Retail, one of the booming sectors in India, suffered a major setback when the economy stumbled and affected the sector. An increase in real estate prices and unrealistic expansion plans made matters worse. The slowdown in retail IT spending in 2009 could be attributed to the fact that many retailers shelved their expansion plans, and large-ticket IT investments were kept on hold.
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"We believe the retail sector is poised for greater stability in 2010 due to a considerable improvement in the overall economic situation and consumer sentiment," says Nilotpal Chakravarti, the senior analyst for vertical industries at Springboard Research.
Technology will play a pivotal role in the growth of the Indian retail sector. Retailers have now realized the importance of IT for their business operations, especially during an economic slowdown, and are in the process of streamlining their operations with IT adoption. "The retail industry is at a nascent stage. People are trying and testing new initiatives. Retail players first need to freeze the processes within their organizations, and only then can the CIOs work toward deploying retail IT to support them," says Indranil Guha, the head of IT integration for Spencer's Retail. "Most players are struggling in terms of justifying the huge retail IT spending they had made a few years back. Retail IT, unless it translates into business, will not see any major push."
Retail IT spending trends
Despite the apprehensive market sentiments, many retail companies are already noticing positive signs. "January onward, we have seen the number of customers increase by about 30%. CIOs in 2010 are going to take up a lot more retail IT projects as compared to 2009, projects which they had postponed last year," remarks Ranjit Satyanath, the general manager of technology and e-commerce for Shoppers' Stop.
The need to upgrade existing infrastructure and implement more robust IT solutions to streamline operations will also drive retail IT spending this year. Retailers will not curtail IT spending on long-term projects. Instead, as expected, retailers will be cautious with short-term IT spending and new investments. For instance, the Future Group indicated that it is reviewing its small-budget projects and financial allocations, but is holding steady for long-term infrastructure projects.
Customer is king
In 2010, the focus on customer retention and loyalty will drive significant investments in retail IT. CIOs are churning out innovative ideas to enhance the customer's shopping experience. Companies have realized that you can tide over difficult periods only if you engage more with the customer.
From a customer experience point of view, the focus is around how fast a customer can do the billing and walk out of the store. CIOs are experimenting with solutions involving the point of sale, such as printing coupons. Using their customer data collated over the years, CIOs are trying to understand the preferences of customers. This way, offers are made to customers depending on their buying patterns, offers which make sense to them.
Marked-down optimization applications will see more demand. "When a new product range is introduced, if it faces less customer demand, retailers tend to mark it down and give discounts on it. Marked-down applications is a set of retail IT tools that look at various parameters and recommend the optimum price to mark it," explains Satyanath.
At Spencer's, the IT team is running a pilot project wherein customers will use a Web interface to make their complaints and give their suggestions about their shopping experience at the company's stores. "Mobile point of sale (POS) is a key innovation that helps enhance the customer's experience. Many CIOs are working toward this initiative," adds Vinay Hinge, the VP of IT for Avenues Supermarts (D-mart).
Trends in retail IT
IT adoption in the Indian retail industry is maturing. With competition intensifying and consumer demand growing, companies will invest in a range of retail IT technologies to provide consumers with the latest in customer service, store experience and more.
• Springboard Research expects business analytics and business intelligence (BI) tools to gain traction in the retail IT space. BI tools will help address the business nuances, processes and opportunities in retail. In addition to enterprise BI solutions, retailers will also focus on analytic solutions for specific areas such as customer loyalty and store productivity.
• Service Oriented Architecture (SOA) is still nascent in the retail IT space. "However, we expect retailers to deploy SOA, since the key to success in retail today is the ability to share and update information throughout the enterprise. SOA will enable retail organizations to align people, processes and data via consolidated applications and shared information services, even if the organizations use different systems from mainframes to cash registers to customer kiosks to online stores," comments Chakravarti.
• Increased adoption of RFID is likely in the future. At present, the heavy investments associated with RFID are hampering the full-scale adoption of this technology among retailers in India.
• Open source will be a big opportunity in retail IT. It will start off in non-critical areas such as call logging software and ticketing software. "Investment will happen in the desktop operating system space," predicts Hinge. Spencer's is developing a vendor portal on the Linux platform, which will give suppliers insights on the stock position across different stores.
• CIOs are experimenting with opportunities coming from social networking trends. The major push is coming from business stakeholders. "A lot of companies, including us, are using platforms such as Facebook and Twitter to communicate and engage with our customers," says Satyanath.
As the retail industry has already burnt its fingers, CIOs in the industry will face the challenge of keeping IT costs in check. "Helping businesses in their endeavor to make customers spend more will be a challenge for CIOs. BI solutions will definitely help in meeting this business demand," says Hinge.
The availability of skilled manpower remains an issue for retail CIOs, and the attrition rate is likely to rise if the market opens up. "We are seeing attrition increasing slightly; however, it is not an alarming situation. Due to this trend, we could see a lot of non-core activities getting outsourced. Spending on outsourcing is definitely going to increase this year," says Satyanath. "Last year, we got better rates from the vendor, this year we might not see the trend continuing. This may again lead to more outsourcing contracts."
Ensuring the availability of merchandise will be a challenge because most of the retail players are on the verge of opening more stores in 2010. This will put pressure on the supply chain. Despite these challenges, Satyanath believes there's a lot of scope for expansion in the organized retail space. However, this time the growth in the retail industry will be a lot more cautious—and not reckless like it was in early 2008 (and before that).