There are multiple cases of business transformation in the conventional large-format retail business segment. The organized retail store gets a lot of footfall, the premises are air-conditioned, and customer experience is on the whole good even though the price of some of the products may sometimes be a shade higher than the neighborhood store. Despite this, the balance sheets of most organized retail stores are stressed. Some brands that had expanded and opened outlets across the country, and it looked for a while that they were flourishing, have, over time, folded up and shut shop. They could not sustain continuing losses any longer.
Low profitability, high debt levels, and high overheads are features common to most organized retail companies. The better-managed stores are profitable, continue to expand rapidly, offer lower prices than the mom-and-shop stores, give the customer the widest possible range to choose from, and make replacement of sold products that a customer finds unsatisfactory easy. Overall, customers are happy to come and shop in these organized retail outlets.
What ails organized retail business? How can technology, if at all, assist in a retail business turnaround? These are the two main questions that require an urgent answer in any business transformation exercise of an organized retail chain.
Inadequate investment in technology and focus on real estate are the two key weaknesses of retail companies. These have to be factored into any business transformation plan.
Other challenges to organized retail:
- High sourcing costs
- Inadequately efficient inventory management
- High overhead
- Insufficient customer loyalty and low per-unit purchases by customers
Most profitable organized retail stores have very powerful and comprehensive retail management solutions that give just-in-time information and analytics to store managers.
At the heart of efficiency lies cost management. If a company can reduce costs, profits will automatically be taken care of. Successful retail giants like Walmart have a powerful interconnected satellite and 24X7 operating computer network that links store managers, regional managers, and top managers. Powerful data warehousing and business intelligence engines continuously mine and analyze information to reduce cost and increase efficiency.
IT solutions coordinate inventory delivery to DCs (Distribution Centers). The trick is to adopt something similar to the just-in-time inventory management practice common to manufacturing companies. Here stocks are kept to the minimum and supplies so well coordinated that this is only possible through effective deployment of technology solutions, which, as one lot goes out of the DC for onward delivery to stores, a lot comes in.
This would mean effective solutions that generate accurate point-of-sale data that is analyzed in real-time and does the automatic ordering of fresh inventory. POS data is also deployed for studying and leveraging customer behavior. The system’s analytics is so accurate and effective that it helps monitor product sales from each store on a real-time basis. This allows the replacement and stocking of products that move faster on weekends or in the holiday season and maintain a low inventory level on leaner sale periods.
It is common to see that many organized retail stores run out of popular products on weekends or the first week of the month when sales are particularly heavy. Alternatively, overstocking certain products just before Christmas, Boxing Day, and other major holidays is common. Unsold inventory then becomes dead stock blocking capital and occupying valuable storage space.
Quality analytics is only possible by using effective data warehousing, data mining, and business intelligence applications. All this helps substantially reduce sourcing costs. Additionally, analytics helps generate comparative data that is utilized to compare suppliers’ prices and is used to improve price negotiation capability, which in turn leads to lower sourcing costs.
Not all stores perform equally well, and unified applications help keep track of product off-take from individual stores. Mutual cannibalization of products not selling well in one and better in another can improve operational efficiency.
Organized retail has high selling, and general administration costs are much higher than efficient retailers. Staff and labor are the two highest costs in a retail operation. Staff work and analytics solutions enable optimal staff deployment. This helps reduce core permanent workforce costs which are often expensive. Sale spikes are handled by hiring a part-time workforce.
There is enough technology available in the world; it is just a question of understanding its power and having the right management who deploys it to improve efficiency. Deploying effective technology needs to be accorded higher priority over fancy real estate.