Impact of Information technology on Retail operations

1. IMPACT OF TECHNOLOGY ON RETAIL STORE
OPERATIONS

2. Introduction:
Retailing is a “technology-intensive industry. It is a well-known fact that the
retail industry always works on razor thin margins and the key to survival lies in
optimization of resources both in space and time dimensions as well as
maximization of customer satisfaction. Successful retailers today work closely
with their vendors to predict consumer demand, shorten lead times, reduce
inventory holding and ultimately save cost. Access to timely and even real-time
information to a wide variety of channel and trading partners, sales personnel,
line managers, store managers etc. is the key to achieving this. Over the years
as the consumer demand increased and the retailers geared up to meet this
increase, technology evolved rapidly to support this growth. It is technology
that will help the retailers to score in such fierce competition. There are
hardware and software tools that have now become almost essential for
retailing. Consumers have come to expect more value and higher service
levels. As a consequence, the technology continues to grow and retailers
search for ways to measure technical business value and to balance the
effective utilization of the technical resource. Retailers want to get more value
out of technologies and ensure they are spending their limited resources in
ways that improve their overall offer to the customer. Technology has proven
to be a competitive weapon in retail, which is a dramatic shift from a decade
ago. In response, retailers generally need to become more disciplined in
managing the IT function. Completing and delivering IT projects on time and on
budget is overwhelming enough without the project team considering their
project’s interdependencies with other business initiatives and corporate
goals.
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3. Synopsis:
Technology has transformed the buying behaviour of customers everywhere.
Technology in the store is all moving toward integration and more and more
savvy customers. POS is undergoing major changes because of broadband
access, the need and ability for inventory visibility, customers ordering online,
returns and pick-up in the store and also the movement toward an ASP
(application service provider) model. “Better broadband access is incredibly
important and is one of the true disruptive technologies” as said by Greg Buzek
president of IHL consulting. It is broadband that will help to transfer the
information fast and help retailers to serve their customers on time.
Technology offer retailers the potential to know exactly how many customers
are in their stores by department and time of day. The Footfall division of
Experience was at NRF making the case for accurately counting customers to
produce valuable data that influences operational decisions, such as labour
scheduling. Findings proved that a mere 20% of shoppers are actually
advocates of retailers, K. Jotwani. Director, marketing and strategy. Retail
Store Solutions, IBM Systems and Technology Group, which leaves 80% of
shoppers who do not advocate, let alone give their loyalty, to any specific
retailers, which shows that there is a room for improvement to give better
customer service with the help of technology. As today’s world problem of
global warming, technological companies have understood the importance of
“Going Green” and are taking green initiatives by producing environmentally
Earth-friendly products and processes to reduce the burden on the
environment. IBM unveiled its Green Retail Store, a portfolio of technologies
and services designed to improve energy and operational efficiency across a
retailer's IT operation. Retailers are finding ways to get communicate with
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4. customer and new ways of marketing and technology has made it easier for
them such as Downtown Locker Room (DTLR) expects to increase store traffic
and sales by targeting shoppers with text message based promotions. Store-
level customer service can be an Achilles’ heel for many chains, and this has
been made easy by technology in near future there would be media carts
which would provide customers a cutting edge shopping experience media
carts would provide a screen on the trolley to improve communication with
the customer during the in-store shopping trip. There are easy SHOP system by
Stop & Shop, Quincy, Mass., which has self-check out solution for customer
with the help of Motorola MCI7 mobile computer, runs software from Boston
based Modiv Media that supports self-scanning, instant price checks and self-
checkout. It is a unit which sits on a shopping cart, also delivers targeted
promotions based on users shopping behaviour, redemption history, in-store
location tracking and previously scanned merchandise which would help to
keep customers track and help customer’s to escape standing in the long cue’s
for paying the bills for hours. Being a “technology-intensive industry, it needs
workers who are technologically savvy. There are technical high schools where
students would be taught basics of retail sales in which they will study loss
prevention software, point-of-sale systems and other technical aspects of
retail, along with traditional topics such as wholesale buying, customer service
and marketing.
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5. Objective:
This paper discusses the different technologies that are implemented in retail
stores, and how retail players are applying these technologies to reduce the
operational and technological gap in order to compete in this globally
competing environment.
Hypothesis:
Information technology in store operations will provide a competitive
advantage and improve sales.
Keywords:
Retail Technology, Store operations, Information technology in store.
Expected Results:
Implementation of Information Technology will improve customer retention
and it will also increase footfalls and customer conversion rate.
