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IT consulting: Five opportunity areas in retail

Hindu Business Line, India - 8 Jul 2008

Bhavprita H
N. S. Hariharan

The Indian economy has been on a high growth trajectory the last few years. Indicators such as Gross Domestic Product (GDP) growth, per capita income levels, consumer awareness levels and the regulatory environment present a positive outlook for the nation’s development. GDP is growing at 8-9 per cent per annum and is expected to continue at this rate for the next five years as well. Per capita income increased 11.1 per cent in 2004-05 over the previous year and is p rojected to grow at a CAGR of 6 per cent over the next five years.

The retail segment, in particular, is going to be a lead growth segment. The current value of India’s retail sector is close to $325 billion. AT Kearney has ranked India the No: 1 retail destination in the world. The retail market is, nevertheless, highly fragmented, with organised retailing accounting for slightly over 3 per cent of the total market of close to $8 billion.

However, this market is poised to grow at a staggering 40 per cent CAGR, to touch $40 billion by 2010. While the top 10 cities (metros) present the maximum potential for growth (in value terms), the growth rate in smaller towns will outpace the bigger metros.

Clearly, the opportunity for organised retail is huge across segments and large business groups as well as foreign retailers are ramping up operations rapidly to cash in on this prospect. While the potential is huge, retailers need to address several market realities and adapt accordingly to succeed. Some of the key challenges faced by retailers are listed below.

FIVE KEY AREAS

Retailers in India today are trying hard to set up operations. They are more concerned about streamlining processes and, hence, not really focussing enough on implementing IT. However, they do believe that to scale up operations efficiently and quickly, IT is critical.

The current level of IT and operational processes presents a significant opportunity for IT consulting firms to proactively address the needs of retailers. The firms can capitalise on and leverage their expertise to offer services in five key operational areas. These areas are the basic building blocks for retailers, and overcoming obstacles in these processes is mandatory for retailers to be successful.

Manpower training: A major hurdle faced by Indian retailers is in acquiring and retaining skilled manpower with a good knowledge of retail operations. The industry is currently facing tremendous shortage of frontline sales staff to manage consumers. In addition, the industry is also witnessing a rapid turnover of people with increasing level of competition in the organised retail sector. Lack of good retail management programmes and institutes in the country has worsened this problem.

To overcome these issues, retailers need to gear up with good people management programs. One way this can be done is through certification programmes. IT consulting companies can co-ordinate with specific industry bodies to create certification programmes for retail personnel.

Such programmes can enable employees of retailers to upgrade their basic skills in retail operations. They could also educate retailers about some of the best IT solutions available for different retail functions. The certification can be run both as in-house and as online programmes.

Real Estate Management: High cost of real estate and inability to get the right space at the right location are resulting in cut-throat competition across retailers to occupy prime locations. In addition to these external challenges, retailers also are facing internal issues of not being able to open stores in time and within budgets, despite obtaining the physical space for the stores.

Retailers are, therefore, looking for some help in providing a system or process to streamline operations so that they are able to open stores within the stipulated time and cost. This clearly presents a good opportunity for property management solutions wherein technology can be leveraged to provide project management capabilities to monitor the progress of store launches. Timely launch of retail outlets can provide a good headstart for retailers and save significant funds as well.

Supply chain visibility: One of the big issues faced by Indian retailers is having good visibility on demand (how much they can sell), inventory (how much they have) and supply (how much to order). Indian retailers face high out-of-stock situations (20-25 per cent) compared to less than 5 per cent for US retailers.

Retailers are actively looking for solutions in developing good forecasting and replenishment processes. In addition, most Indian retailers lack good supplier management processes. Most of the sourcing is tactical and there are no long-term relationships with vendors.

IT firms can help retailers set up basic forecasting, replenishment and supplier management solutions to improve supply chain visibility.

Store operations: Even after setting up stores, retailers face issues in running stores efficiently. There are currently no streamlined and defined processes for allocation of products/categories, inventory management (both on shelf and in back room), workforce management and store infrastructure management.

IT consulting firms can focus on areas such as store inventory management, people management and infrastructure management. Efficient store management will help retailers improve service levels and reduce costs.

Logistics management: Poor infrastructure (roads, communication and power) makes logistics and transportation in India extremely difficult. Further, internal operations of retailers, such as warehouse processes and distribution, are usually fairly ad hoc and inefficient.

Shrinkage due to mishandling, theft and other factors is also a big issue facing retailers. The lack of good integrated 3PL operators in India makes warehousing and transportation a big challenge for retailers.

IT consulting companies can provide services in both defining the logistics processes for retailers and also providing services to automate several manual processes. Since the 3PL market is still evolving, consulting companies can co-ordinate with existing players and develop joint ‘go-to-market’ solutions. IT companies can look at providing technology back-end support while the 3PL companies can provide physical infrastructure such as warehouse space and a transportation fleet.

Any developing industry is fraught with challenges. And this is a boon for consulting firms. The organised retail sector is one such evolving market. Retailers in India are currently looking for help in setting up and running stores efficiently and quickly.

This presents a good opportunity for IT consulting firms to proactively step in and offer process and technology solutions. The time is just right and, clearly, the first entrants will reap significant benefits.