The Indian retail industry is undergoing a digital revolution. Consumers are increasingly adopting the digital mode in all aspects of their lives, thus driving retail enterprises to incorporate technology in their operations so as to effectively target the consumer. Over the past few years, the key development witnessed in the retail industry is the emergence of online retail channels that thrive on technology to drive their business operations. As per a report by the Confederation of Indian Industry (CII) and the Boston Consulting Group, the Indian retail sector is expected to double from $630 billion in 2015 to $1.1 trillion-$1.2 trillion in 2020 on the back of income growth and rapid urbanisation. While the overall retail market is likely to grow at an annual rate of about 12 per cent, e-commerce is projected to grow at 40-50 per cent during 2015-20.
To remain competitive in the face of changing industry dynamics, retail enterprises are investing in targetting digitally savvy consumers in a better way and are building capabilities in omnichannel retailing, big data and analytics, information technology and supply-chain management.
Increasing IT spend
Globally, the retail industry has witnessed an increase in expenditure on the information and communications technology (ICT). This has primarily been driven by the need to improve customer interaction and retail operations in times when retailing has become highly globalised in terms of point of sale (PoS) and point of supply. It has become imperative for retailers to deploy more advanced retail information systems to gain a competitive edge in the market. According to Gartner, with increased focus on customer engagement and multichannel initiatives, IT spending in the retail sector worldwide will grow by 2.3 per cent during 2016 to reach a total of $182 billion. As per IDC, enterprises across different industry verticals are opting for digital transformation, making it one of the fastest growing areas of technology spending. Of all industry verticals, the retail industry is expected to have the highest growth in digital transformation spending. The Indian retail industry is expected to mirror this trend. The overall IT spending in India is estimated to grow at 7.2 per cent in 2016, while that in the retail sector will witness the highest growth of 11.3 per cent.
Rise of the omnichannel model
In order to keep pace with the changing customer requirements, retail enterprises are operating across multiple channels. This has led to the emergence of omnichannel retailing, which combines mobile, bricks and mortar, and e-tailing. Omnichannel presence is now critical not only for ensuring brand visibility, but also for delivering seamless customer experience. “The retail sector is undergoing a major transformation. Competition is moving from products and services to experiences. Consumer expectations have increased significantly. What was once considered cutting edge, such as the ability to buy an item online and return it in-store, is now considered table stakes for any retailer hoping to remain relevant,” says Kunal Mehta, general manager, IT, Raymond Limited.
Operationalising the omnichannel strategy requires a significant amount of investment in ICT and new-age technologies.
Key investment areas
Some of the key areas in which retailers are investing are:
- Point of sale: PoS is an old technology, which is undergoing rapid changes. PoS devices have transformed from being large space-consuming machinery to handheld devices. PoS devices are being increasingly used for viewing product features, looking up inventory, allowing customers to buy from another store in the chain, tracking shipments, accepting returns of online purchases, and facilitating in-store pickup for online purchases.
- Order management systems (OMS): For managing their omnichannel presence, retailers need inventory management, order fulfilment, and orchestration processes that are scalable and easy to deploy. OMS helps retailers streamline the orders received from different systems such as in-store PoS, online marketplaces, call centres and mobile applications. Further, a well-functioning OMS is required for providing services such as home delivery, in-store and pickup as well as for order tracking, managing returns and exchanges.
- Digital payments processing: The number of merchants accepting credit cards and digital payments has reached an all-time high as customers are getting more and more comfortable using their smartphones, tablets and other mobile devices for online purchases. Therefore, investing in convenient and secure payment solutions is one of the top priorities for most retail enterprises.
Emerging technologies
Given that the retail industry is fast-paced and intensely competitive, many leading retailers in India are
embracing new technologies such as big data analytics, cloud and internet of things to generate business intelligence. According to Deepak Ghodke, country manager, India, Tableau Software, “Big data helps retailers in three ways – create differentiation, understand their customers and ensure perfect execution. In a crowded marketplace, retailers need to provide better customer experience than their competitors to differentiate themselves. Understanding the needs of hundreds of millions of customers on the basis of their demographics, earnings and regional preferences is impossible without having a big data platform, and the right analytical and visualisation solution. This is followed by predictive analytics, which will help retailers pre empt customer behaviour and improve merchandising execution. In addition, retailers need to manage their supply and demand network.”
By applying big data analytics for the market and competitive products, retailers can build models to formulate optimal pricing. In fact, many solution providers are offering tools that can help retailers set an appropriate price through a stimulated, interactive and self-service interface to modify product pricing and category pricing, make appropriate assumptions of competitive pricing and immediately see the impact on the volume and demand of their own products as well as of competitors. Retailers can also generate valuable insights for optimising and personalising marketing and promotional campaigns.
A retailer can leverage big data to overhaul its entire strategy to not just maintain its existing customer base but also to expand it. “When a retailer is able to expand its customer base by engaging with them and gauging the scope of a particular market, it will ultimately show in its bottom line,” says Ghodke.
Challenges and the way forward
As business models undergo transformation in the digital era, it is becoming increasingly challenging for retail enterprises to maintain an omnichannel presence. Industry leaders are of the view that retail enterprises of all sizes will need to create a single, unified commerce platform, which eliminates the need for multiple individual channel silos and offers a holistic customer experience across all touchpoints.
Moreover, there are challenges related to the adoption of new technologies and overhaul of legacy systems that enterprises across all industry verticals face. While technologies such as cloud offer immense benefits, enterprises need to address security, data management and integration related challenges associated with cloud adoption. In addition, the rapidly evolving technology calls for a thorough analysis of the company’s requirements and capabilities as well as the technology’s relevance before an enterprise commits huge investments in incorporating the new solutions.
While there are several challenges that enterprises face with respect to technology adoption, it is clear that the greater use of technology is the way forward. Given that the number of digitally savvy consumers is increasing over time, ICT will play a key role in the development of the Indian retail sector. Retail enterprises will need to incorporate technology in both back end and front end of their operations in order to better target their consumers as well as maintain operational efficiencies.
