The future of retail is global. Consumers around the world are sharing the same dreams and aspirations. Similar products are successfully being sold in Asia and South America at the same time. The future of retail is uncertain. There are new channels, new players, mergers, acquisitions, alliances, consolidations, and, lest we forget Eaton’s, bankruptcies and failures. Yes, many changes confront the retail industry as it transitions into the 21st century.
Increasing demands and expectations of consumers, and intensely competitive pricing strategies are creating tremendous bottom-line pressures. Consequently, profit margins in all retail sectors are suffering unprecedented shrinkage and even high-profile retailers are under siege.
This uncertainty can be viewed as an opportunity or a threat. But whatever your point of view, the task of preparing for future success in retail is complex, especially for the CIO. There is a wide array of inter-related issues contributing to the complexity. For example:
- New technologies coupled with an installed base of aging legacy technologies, many of which are not easily incorporated in any integrated, network environment;The drive towards closer links accross the entire supply chainThe incursion of e-business into a mature business environment;A power shift to the consumer.
World-class retailers have already taken bold steps in their efforts to counteract these difficulties and to develop competitive advantage. They are capitalizing on the real benefits that can be attained through the use of technology in the areas of buying and merchandising, store operations and customer-relationship management. And they are setting the stage for continued change – from restructuring the business model to revamping the entire corporate culture.
A new business environment is being shaped by the convergence of innovation, globalization and the emerging electronic economy. The impact of each of these factors is significant, but together they will create an entirely new and distinct future with big rewards for the early movers. Successfully seizing the value-creation opportunities will only be an option for those retailers who are open to new approaches.
PREPARING FOR ‘E-COMMERCE PLUS’
For some years now, leading retailers have used e-commerce tools, techniques and technologies to reduce cycle times and operating expenses, improve product and decision-making quality, and increase sales. As early as 1989, Office Depot pioneered the use of EDI as a means of automating the process of sending purchase orders to suppliers. Since that time, like many other retailers, they have incorporated many EDI documents including invoices, advance-ship notices, and product-activity data transactions into their business processes, saving untold amounts of time and reaping substantial financial benefit.
In the last few years, the scope of electronic commerce has become much broader and its popularity has increased. “On-line commerce is growing explosively, and is accelerating the growth of all non-store retailing which had already captured a 15 percent share of the $3 trillion worldwide retail market in 1996.” 1
The development of just-in-time principles in manufacturing, procurement and supply-chain management allow retailers to respond to customer demand in ways never before possible. Enabling technologies such as EDI and the Internet allow information to flow up and down the supply chain, enabling previously unheard of degrees of integration. But to date, there are few retailers that have capitalized on broadly integrating e-commerce across business processes and throughout the supply chain. Therefore, there is still untapped capability for value creation.
With integrated logistics, direct marketers can source products directly from manufacturers and route them directly to customers – perhaps via a distribution point that allows for custom assembly of products for individual customers. This is the basis of mass customization. It is also the foundation for retail disinterme-diation. This poses a challenge for the store-based retailer because in many cases, as an intermediary between manufacturer/marketer and customer, the store can now be bypassed. The benefits of such disintermediation and mass-custom-ization to the end consumer are clear: lower costs through elimination of non-value-added steps, greater convenience through direct delivery, and more choice through customization.
This next generation of e-commerce (or e-commerce plus) integrates front- and back-office systems (people, process and technologies) across the supply-chain continuum. All customer interaction systems are included in the overall architecture and the process design specifically targets these points of interaction. Although the various elements can be considered independently, this is truly a case where the whole has more value than the sum of the parts.
There are four major areas of interaction: business to consumer (b2c); business to business (b2b); business to employee (b2e); and consumer to consumer (c2c). Each of them requires different processes and approaches, and each has its own ecosystem – but all of them are part of a single continuum. It is the strategic space where “dot-com” and “brick and mortar” retailers meet. It is attention to this strategic space that differentiates today’s e-commerce business from a business that has embraced “e-commerce plus”. It is attention to this continuum that will mean success as retailing moves towards the next century.
NEW THINKING IN I.T.
No retail organization can ignore the competitive pressures, and the IT department must be ready to lead the way. The CIO is being challenged to be more responsive to current business requirements and, at the same time, to prepare for a volatile future. Information technology at retail sites is at a crossroads, according to a recent study by the Retail Industry Practice at Aberdeen Group. As retail companies prepare to respond to a potentially volatile 21st century with increasingly dynamic business models, so must the IT organization be prepared to respond.
The CIO’s mandate is “…to deliver information and technology capability right to the aisles, checkout counters, and returns desks. … getting technology and commerce standards in place.” In addition, the CIO must “…help lead the charge so that when we get there, we can do business the way we’d like to – which is maximizing customer satisfaction and minimizing costs.”2
Ultimately, this requires the IT strategy to have a ‘Total Supply Chain Perspective’, to view things from the initial supplier through the retailer to the end customer, supporting partnerships and relationships wherever possible. The proper deployment of IT can provide for an effective blend of operational efficiency and customer service throughout the entire retail value-chain.
In many cases, the IT model will go through a quiet revolution; in others the change will be more radical. In some cases the model will need to be totally redefined if it is to effectively support the business’s key issues and challenges. These challenges include expectations and competing priorities, capital/expense contention and constraints, point-of-sale platform migration, global expansion, etc. In addition, IT must enable future opportunities the company plans to pursue, while sorting out how to respond to the inevitable, and sometimes unwelcome, industry trends.
