“E-Merging” Indian Retail

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Retailers around the globe are attempting to build the right strategy that helps reap success in emerging markets. Kedar Mehta, from TCS’s Global Retail Consulting Practice describes this ‘E-Merging’ Indian retail model. The model combines the best of offline & online retail ecosystems and moves retailers towards an Integrated Multichannel Retail Model.

Introduction
Marks & Spencer’s India plans addition of 80 stores in India by 2016. Amazon India pilots its e-commerce deliveries with Indian Post Office. Puma India aspires to generate 10% of its sales in India through online channels by 2015. 52% of Mumbai’s 40-odd malls are struggling. Indian internet user population is going to exceed 243 million by June 2014. Future Group launches Big Bazaar Direct – a cross between e-commerce and door-to-door sales.

TCS_2This is but a sample of the latest in Indian retail.  The directional trend underlying these stories is a unifying theme – the challenge of developing the ‘correct’ Indian retail business model.

This article highlights the potential of ‘E-Merging’ Indian retail – a model that combines the best of offline & online retail ecosystems and profitably meets the expectations of a digital era consumer.

Drivers for Integrated Multichannel Retail
Before we look at the Integrated Multichannel Retail model for Indian retailers, let’s first quickly examine the drivers that are encouraging and enabling the development of this model :

Real estate rentals are expensive: Rental proportions at 10-15% of revenue negatively impact format breakeven

Disconnect between assortment width and shrinking format size: While, revenue hits plateau after threshold square footage; and retailers are using the recession to optimize footplate, consumers are looking for increased depth and width of assortment.
Need to optimize inventory carrying cost

TCS_3Multichannel customers with shifting loyalty: Channel switching by consumer for best purchase proposition is moving retail towards multi-channel.

Disruptive Technologies : including emerging channels such as Smart TVs, home shopping networks, kiosk /shopping etc.

Reach new markets quickly & efficiently: Non-store channels help reach new markets quickly, without the need to establish physical stores.

Business Case for Integrated Multichannel Retail
Generating 5% of your Total Sales from the Online Channel can lead to a 15% increase in EBIDTA.

TCS_4The basic premise for developing an Integrated Multichannel Retail model, especially in the Indian retail context, is the likelihood that such a model will best optimize the revenue realization for a retailer (by reaching more locations & consumers via the web),  while reducing operational costs (by opening fewer physical stores & augmenting service delivery with a mix of offline & online operations).

According to model estimates covered in a TCS paper, for an Apparel Retailer, a 5% of revenue movement to online channel can result in 3.44% savings in OPEX and 15.52% improvement in EBDITA. With inclusion of more non-store channels, the model efficiency is likely to improve, depending on how the business mix is developed.
Similarly, precise models can be outlined for other retail formats, like CDIT, Home Improvement, Jewellery, etc.  to determine the correct online-offline mix.

4i Model for Integrated Multichannel Retail
Noted below are the 4 distinct stages of the Integrated Multichannel Retail journey that retailers need to undertake and the key business initiatives they need to ideate and execute upon below.

These maturity levels are a continuum – A retailer needs to traverse these based on a qualitative & quantitative analysis across eight critical business areas:

This framework allows a retailer to assess where their organization stands today, to benchmark with leaders, to identify gaps and to monitor progress in the journey towards becoming a truly Integrated Multichannel Retailer in today’s digital era.

TCS_5Global vs. Indian Retailers – Status Check
According to model estimates covered in the TCS paper earlier, below are the maturity stages of Global Retailers vis-à-vis Indian Retailers today with reference to the 4i Model of Integrated Retail.

Clearly, Indian Retailers have a lot to learn from the Global Best Practices and have a long way to go in the 4i Integrated Multichannel Retail journey.

Global Best Practices towards Integrated Multichannel Retailing
This is an illustrative list only, but it provides insights about the business process, service and technology benchmarks to be pursued.

TCS_6Next Steps for Indian Retailers
Indian retail has the tremendous potential of 1.2 billion consumers, but is constrained by expensive customer connection points in the form of physical stores. The emergence of the 3 Screens –  Laptop, Smartphone & Flat Panel TV – can augment physical stores, increase customer reach and relevance of customers engagement.  A small percentage shift  of the business to digital channels can bring in much needed efficiency in the retailer’s business leading to significant improvement in profitability.

Indian retailers in their endeavor to transform into an Integrated Multichannel Retail entity, that is prTCS_7esent every where an Indian customer shops, need to initiate the transformation with 3 simple steps:

1. Benchmark current organizational multichannel retail initiatives versus the rest of Industry – for example TCS and RAI have collaborated to produce quantitative industry level reference benchmarks.
2. Evaluate your organization across the 3 measurement parameters – KPIs, Process Maturity and Strategy 2014 covering the key organizational functions of Sales, Operations, Customer Experience Management, Technology and Financial Management.
3. Conduct a diagnostic study to understand your organizational multichannel maturity by leveraging the 4i model
4. Create an Integrated Multichannel Roadmap for execution

TCS_9TCS_10TCS_11Kedar Mehta is a Managing Consultant with TCS Global Consulting Practice (Retail & CPG Group) and consults with retailers in their Strategy, Marketing and Operations Improvement Initiatives.

Acknowledgments:
Sanjeev Seshagiri Athreya, Managing Consultant, TCS Global Consulting Practice (Retail & CPG Group) – for his valuable inputs and insights that helped enrich this article.

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RAI
Retailers Association of India (RAI) is the unified voice of Indian retailers. RAI is a not for profit organization (registered under section 25 of Companies Act, 1956), works with all the stakeholders for creating the right environment for the growth of the modern retail industry in India. RAI is the body that encourages, develops, facilitates and supports retailers to become modern and adopt best practices that will delight customers. RAI has a three charter aim of Retail Development, Facilitation and Propagation.