Modern retail in India is a story that has been well narrated. It has seen its period of explosive growth and has survived the downturn of 2009. And once FDI in retail is out of turbulent waters, there is another chapter waiting to be penned down for modern Indian retail. Organised retail in India is expected to grow from an abysmally low share in a country dotted by Kirana stores to a robust 10.2% market share projected by 2015.
A key aspect of organised retail is that it has been heavily dependent on sophisticated infrastructure right from its inception. IT products and services have played a key role in supporting modern retail ecosystem in India. Analytics happen to be the latest in the series of IT adventures that retail is embarking upon. Industry estimates put the Indian Business Intelligence (BI)/Analytics market at $101.5 mn in 2012, a 17.53 % increase over 2011 revenue of $86.4 mn. The share of retail is likely to be around 25 -30% of the overall pie.
While the segment is growing, retail is seeing plummeting margins. Huge inventory pile-ups, bloated costs like interest rates and working capital requirements have taken a toll on many Indian retailers. That is the primary reason why the modern retailers are turning to predictive analysis to set patterns to an ever unpredictable consumer behaviour and at the same time, deal with complexity of running a compliant and efficient business.
As a result, everything analytical is high in favour with retailers in India. Retailers are compiling more data on their customers and their purchases than ever before, providing a potential wealth of insight into their demographic attributes, tastes, preferences and buying patterns. Insights as close to real time would be crucial for ensuring maximization of meeting consumer needs at the moment of truth (when the customer is in the store). It is the need for this actionable data that is making big retailers turn to BI tools.
Beyond vanilla reporting
BI in retail is gaining traction, according to experts, primarily because it talks numbers. You tell a retailer that a system can keep track of his inventory and he will say he’ll think about it, but tell him that a software can drive his sales and you have his attention. Retail, especially organised retail is sitting on mountains of data that has been collected at Point of Sales (PoS) or through feedback channels like email and social media. The question that is just about popping in India Inc. is that how can all this data be used to churn information on buying patterns of consumers?
“We see an increasing interest in the ability for analytics to drive revenue and profit opportunities. Retailing in India is going through a phase of consolidation and is gearing up for a renewed growth phase. Many retailers are looking at complementing their investments in transaction systems with analytic infrastructure,” mentioned Anand Sri Ganesh, SVP, Strategy & New Business, Manthan Systems.
Retailers have generally, across countries, earned a significant return on their IT system investments by using business intelligence systems to analyze the data to improve business performance with a focus on reducing operating costs, without sacrificing the customer experience. There are many a case study to demonstrate how retailers have used BI to optimize performance, price, promotion, markdown, assortment, space, allocation and replenishment etc. Data-driven decision making is key to successful decisions regarding all of these levers. However, when it comes to India, analytics in retail is, so far, high on awareness but low on adoption.
One of the key reasons behind this limited use of analytics in India is that the retailers are still grappling with their supply chain. As Sayinath A.G, Associate Vice President – BI & Analytics Services, Sonata Software said, “Supply chain isn’t very well developed and very little forecasting happens in a scientific way.”
What is happening in Indian retail then, is that there are some basic reporting tools already in place while the signs for a preliminary analytics wave heading towards the segment are already visible. Commented Bhavish Sood, Research Director, Gartner India, “Plain operational reporting is already happening. The analytics adoption is fairly low but retailers are now adopting analytics based on their retail business model, with the type and focus varying for different entities. For e.g., hypermarkets focus on inventory and departmental stores on loyalty analytics.”
Slicing and dicing the data
With PoS and other sources of input generating a sea of unstructured data, the retail IT heads are increasingly looking at turning this data into actionable information. However, most of the analysis is still happening from a promotional or impulse buying point of view.
Observed Bhave of Fujitsu, “Penetration of analytics in retail depends on two aspects- depth and deployment. Most retailers in India are still maturing their data warehousing projects, so we are not quite at the advanced analytics level yet.”
However, going beyond data warehousing, retailers are looking to generate targeted promotions based on customer segmentation and purchasing patterns in specific locations as well as enhance new product introductions by understanding purchasing trends and forecast how different markets and customer segments will respond. Harnessing the inputs generated on social media platforms is also something that FMCG and retail verticals are looking to do. Social media analytics, though they are yet to make a significant entry in the Indian market, could be pioneered by the retail industry.
Inventory management is the other thing that retailers are looking to streamline using BI. With BI, retailers can improve inventory analysis to manage inventory levels for maximum productivity and help ensure that promotional inventory levels are forecasted and met.
Generating customised offers at the PoS is also calling for analytical intervention. Retailers are focusing their attention to alternate channels such as email and text messages informing their customers about particular offers based on their previous buying patterns. Said Mehrotra, “Retailers are using analytics to create loyalty programs and draw in customers to their stores and brands. Retailers are also using analytics to streamline functions like merchandising and supply chain.”
Not quite as advanced
Though retail is likely to adopt analytics in a substantial way in the near future, the transition might not be as smooth as we would like to believe. A large part of retail in India is still unorganised and as a result, unlikely to churn numbers for analytics in the near future. As a result, the growth for analytics in retail is going to come mostly from modern retail chains, which, in turn, are also grappling with several impediments on their way to basic analytics.
Sayinath AG of Sonata opined, “Usage of analytics in any industry is linked to industry evolution. When we compare the western modern retail with India, there is a vast difference, because loyalty programmes, which are the foundation of analytics, are nonexistent in India.”
