Retail IT

NORBERT SEGERS IS A cautious man. And when it comes to his $5 bn
Belgian supermarket chain Colruyt, outsourcing IT applications to a company
thousands of miles away, he is doubly cautious. But, being guarded doesnt
mean he is against his companys strategic outsourcing roadmap. In fact,
Colruyt started outsourcing retail applications in a small way two years ago.
Now, more of that workIT applications and maintenance in the retail space will
be offshored to TCS and NIIT Technologies in India.

"It was the lack of resources that sent us offshore. We
couldnt find enough talent in Belgium and the demands from customers were
increasing," says Segers, Outsourcing Manager, Infoco, the IT services arm
of Colruyt. "In the longer term the cost advantage too comes in, but our
primary driver was lack of resources in Belgium."

Today, retailers are changing their mindsets when it comes to
using technology. While managing costs and improving operational efficiency will
always be critical in the low margin retail industry, retailers are now shifting
the focus to solutions that enhance the basic customer experience and drive
revenue across all channels. This revolution has been focused on the store in
recent times, but knowledgeable retailers will now demand that all technologies
have a positive impact on the customer experience across all channels the
customer comes in.

Key Driver: Innovation

Tom Bridges, CEO, Biz-2-me has an interesting angle to the retail IT
sourcing story. His New York-based products company that builds marketing tools
to enable retailers in awarding loyalty points to their customers, has been
scouting around for good technology for his products. "We came across this
company in India, Aspire Systems, which has been in product-engineering
services, and after checking out the kind of technology they were using, we
worked with them. They enabled us to build our retailing product in record time
and get it into the market," says Bridges.

"We have a large network of small and medium retailers who
use our software, which aims at helping the retailer protect his customer base.
And for this you need innovative use of technology," adds Tony Galluscio,
VP, Research and Development, Biz-2-me.

Today, the rules for retail are changing. Wal-Mart, the
"Big Brother" of the retail world has created patterns that are being
followed by other retailersin more innovative ways. The worlds largest
retailer that has staked out territory in smaller markets and has chalked up
expansion plans in larger markets such as India had however reported the lowest
same-store sales in 10 years last November, and ended its fiscal on January 31st
with the lowest annual same-store sales gain in 27 years, according to a Wall
Street Journal online report. As a result, Wal-Mart is slowing its expansion
plans this year, and when Wal-Mart sneezes, the rest of the retail world
scrambles to gain market share in as ingenious ways as possible.

Traditionally, most retailers have been slow to taking to
outsourcing. But, today, there is one significant change seen among retailing
companies. Retailers are increasingly focusing on innovative ways to satisfying
customer expectations and creating a more agile organization for the future.

"When we talk of customer satisfaction, it boils down to
innovation. That is what every retailer, big or small, is looking at. Today,
mere IT servicesapplications and maintenanceis part of every vendors
offering, but retail houses are looking at outsourcing in a way that innovation
is built into the deals they strike," says Bhanumurthy BM, SVP, Retail, CPG
& Distribution, Wipro Technologies.

Larger retailers such as Target and Tesco have opted to set up
captive IT centers, while others such as JC Penny, Marks & Spencers,
Carrefour, Selfridges and Office Depot have been outsourcing work to third-party
companies in India and China.

In India, not only do larger Indian houses such as TCS, Wipro
and Infosys work on these accounts but MNCs such as Accenture and IBM Global
Services also work on large outsourcing contracts. The same is the case in China
where a number of small outsourcing firms such as I.T. United and Freeborders
(US-based with backend operations in China) are actively working in the retail
IT space. (A few days before we went to press, IT United was acquired by Latin
Americas IT and BPO service provider, Softtek.)

"The drive for IT solutions in the retail space in the
local Chinese market is itself very strong," says Nilotpal Chakravarti,
research analyst, Springboard Research. "And, it is being driven by small
retailers as the market continues to explode in China. Small- and mid-sized
retailers are looking to ramp up their IT infrastructure to stay competitive
with the foreign multinationals that have set base there."

"Although we follow a traditional ADM model for
outsourcing, we are heavily focused on building and delivering domain expertise,
and innovation is an extension of our ADM model," says Joe Gutierez,
director of marketing, Freeborders that works for leading retailers such as
Saks, Sara Lee, Target, Woolrich, Marc Jacobs and Peacocks.

Reiterating this, Cyrill Eltschinger, CEO of IT United that
works on retail applications for the US-based sportswear retailers has an
interesting perspective when it comes to innovation in retail IT. "Mobile
users are increasing worldwide, and when I think about innovation, it is in the
integrating of retail and mobile applications," he says.

Challenges Ahead

Competitive challenge lies in understanding customer needs, developing
insight and building a differentiable experience that enables customers to buy
what they want, where they want, whenever they want and in which ever channel
they want. The new consumer is armed with better information about products,
pricing and promotions; has more options than ever before; and expects a
seamless multichannel experience.

Based in Switzerland, Jon McNerney, VP and general manager,
International Operations, Talisma, a CRM solutions provider, believes that there
is an increased demand for speedier and more efficient customer response because
most businesses including retail are now being worked over the Web rather than
over the phone as earlier.

"According to e-commerce consumer surveys, about 72%
shoppers found live chat "very important" to "most
important" when purchasing gifts online, just behind the tried-and-true
toll free number. Of the 140 mn Americans online, 78% reported having researched
a product or service before buying it," McNerney says.

Today, this type of an integration of multiple channels in
retailing is bringing about a greater complexity in IT infrastructure and
services. Outsourcers focus on these various channels. For instance, Wipro has
built significant competence and set up eight centers of excellence in retailing
in areas such as billing, in-store displays, technology at the point of sale (PoS),
store layout, and the way products are stacked.

