Retailers need transparency between systems and better tracking to integrate
systems from manufacturer through to consumer in order to obtain customer and sales information.
Security: Another biggest challenge for retailers is the security of the data they have. A research report indicates that 24% of ex-employees can still access corporate data
while another report says that more than 40% of consumers say they are ‘not at all’ or ‘not very’ comfortable with m-payments.

A MIX BAG OF SOFTWARE
In retail and CPG environment, organizations are using a mix of both custom-built and commercial off-the-shelf package solutions. In the mature areas such as supply
chain planning and warehouse management, retailers are increasingly gravitating towards the best-of-breed packages such as JDA or Manhattan. On the other hand, the traditional enterprise packages such as SAP and Oracle are also gaining ground when it comes to retail planning. Another functional area that has come to the forefront due to the new omni-channel imperative is order management. Packages such as Sterling Commerce and Manhattan hold the sway in this area.
Rajat Shikhar, Practice Leader of ThoughtWorks adds, “Hybris, Sterling, and SAP form the backbone for large offline retailers to go online and towards omni-channel.” Overall, the retailers are investing in a single end-to-end platform solution which will enable consumer interactions across multiple channels, internal employees, and also connecting the suppliers.

WHAT LIES AHEAD
Retailers are experimenting with technologies to explore how these can help provide superior shopping experiences. Till now, retailers have been using social media and
mobile to enrich shopping experiences but in 2015 companies are expected to go beyond that and use social not just to showcase products but also to sell them. The technologies that are likely to shape the retail industry in the future are:
#1 Internet of Things: Experts believe that the adoption of IoT in retail will shake up the industry. And retailers will leverage IoT to provide sales expert advice and offer
personalized shopping experience.
For instance, fashion retailer Zara is in the process of transforming in-store merchandise with a hi-tech microprocessor-based tagging system which will not only speed up its supply chain, but also improve customer service and enhance security.
#2 3D Printing: 3D printing will be a huge part of the retail industry’s future. Gartner in its prediction said that the mainstream adoption of 3D will take another 5-10 years’ time to get entangled with everyone’s life. But many retailers have already started exploring the potential of the technology. For instance, Amazon has launched an online store for 3D printed items which will enable customers to personalize products. The technology has the potential to revolutionize retailers’ supply chain, with products created on-site only after being paid for it.
#3 Location-Based Services: Location-based services will be a core part of the retail strategies in the time to come. Services like geo-fencing and beacons can prove game changing for retailers as they will be able to target users in a physical place. Today’s retail and CPG landscape offers unprecedented opportunities alongside some daunting challenges. And in the years to come, the retail players will be looking at technology-enabled intelligent systems to deliver shopping experiences that are personal to each shopper, seamless across every point of interaction, and differentiated in a way that increases brand value.