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6. Literature Review:
The increasing need to use technology to manage complexities in customer care,
profitability, and operational challenges has precipitated competition among
retail technology vendors. Retailers are remedying this situation by partnering
with solution vendors that have leveraged newer radio frequency identification
(RFID), smart card, and Wi-Fi technologies. This partnership is also helping them
to prepare legacy systems for convergence. Retailers are undergoing accelerated
technological innovation in achieving profitable differentiation.” Retailers that
wish to stand out in the crowd are showing great interest in hand-held terminals
that have evolved from its proven supply chain form factor to the real-time
enabled mobile points-of-sale (MPOS), consumer, associate, and manager
productivity form factors.
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7. Technologies that can enable data capture and access for improved decision
making will remain growth drivers in developed and developing economies. POS
replenishment in developed economies is driven by next-generation, forward and
backward integration-capable POS systems, however, self-checkout is likely to
form a part of the POS replenishment budget. In developing economies, POS
systems continue to offer growth opportunities.
The hardware and software tools that have now become almost essential for
Store operations are as follows:
Bar coding and scanners
Point of sale systems use scanners and bar coding to identify an item, use pre-
stored data to calculate the cost and generate the total bill for a client. Tunnel
scanning is a new concept where the consumer pushers the full shopping cart
through an electronic gate to the point of scale. In a matter of seconds, the
items in the cart are hit with laser beams and scanned. All that the consumers
have to do is to pay for the goods.
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8. Payment
Payment through credit cards (plastic money) has become quite widespread
and this enables a fast and easy payment process. Electronic cheque
conversion, a recent development in this area, processes a cheque
electronically by transmitting transaction information to the retailer and
consumer’s bank. Rather than manually processing a cheque, the retailer voids
it and hands it back to the consumer along with the receipt, keying digitally
captured and stored the image of the cheque, which makes the process very
fast.
ERP System
Various ERP vendors have developed retail-specific systems which help in
integrating all the functions from warehousing to distribution, front and back
office store systems and merchandising. An integrated supply chain helps the
retailer in maintaining his stocks, getting his supplies on time, preventing stock
outs and thus reducing his costs, while servicing the customer better.
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9. CRM systems
The rise of loyalty programs, mail order and Internet has provided retailers
with real access to consumer data. Data warehousing & mining technologies
offers retailers the tools they need to make sense of their consumer data and
apply into business. This, along with the various available CRM systems, allows
the retailers to study the purchase behaviour of consumers in detail and grow
the value of individual consumers to their business.
Wi-Fi
As Wi-Fi technology has matured, retailers have begun to see it as a robust,
inexpensive option for in-store connectivity. The concurrent development of
handhelds has dramatically broadened retailers' options for application
delivery. With Wi-Fi enabled handheld devices, applications such as POS,
inventory audit, item lookup, pricing and labour scheduling can be used
anywhere on the sales floor. Wi-Fi is quickly becoming a standard for retail.
Chain Store Age's survey found that 19.5% of retailers polled last summer
planned to spend capital-investment funds on Wi-Fi networks.
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10. RFID (Radio Frequency Identification)
There are many uses of RFID. Some of them used in-store are as follows:
RFID helps improve inventory management: Inventory control is often a
costly, time-consuming process for retailers. By offering real- time inventory
visibility, RFID enables inventory managers to monitor and control inventory
supply at all times. By automating the inventory tracking process, stores can
keep costs down by maintaining optimum inventory levels—avoiding stock-
outs and eliminating unnecessary orders. Tracking capabilities also make it
easier to predict product demand. Store managers can monitor quick-selling
items with increased accuracy, ensuring that their inventory supply is stocked
accordingly.
Improving Customer Service: Satisfied customers mean better business for
retailers. By using RFID, your staff can identify the exact location of any retail
item at any time. Customer requests can be handled quickly and easily by your
customer service team through access to a centralized database. RFID-tagged
items offer store-to-store visibility, so items can be located immediately with
the touch of a button. This level of product accessibility results in shorter wait
times for customers and offers a better shopping experience. Improving overall
store efficiencies ultimately results in greater savings to customers.
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11. Boosting customer loyalty : RFID can be the personal shopper of the future. By
using RFID technology, retailers can collect information about their customers'
purchasing trends and offer rewards targeted to those interests. RFID can
enable your marketing and customer service teams to identify customers, call
up account histories, and provide value-added services to help create a
personalized shopping experience. For example, one clothing retailer in New
York is using RFID smart labels to store information about each item in the
store, such as fabric content, available sizes and colors, and suggested
complementary items or accessories. RFID readers in the fitting rooms are
connected to computer monitors so customers can view all the information
and make decisions—without ever having to leave the fitting room. And,
because privacy is a primary concern, advanced security technology enables
your IT staff to better protect all information. Participation is optional for each
customer.