"The vendor has to understand not just technology, but also
the entire nature of activity, which includes merchandising, replenishment and
other related activities. Customers look at not just large-scale development but
also more at innovation," explains Wipros Bhanumurthy.

Moreover, there is always an underlying fear in the minds of a
foreign retailer. "The longer you outsource, greater the dependency builds
up on the outsourcer," says Vijay Ghei, VP, Retail Practice, NIIT
Technologies based in New Delhi. "And, the outsourcer does not have the
fear of failure as the retailer.

That is why, though there are more outsourcing contracts, there
are a lot more clauses that give greater flexibility to the retailer."

Sharping Focus

Although retailers have always focused on the customerthat focus has now
intensified. As a result, investment in customer-facing technologies has been
trending upward. The issues on top of every retailers mind are what role does
service-oriented architecture, industry standards and open source have in future
retail application, and how should retailers prioritize current technology
projects and investments, according to Gartner analysts John Davison and Stephen
Smith in Research Agenda and Key Issues for Retail, 2007.

Moreover, the Gartner Retail Industry Advisory Service agenda
reflects the priorities identified by their retail clients. It examines critical
trends that affect four areas: Store, multichannel and e-commerce operations;
merchandising, marketing and analytics; supply chain; and retail trends.

"Todays retailers find themselves challenged as they use
technology not just to cut costs, but to make money through enhanced
multichannel customer experiences. Instore technologies like selfcheck-out,
point-of-sale terminals, and wireless devices present opportunities for
retailers to address consumer service issues and the cost/availability of labor
at the same time. Integrating fulfillment, merchandising and marketing across
all channels has become crucial," says the report.

Today, defining the future retail enterprise architecture is one
of the biggest retail challenges. "This not only enables a smooth migration
from current legacy environments but also provides flexibility for business
needs and applications that may not have even been thought of yet," says
Ghei.

The Pressing Need to Outsource

Three drivers are spearheading the IT renaissance globally. One, to attain
better operational efficiencies by helping retailers implement their IT strategy
with minimum business disruption; two, to develop a smooth migration from the
legacy IT systems; and three, to focus on core business.

"Retailers seeking to deliver experience-based
differentiation find the need to upgrade aging technology alongside investments
in innovative ones to tailor consumer experiences," according to the
Forrester report Trends 2006: IT. This doesnt mean PoS, as the majority of
retailers tackled their aging PoS platforms by at least initiating their upgrade
or replacement in 2004 and 2005. Rather, retailers seek differentiation by
tackling price and revenue optimization, merchandise optimization, demand
forecasting, and product information managementalongside upgrading more
established technologies like warehouse management, inventory management, and
order management and fulfillment."

And this is not a simple task.

Bikash Kumar, CEO, Integrated Retail, an IT implementation and
management service provider that supports retail automation for over 100 retail
companies across Asia says, "IT outsourcing and management requires an
indepth engagement with the client. The vendor has to proactively identify the
possible issues and has to oversee the migration and implementation of the new
IT systems till the entire environment is stable."

InterraIT, a smaller software IT firm, believes it is the kind
of service that you deliver that will leave an indelible mark on the retailers
business. "Only those retailers who can move information, products and
resources more efficiently to the right stores and across channels; to and from
consumers as they are demanded; use technologies to determine the right prices,
promotions, and assortments; and develop strong supply chain and distribution
network are going to survive," says Souvanik Sarkar, VP and CTO, InterraIT.

Global retailers who outsource to India, China and other
countries take partner relationships very seriously and look for partners who
believe in the foundation of ultimate service, superior performance and positive
impact. "We started working with InterraIT after being referred by an
existing partner. InterraIT has provided a level of service and professionalism
that is truly top notch," says David Crews, manager, Business Strategy, and
projects of a $1.5 bn retailer.

Weaving IT

Backed by sophisticated algorithms and raw data-mining power, retail
applications help category managers make decisions based on scientific methods
and datasuch as the technical analysis used in the investment market. Not
only are marketing analytics hot items on the shelf, products like Retail Pro
from Integrated Retail and other specific products are increasingly in the
market.

As industry consolidation continues, retailers are mining their
supply chains for reductions in cost and improvements in speed. In short to
medium terms, retailers will focus on demand, replenishment systems and
transport optimization. Emerging technologies like radio frequency
identification can create significant disruption to supply chain management, and
retailers will continue to experiment with this technology, particularly in the
short term to manage returnable assets.

The advent of new technologies that can deliver in-store,
personalized promotions to customers offer retailers more ways than ever to
access their customers, and to provide more efficient ways to carry the
inventories. "Hence, category management or CRM software in retail is not
limited to a single application but a suite of applications that together help
retailers define, plan, execute and monitor category and CRM plans," says
Talismas McNerney.

Walking the Tight Rope

According to Dr Rathi Dasgupta, former director, Target Technology Services,
the captive IT center for Target Corporation, the worlds second largest
retail chain,

"There are two risks in this sectoryou will either
invest a huge sum of money in wrong technologies or deploy technology that does
not anticipate your future needs. Striking a balance between these two is what
will propel retailers to success."

And, Colruyts Sergers couldnt agree with this more.
"Finally, when you look at outsourcing, apart from the need for resources,
you have to see that the technology fits in with your processes and the vendors
culture fits in with your business culture," Segers points out.

By Sufia Tippu

maildqindia@cybermedia.co.in

Republished with permission from Global Services (www.globalservicesmedia.com)