Another reason why the usage of analytics in Indian retail is still at a very rudimentary stage is because ‘the customer’- the pillar of retail targeting is still mostly anonymous and there is no segmented information available on buyers. Indian retailers are just beginning to do promotion analysis, which in more cases, is going to totally random, unclassified base of users. A retail company’s top priority is to spend money in knowing its customers and bringing him/her to point of sales. A lot of these decisions happen at the back of loyalty programmes, and in India, we hardly have any.
Heterogeneity in the market place, both in terms of vendors and offerings can also be a significant challenge for customers. In many countries, analytics for retail happened as a part of
their maturity curve after ERP implementations. In India both these things are happening simultaneously. Also, a major chunk of Indian retailers don’t have systems that are mature enough to handle analytics. IT heads, thus, are struggling to establish RoI for using intelligence tools.
Moreover, lack of resources, financial and otherwise, is constraining the midsized retail organisations from deploying costly BI software. As Bhave noted, “Midsized organisations are struggling to find a solution which can give them analytics without adding to their manpower or management costs.”
Given these complexities in operations, and the fact that in retail, no one size fits all, most retailers are still only window shopping when it comes to analytics. Vendors meanwhile, are trying to churn up solutions that appeal to their retail customers.
SaaSing up analytics
The vendors catering to retail for analytical needs is a mix of the biggies like SAP and Oracle, a few smaller players banking on Cloud based SaaS business applications and some niche players catering only to the retail segment.
So far, BFSI, IT/ITeS and manufacturing have been the verticals of interest for the big players since that is where analytics are gaining ground. Retail, however, is beginning to emerge as the vertical to look out for. According to Ganesh of Manthan, “Historically retail was a follower to analytic methods developed in other industries, mostly banking and financial services. But Retail is now in the leading edge of analytics especially in areas of loyalty-driven marketing, imbuing social and mobile media to drive analytic-driven personalization etc.”
As a result, most big vendors are sprucing up their offerings for retail, and some smaller vendors are springing up to cater specifically to BI needs of retailers, mostly on SaaS models. Emerging delivery models like SaaS would appear to be perfect for the smaller firm, as much money is saved in IT by having a host somewhere in cyberspace rather than a physical firm.
Despite the vendor efforts, SaaS is not a mass phenomenon in India. Mandal of QlikTech believed that SaaS hasn’t really taken off in terms of analytics because a huge amount of data needs to go back and forth for analysis and in India; there are infrastructural constraints in achieving that transition without significant latency.
Another glitch with SaaS is that it is meant only for SME’s and when it comes to technology adoption, the retail SMEs are mostly inactive, or limited to Excel sheet analysis. Niche vendors are trying to alter that equation.
Sayinath AG of Sonata felt that there is tremendous scope for niche players because vertical specific analytics isn’t really a strong feature in the offerings of several big vendors. “One size fits all cannot work in the retail industry and then of course there is the cost which retailers are struggling to justify.”
Bhave added to that by saying, “There is a scope for niche vendors providing SaaS solutions. The challenge would be in converting business expertise into analytical tools. However, if these vendors operate only on the basis of region or cost competitiveness then they may not see long term success.”
Mapping the online consumers
If online retail, or e-commerce as we know it today, is turning buying behavior upside down, then it is also altering drastically the way technology is being used in a so far conservative retail space in India. Our new e-commerce ventures are not only enthusiastic users of technology but are also open to experimentation when it comes to platforms and analytics.
The key with e-commerce is that companies end up doing a lot of their IT in-house and that changes the way they perceive technology. As a result, e-commerce may indeed be the sub-vertical within retail to be the first to evolve to using advanced analytics.
The other interesting thing about e-commerce is that a lot of online stores are using open source analytics, something that physical retail, so far, has shied away from. Take the case of Myntra.com, one of the most prominent e-commerce stores in India. According to Sachin Arora, Head of Engineering, Myntra.com, the firm is using Pentaho’s open source analytics and is slowly trying to graduate to using advanced analytics.
Online stores are also venturing into big data analytics, another deviation from the traditional retail segment. Snapdeal.com, for instance is actively venturing into big data analytics over and above traditional BI. “We are talking about terabytes of data, the processing of which will occur in batches. We are also moving to a Hadoop kind of system where we would be taking up capacity on demand,” revealed Amitabh Misra, VP – Engineering, Snapdeal.com.
Experts, however, suggest that open source analytics may not be the best bet for physical retailers. Kandaraj explained that open source may not suffice for full fledged requirements of a retail chain that doesn’t boast of a vast IT resource pool. “Many open source BI tools are available in the market but they offer only BI platform and not the complete retail solutions. Analytics in retail require the ISV to work closely with customers to build the retail solutions based on the customers’ requirements.”
Future shopping-list
That analytics can impact the bottom line for retailers is a fact that is slowly beginning to dawn in India. While the Indian retailers went in for sentiment analysis more than a year ago, overall supply chain analytics is likely to catch momentum in the near future because of immediate benefits and RoI.
Sood of Gartner also foresees a growing demand for loyalty analytics, effective campaign management, and retail store performance management in the coming year. As the concept of loyalty programs gains acknowledge in India, being introduced by global retail brands, analytics is likely to get a further boost in the segment. “We expect the retail analytics sophistication and adoption to get a boost, as foreign chains make a beeline for the Indian retail market, with the opening up of FDI in the segment,” he observed.
There is already some level of investment that is being seen in analytics around product development, promotions and stock situations.
Nambiar of Infosys was also of the opinion that usage of analytics would grow as Indian retail industry consolidates and recovers from heady growth era of 2005-2007. So even though retail might not be churning big numbers for analytics vendors’ as of now, the segment’s BI shopping list is likely to make the vertical a rather important segment for intelligence tools in the years to come.