Technology has always made advancements. The difference today is the speed
of introduction of newer replacement technologies. Thirty years ago, a retailer
would hold onto business technologies for 10 to 15 years. Twenty years ago it
was reduced to eight to 12 years. Ten years ago it was again reduced to six to
nine years, and today, retailers replace their technology in only five to seven
years. As a result, retailers are capitalizing their technologies faster than ever
before (on average, within three years).
Because technologies are moving so rapidly, some retailers hesitate and lose
their competitive edge. They are afraid newer technologies will come along to
make their investment obsolete. Obsolescence is reached when it costs more
to keep a technology than it saves in time, energy and money. Increasingly, the
successful use of technology is seen as necessary for their own survival in the
longer term.
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12. The payback for advancements in retail technologies can most often be
quickly realized. Therefore, one school of thought is that a retailer should
replace their technologies faster because each new technology has a quicker
payback. That is a good business strategy because the purpose of the
technology, when it is implemented and managed correctly, is to continue to
drive costs down and move productivity up.
Several recent studies within the retail sector have indicated just how
important technologies are today for the retail community. Consider the
following survey results:
Nearly 40% of the retailers surveyed claimed they expect to invest in new retail
technologies in order to stay ahead of projected growth. Over 60% claimed
their budgets for retail technologies, as a percent of sales, have increased.
It is apparent that retailers are now investing more than ever in technology.
They are demanding technologies to help them adapt to the ever-changing
needs of their marketplace. They are using every kind of technology available
to reduce their cost of doing business, and to make them the low cost
provider. And finally, they are requiring a vast array of applications that will
help them to take a proactive approach to their relationship with retail
consumers.
Retailers want to get more value out of IT and ensure they are spending their
limited resources in ways that improve their overall offer to the customer.
Technology has proven to be a competitive weapon in retail, which is a
dramatic shift from a decade ago. In response, retailers generally need to
become more disciplined in managing the IT function. With the increase in
globalization of retailers both in terms of their points-of-sale, as well as their
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13. points-of-supply, the Information Technology (IT) spend in the retail sector has
increased considerably and plays an increasingly important role in managing
the complexity of retail operations.
While retailers take their time embracing technology, the following will serve
as a reality check.
CELL PHONES Using mobile phones to alert shoppers about complementary
items, sales and as a vehicle for coupons is a very attractive option for
retailers. Partially, that's because it's a lot cheaper than, say, a smart shopping
cart. Most shoppers already have cell phones, so that limits the back-end
investment. Third party companies are also rushing in with solutions.
SMART SHOPPING CARTS: Smart shopping carts have been around in one form
or another for about 20 years. The original idea was to include a bar code
scanner on the carts so shoppers could circumvent the checkout line. Then the
focus shifted to marketing. Smart shopping carts sporting book-sized
computers that appeared in two Safeway stores in California in 2002 required
a customer to swipe his or her Safeway card at which point the cart's brain
would access the customer's shopping history. The cart would then display
four grocery items at sales prices available to them exclusively. It also offered a
guide to the customer's most frequently purchased items and, as the on-board
computer tracked the cart's movement down the aisles, radio frequency ID
(RFID) chips would prompt the processor to notify the customer of sale items
and appropriate promotions.
PLASMA SCREEN TVs: Since the '70s, select supermarkets have been using in-
store TV programming (usually cooking demonstrations) to move product, but
in the past five years or so, in-store TV networks have popped up at Wal-Mart,
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14. Target and Borders, among other places. It's easy to see the appeal: A captive
audience in buying mode. And new technologies add another element.
BI-DIRECTIONAL INFRARED SENSORS: In 2008, many analysts agree, there will
likely be some sort of industry standard metric for in-store media. That's
thanks to the efforts of Nielsen Co., in conjunction with The In-Store Marketing
Institute and P.R.I.S.M., a consortium of retailers, marketers and media
agencies, measured store traffic in 160 stores this year with bi-directional
Infrared sensors, which sit on store shelves. The technology, which has been
around since the '70s, measures raw numbers and is supplemented by old
fashioned head counts. So far, it's the best approach. GPS devices on shopping
carts didn't work because consumers tended to abandon their carts during
trips Thermal imaging couldn't distinguish between babies and turkeys in test.
ELECTRONIC SHELF LABELING: Despite the inventory-clearing advantages of a
store sale, a retailer still takes in on the chin when it comes to the bottom line.
In addition to losing out on potential revenue, hours of employees' time are
taken up painstakingly changing prices on shelves (prices that usually have to
get changed back a few days later). But what if that store manager could
change all the prices in store at once by simply typing in a keyboard command?
