Large retail stores in the West are more profitable and efficient than the Indian ones. High time the latter learned from them how to use technology for a turnaround, says Sudhir Ahluwalia
The Indian organized retail stores see a lot of footfalls. In spite of this, the balance sheets of most these stores are stressed. Some brands that had expanded and opened outlets across the country—and looked flourishing for a while—have over time folded up, unable to sustain losses.
Low profitability, high levels of debt and high overheads are common to most Indian organized retail companies. Compare this to the mature chains of Europe and North America. The better managed stores are profitable, continue to expand rapidly, offer prices that are lower than the mom-and-shop stores, and give customers the widest range to choose from; also, replacement of products is easy. Overall, customers are happier and the stores are better placed than their Indian counterparts.
So, what ails the Indian organized retail business? How can technology assist in the retail turnaround? Inadequate investment in technology and focus on real estate are the two key weaknesses of Indian retail companies.
Technology interventions
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 Wal-Mart have powerful data warehousing and business intelligence engines that continuously mine and analyze information, all aimed at reducing cost and increasing efficiency.
IT solutions are used to coordinate inventory delivery to DCs (distribution centers). The trick here is to adopt something similar to the just-in-time inventory management common to manufacturing companies. Here stocks are kept to the minimum and supplies are well-coordinated through effective deployment of technology solutions: as one lot goes out of the DC for onward delivery to stores, another lot comes in.
This would mean effective solutions that generate accurate point of sale data that is analyzed real-time and does automatic ordering of fresh inventory. POS data is also deployed for studying and leveraging customer behavior. The systems analytics are accurate and effective enough to help monitor product sales for each store on a real-time basis. This helps replacement and stocking of products that move faster on weekends or in a holiday season and maintain low level of inventory on leaner sale periods.
It is common to see that many organized Indian retail stores run out of popular products on weekends or on the first week of the month when sales are particularly heavy. Alternatively, overstocking of certain products just before festivals is quite common. Unsold inventory then becomes dead stock, blocking capital and occupying valuable store space.
Quality analytics is only possible by using effective data warehousing, data mining and business intelligence applications. Analytics solutions help generate comparative data that is utilized to compare prices of suppliers and is used to improve the price negotiation capability of the retailer which, in turn, leads to lower sourcing costs. Not all stores perform equally well: unified applications help keep track of product off-take from individual stores. Mutual cannibalization of products not selling well in one store and better in another can lead to improved operational efficiency.
Indian organized retailers have selling and general administration costs which are much higher than efficient foreign retailers. Staff and labor are two biggest costs in a retail operation. Staff work and analytics solutions enable optimal staff deployment. This helps reduce core permanent workforce, which is often expensive. Sale spikes are handled by hiring part-time workers.
There is enough technology available in the country; deploying effective technology needs to be accorded higher priority over fancy real estate.
Sudhir Ahluwalia is a business expansion consultant.