MANAGING CUSTOMER KNOWLEDGE
As all of us race towards the year 2000, change is coming so fast that we must adopt lifelong learning processes to keep up. No matter what business you are in, its value will only increase if you focus on making it knowledge-based. Pursuing an ongoing effort to do this will allow you to build knowledge-for-profit companies that produce “smart” products and services.
In today’s environment of intense competition, customers’ needs and expectations are more complex and demanding. Retailers need to develop a deep and lasting relationship with customers, but loyalty is short-lived if products and services do not satisfy customers’ needs. That is why “listening to current clients represents perhaps the best source for developing and testing new products and services.” 3
To satisfy customers, you must have knowledge about customers. An organization needs to monitor the existing and potential market and tap every available source of knowledge in order to know and anticipate its customers’ needs. Also, its employees need that knowledge in order to effect any noticeable customer-service improvements.4
In this day of Call Centers, Help Desks, and email customer support there are many opportunities to gather customer information. Every interaction with a customer is an opportunity to get to know them better, to gather intelligence about their likes, dislikes, perceptions, intuitions and other subjective insights. Building this base of knowledge is a key competitive weapon.
MANAGING THE CUSTOMER RELATIONSHIP
Without customers, you don’t have a retail operation. It is obvious that in order to effectively compete in today’s marketplace retailers must focus on their customers. The ultimate objective of course is to gain significant competitive advantage in terms of customer satisfaction, long-term customer retention and profitability. Customer Relationship Management (CRM) places the customer’s needs first and involves two fundamental steps: first, deeply understanding your customers, and second, delivering value to customers.
As the Web continues to establish itself as an important business medium for all aspects of CRM, retailers are realizing that developing an all-encompassing view of the customer is important. The best opportunity to build strong customer relationships is at the point of contact between a company and its customers, regardless of the medium used.
Consequently, developing a holistic view of the customer requires individual CRM applications – sales, marketing and support solutions – to be multi-channel enabled. The customer must be able to access equal levels of service and functionality regardless of how contact is made – by fax, telephone, the internet, email, snail mail, etc. Secondly, the retailer must ensure that all business applications are integrated with the CRM solutions to provide a single window into the customer profile.
A fundamental principle of CRM is that all customers are not necessarily equal. Optimizing customer relationships requires that you focus on helping each customer to make the ‘top customer list’, or you deal with moving them off your list. To do this, it is important to understand each customer and customer segment, and then develop programs that meet the needs of each specific group.
There is a shift from using customer data only for marketing and communications to using it as a tool in merchandising decision-making. The customer database is much more than a tool for direct marketing. Customer data are being used to identify opportunities to gain new shares in local markets.
CRM activities are organized around the customer, rather than around an internal function such as sales, marketing, merchandising, or around an individual transaction. Feedback from the customer becomes an integral part of retail intelligence. In many cases, customer data are extremely valuable in maintaining the value of a brand. Data collected through stores can be used to innovate and update products, design promotion and marketing programs, support product development and merchandising, as well as reinforce global brand positioning and consistency.
THE CHANGE IS COMING
Most retailers know they need to innovate, but the challenge is to carry it through. Innovation requires a well-planned strategic direction and commitment to change. As Tom Siebel, Chairman and CEO of Siebel Systems, points out in his recent book, CyberRules: Strategies for Excelling at E-Business: “An efficient electronic market in consumer goods could have a substantial impact on society. It could eliminate retail stores in favor of electronic vendors who can locate in areas with low fixed costs, because location is irrelevant on the Internet. This could have massive consequences for countless communities, especially those that have built downtowns or peripheral malls around retail shopping. It could also dramatically impact the manpower mix.” 5
The social aspects of shopping, however, are still to be considered. Catalogue and online apparel retailer Land’s End Inc. recently introduced features on its Web site that allow customers to speak with customer-service representatives or shop with friends who are able to view the same merchandise on separate computers. When it’s time to pay, the friend is blocked from credit-card information.
Opportunities for success exist, but only for companies that are ready and willing to change. Innovative process design, technology deployment and application are essential. There are many new applications, ways to exploit existing technologies and approaches to integration across the supply chain. All of this should be aggressively pursued in an effort to increase revenue and decrease costs.
But perhaps most important is capitalizing on the best source of knowledge available – the people who buy the products. People are people; they like to be asked for their input and opinion, but they also like to see action taken as a result. Retailers that are managing their customer relationships well are in the best position to develop a give and take partnership that is at the core of retail success in the year 2000 and beyond. Proactive IT management is the enabler that can make this happen.
There is no question that this is no ordinary time in retail.
Jan Duffy is Regional Vice President of Specialty Practices for LGS Group Inc., and is the author of the recently published book Harvesting Experience: Reaping the Benefits of Knowledge.
Diane Drotos is the National Vice President of the Customer Relationship Management Practice at LGS Group Inc.
SOURCES:
1. http://www-personal.umich.edu/~dkusiati/retail
2. Ron Griffin, VP and CIO of Home Depot, quoted in Information Week, December 21-18, 1998
3. Ric Duques, and Paul Gaske, “The ‘Big’ Organization of the Future” in The Organization of the Future, published by Jossey-Bass.
4. Jan Duffy “Harvesting Experience: Reaping the Benefits of Knowledge”, published by ARMA International
5. Thomas M. Siebel, CyberRules: Strategies for Excelling at E-Business, published by Currency Doubleday