That's the major appeal of electronic shelf labelling. Of course, the
convenience comes at a price, too, namely about $4 per LCD label, which can
add up if you're a supermarket that stocks 17,000 or so items.
IT in Retail Store Operations is inherently complex due to four factors:
a) IT cost and performance under pressure owing to the high growth in annual
IT spend in the retail sector (~13%) while revenues have grown much slower
(~2%).
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15. b) Lack of standards in a complex, highly customized IT environment leading
to integration challenges, making changes and new functionality development
cumbersome and expensive.
c) High maintenance costs stemming from the high degree of customization
and fragmentation of point solutions, many of which span different technology
platforms.
d) Poor data integrity, the result of systems fragmentation, point solutions,
high degree of customization and lack of an underlying best practice
architecture, because there is no good practice standard, out-of-the-box
solution that spans the full retail space. IT systems are at the heart of retail
operations and hence play a central role in alleviating pressure points in the
retail sector. The converse also holds true— retailers who do not manage their
IT landscape effectively will find that, in time, the IT systems become part of
the problem rather than components of the solution. This is particularly true
for IT systems that can significantly influence COGS in the retail sector; for
example advanced planning and scheduling systems, inventory management
systems and merchandizing systems. Additional systems that share a crucial
role in retail operations are the promotional and seasonality management
systems that, when leveraged effectively, can increase the top-line revenues
for the retailer. IT has gone from a strategic advantage to a strategic necessity
for retail Operations.
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16. Findings:
Cause:
• Communication with customer’s through media cart and new ways of
marketing and technology such as Text messages.
• Use of RFID, Smart card, self check out, WI-FI technology, Tunnel scanning,
Cell-phones, electronic shelf labeling, bi-directional infrared sensors and
Plasma screens Tv’s.
Effects:
• Increase in sales by targeting shoppers with text message based promotions.
•Delivering targeted promotions based on users shopping behaviour,
redemption history, in-store location tracking and previously scanned
merchandise which would help to keep customers track and help customer’s to
escape standing in the long cue’s for paying the bills for hours.
• Access for Improved decision making.
• RFID helps in Inventory management, improve customer service, customer
loyalty.
• Using mobile phones to alert shoppers about complementary items, sales
and as a vehicle for coupons is a very attractive option for retailers.
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17. Recommendation:
It is apparent that retailers are now investing more than ever in technology.
They are demanding technologies to help them adapt to the ever-changing
needs of their marketplace. They are using every kind of technology available
to reduce their cost of doing business, and to make them the low cost
provider. And finally, they are requiring a vast array of applications that will
help them to take a proactive approach to their relationship with retail
consumers. Since retail technologies are readily available in today's
marketplace, and most of the products sold by different retailers are virtually
identical, the only true difference between retailers is their ability to use
technology to manage their business and give them the competitive edge.
Information Technology in store operations surely boost up the customer
footfalls and sales. As companies begin to understand the issues and research
the right technologies to solve the problem, energy- efficiency can become an
opportunity. So my view is that retailers should also concentrate on the energy
efficiency by ways such as using the technology when needed as it becomes a
major cost to the store.
Scope for further research:
• With the advancement of technology day by day, there could be further
research on how new technologies can be efficient for retail for increasing the
sales and customer experience.
• As technology needs huge amount of energy there could be a further
research on the efficient use of energy by IT in retail store operations.
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18. Conclusion:
The organized retail sector has recognized that IT can give it an edge over the
global competitors and the neighbourhood kirana store. It took some time for
IT vendors to realize the vast potential in retail; the sector itself had been a
little slow in leveraging IT. Now that the smoke has cleared, vendors are
unveiling an entire range of IT products and solutions for the retail sector. The
three dominant trends in the deployment of IT in this fast growing industry
are-the dominance of package solutions, the focus on supply chain
optimization, and the new drive towards IT in store Operations. Wal-Mart
employs a technology that automatically replenishes stock when a purchase is
made, resulting in fewer instances of a product running out. The system, called
Retail Link, posts an order online for the supplier after the item is scanned at
the checkout. With the increase in globalization of retailers both in terms of
their points-of-sale, as well as their points-of- supply, the Information
Technology (IT) spend in the retail sector has increased considerably and plays
an increasingly important role in managing the complexity of retail operations.
Thanks to technology advances, new cost effective, integrated in-store
communications and operation solutions exists that can improve the customer
experience and help make the sales associates time more productive. Retail
stores can really boost the footfall of the customers and their conversion by
knowing the customer buying behaviour, their taste and providing better
services such as less time for billing, better customer service and loyalty can be
made with the help of information technology in the store.
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