For each of our markets we have considered the business imperatives, business trends and the impact that emerging technologies and solutions may have in addressing these.
Imperatives
The Credit Crunch
The economic downturn has hit the UK retail market hard, with consumer confidence reaching a four-year low in the first half of 2008. There is pressure on consumer spending and intense pricing competition between retailers, particularly in grocery. In the current climate, retailers are less likely to open new stores. However, there are regional differences. In France, for instance, the Loi de Modernization de l’Economie (LME) has triggered many new store format projects and it is expected that new stores will proliferate, especially in city centers.
Total Cost of Ownership
Total Cost of Ownership (TCO) consists of cost of infrastructure, hardware and data-centers, cost of applications, implementation, and ongoing support. A large part of investment goes into providing systems to support transactional data, such as tills and networks. The challenge is how to contain these costs to enable investment in more value-added processes.
Consistently Exceeding Expectations
Users tend to take routine processing, such as with Point of Sales systems, for granted—except when it fails. They are also demanding more real-time insights into business performance and customer profiles. Hence, there is an increasing trend toward Service-Oriented Architectures (SOA).
Wider Business Ecosystem
Companies are genuinely trying to identify and achieve true integration with other organizations both within and outside retail with the creation of customercentered networks supported by minimal structures across the network.
Business trends
E-Comerce
Online retail continues to grow, creating opportunities and threats for highstreet retailers. High-street retailers without mature Internet strategies are seeing their revenue streams eroded by online rivals as their customers look for bargains on the Web.
Consumers are becoming increasingly demanding in general, expecting high-quality, fast, and usable Websites that allow for flexible delivery options. At the same time, online retailers need to be aware of and manage the risk of fraud.
Consumer Marketplace
The consumer marketplace is becoming increasingly defined by divergence and extremes. This change in customer behavior and attitude is rendering traditional methodologies in data analytics obsolete. In addition, retailers will have to position their offering with regards to new factors affecting consumer behavior, ethical consumption, people’s
growing concern for ecological and social issues, general demand for lower prices, consumers’ higher mobility, and consumers’ perception of time value. Out-of-town big boxes, such as hypermakets and supercenters, are in trouble because of the negative cumulated effects of soaring prices of energy and greater awareness by consumers of global warming. Even though gas prices dropped sharply in the second half of 2008, consumers still favor formats providing low price, convenience, and simplicity.
Consumers continue to show an interest in products from specialist retailers where a perception of quality, authenticity, and social responsibility prevails. In a commoditized world, successful retailers will create differentiation if they are able to provide unique and innovative shopping experiences that match or exceed consumers’ expectations.
By 2010, around 40 per cent of the population of Europe will be over 50 years old. This segment of the populace will have special needs, which retailers need to position themselves for.
Diversification
One-stop shopping retailers will follow the Tesco model and aggressively deploy diversification in services such as finance, insurance, telecom, and energy. They will take advantage of the financial turmoil and capitalize on their brand franchise. They will also develop packaged human care services, especially those targeting the elderly.
Value from IT
Focusing on business outcomes and customers rather than IT change is still crucial, despite the fact that the retail sector continues to lag behind virtually every other industry in the percentage of revenue spent on IT. The integration between sales channels will become seamless, powered by mutualized middle- and back-offices. This represents an opportunity for retailers to capture and measure information across the entire value chain. There is focus now on transforming the non-core processes into a virtual shared services operation (including outsourcing in some cases).
Real-time decision-making based on real-time information and intelligence is vital across many business areas. For example, centrally controlled replenishment can be driven by customer needs with strict guidelines for local adjustments and inventory controls. The problem is that many retailers are still inhibited by complex, fragmented legacy systems that need to be advanced to provide more flexible, agile infrastructure.
Supply Chain
There is room for innovation in the supply chain, improving efficiency in goods supply and provision.
Supply-chain improvements will pass by a redefinition of roles along the supply chain between retailers and vendors, such as greater involvement of retailers in upstream transport, greater involvement of vendors in inventory management, and replenishment.
For example, product lifecycles for clothes have become extremely short, a trend led by some Spanish retailers. This creates a source of advantage but generates supply chain and other issues.
The Retail Landscape
Mergers, acquisitions, and private equity buy-outs are changing the retail landscape as seen in the new generation of out-of-town retail parks. The concept is usually developed around particular themes, entertainment, and culture, with parks offering restaurants.
Security and Compliance
Compliance with the PCI DSS payment standard is essential for companies. Although this directive is a recommendation and not law, companies that do not comply leave themselves liable. Despite the advent of Chip and PIN security, a number of high-profile security and customer data leaks have led to increased vigilance in the area of credit card transaction security and management of customer data.
A Global Perspective
National brands are looking to global expansion as local market share is hard to grow, and this is making the supply chain more complex. Conversely, global retailers will have to be more selective in their international development and even proceed to divestments in countries where profitability is lower than expected and / or potential synergies are weak (the general rule is that one must be in the top three of a given market to benefit from brand awareness and economies of scale).
Across Europe, retailers are widely accepting IT operations should be moved offshore and have acted accordingly. UK retailers, for instance, want to gain access to low-cost skills in offshore locations such as India, by setting up offshore IT deals with external partners. And French retailers are considering Morocco (because of its cultural fit and linguistic fluency).
Retailers are looking to build on the investments in their core systems such as Enterprise Resource Planning (ERP) with new investment targeted at the shop-floor rather than the back-office.
Impact technologies
The diversity of legacy systems as a result of mergers and acquisitions is a serious concern and SOA offers a route to rationalize and standardize systems using open architecture with integration of back-end systems a particular area for IT spending.
Technologies for improving the security of data and systems along with Fraud Prevention technologies are crucial for retailers to meet compliance requirements as well as becoming a trusted brand in consumers’ eyes.
Business Intelligence (BI), in the form of predictive analytics and dashboards, is enabling retailers to take an educated view on future requirements in a number of areas including volume supply.
The increased complexity of the supply chain, caused by national brands expanding globally as they look to grow market share, would benefit from RFID technologies as they continue to mature through more widespread usage.
With the Internet, supermarkets, and one-stop shops undercutting prices, Innovation Management can go a long way to ensuring the best innovative ideas are swiftly brought to maturity.
Equipping people with Mobile Solutions that enable operational information to be accessed quickly is critical. In conjunction with Enterprise Information Integration systems, these devices will enable up-to-date information to be available for staff, to reduce losses and increase sales.
Self-service Checkouts are being used to reduce queues during busy periods and manage customer perceptions of the waiting times in queues. Use of Near-Field Communications for small Contactless and Mobile Payments is attractive to reduce the costs of handling cash.
Gathering customer data through loyalty cards is a key component for retailers trying to get better understanding of their customers. BI and Data Mining is enabling better targeting of customers.
The Internet and Web 2.0 will be a key component in retailers’ strategy to sell products to consumers in an environment they want by giving them easy and immediate access to products and information they are interested in. Retailers are testing social networks as a means to promote their brands and leverage virtual communities. The Internet is at the core of retailers’ loyalty strategy to create a strong link with the brand before, during and after purchase.
Retail stores and delivery vans will benefit from new Next Generation Enterprise Asset Management technologies—asset location and status being available in real time.
SaaS and open source technologies are also gaining much attention as methods of cutting costs and boosting agile Information Systems.
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