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IT in Retail - Transformation & Globalisation
G. Herman, (c) 1997


Chapter Seven - Delivering the Goods? A Conclusion

Introduction
The ability of IT to transform and sustain retail operations depends on a number of factors. Broadly speaking, these cover IT's own reputation and capabilities (not always givens), its acceptance within the commercial world as a whole, the development of consumer demand, and the requirements of trade and future exchange environments. The successful implementation of IT systems will follow an understanding of these factors and obedience to a few simple rules.

The Dissemination of IT
Like any other commercial enterprise, the rate at which IT is taken up by retailers will be affected by external factors. In particular, retailers will learn from successful and failed implementations of IT systems. In this respect, retail appears to have a better track record than most.

In recent months, there have been a number of high-profile IT failures stemming from a combination of over-ambitious user organizations and over-enthusiastic suppliers or consultants. The combination is disastrous, and the ruins of the London Stock Exchange s Taurus settlement system, the French railways' booking system, and the despatching system for the London Ambulance Service (to name only three) stand as witnesses to the expense and folly of failure. Retailing, on the other hand, has been marked by a generally steady approach to the implementation of IT systems. At the heart of most retail operations is a simple transaction processing system utilising tried and tested technology to read and update records from a single database - laser-beam bar code readers and itemised print-outs may look very sophisticated, but the underlying systems are actually very robust and well-established.

That said, a new generation of IT systems in retail promises risky leading-edge technology. In particular, the idea of linking up many systems within a store or among a group of stores still challenges advanced technology. The problem of unifying a number of databases, for example, is precisely what caused the collapse of Taurus. In principle, the technologies of distributed systems, networked multimedia and so on are sound, but the problem is the cost involved in making them work and - more importantly - making them work reliably.

Allied to this is the question of supplier reliability. All the major IT suppliers now have retail divisions and there are many specialists involved in providing turnkey systems, writing retail applications, or supplying specialist products such as shelf-edge labels and bar code readers. The open systems movement and the introduction of de facto and de jure standards such as the IBM PC, the Unix operating system, unshielded twisted pair (UTP) cabling for Ethernet networks, X.25-based wide area networks, and Edifact for EDI, should make the IT market more competitive and cheaper. Supplier reliability should be enhanced in a competitive market.

The issue for most users is not actually to do with the technology or the suppliers. The availability of a technological solution to an operational problem is not in question, nor is the availability of competent implementors. The problems are how to find the technology and the suppliers, how to ensure that the system being implemented is the right one, how to monitor its implementation, and how to rectify any failures or omissions. Increasingly, the answers to these problem are to be found in the formalisation of procedures: tendering, project management, the use of service level agreements, acceptance testing and, in some cases, contracting out of anything from management of a whole system down to maintenance.

The larger an organization is and the more complex the system it wishes to implement, the longer implementation will take. No IT or DP manager can be expected to understand every aspect of a sophisticated IT system, and they may not even have the appropriate staff in every area of expertise.

The IT department in many organizations is gradually taking on more resource management and support work and less systems development or conventional data processing. In general, complex and mission-critical applications and systems should always be piloted first. Systems development and project management needs to involve end-users, management and ordinary staff very closely. The introduction of new systems should be planned and prepared for. Users should be adequately trained and allowed a degree of ownership of the system. Change management techniques, such as the cultivation of technology champions within stores, groups or divisions, should be employed in connection with any major implementation. Management must understand how the system will change the organization and its existing procedures and must prepare the ground for these changes.

The mistrust of technology remains a potent force within many organizations, particularly if the technology is seen as a prelude to redundancies. Mistrust can hamper the introduction of IT and should be dealt with through effective and meaningful consultation and training. Rapid applications development and prototyping allow users to see a system as it is being developed, to correct problems early in the developmental cycle, and to feel involved.

Project managers and suppliers must be subjected to stringent schedules, delivery agreements and procedures - there is no point in staff trusting the technology if the suppliers don t deliver it.

Within the retail sector as a whole, it makes sense to establish standards of IT competence and awareness programmes. The general approach to IT will be affected by many variables: social policy on the introduction of technology and employment conditions (including legislation on health and safety, and working hours), pressures on labour costs, general wage levels, the competitiveness of the market amd, inevitably, the national and international economic picture. IT can be - and has been - simply a cost-cutting technology. In the past, the cost that tended to be cut was the wage bill. Computer systems substituted for labour directly, they deskilled certain jobs, and they enhanced the productivity of others, essentially by speeding them up. While IT is still used for these purposes, it is increasingly a technology used to add value rather than simply diminish cost. In this context, a trained and IT aware workforce may prove to be essential.

Social and Demographic Change
If market positioning is vital to the development of retailing, the character of the market must be researched and understood. This becomes particularly important where populations are relatively stable and aging - as in much of Europe. The pressure to seek new and growing markets is greater for retailers facing a domestic market which is stagnant and possibly more discriminating. In much of the developed world, these trends have been exacerbated by recession, which has stimulated the remarkable growth of discount stores and, at the same time, has encouraged a high value, specialist trade to develop which is less reliant on aggregate market behaviour than the volume trade associated with supermarkets and other multiples.

IT is an increasingly important tool in tracking demographic change and managing its implications. The use of so-called geographical information systems (GIS) and access to census and other population data in electronic form can help retailers minimise chance in the planning of store developments. The location of stores is particularly critical to retailers who must consider not only demographic trends but also social changes within a ten to 20 year time frame. Planning regulations and policy, transport infrastructure, the movement of urban populations, and predicted incomes and expenditures must all be taken into account, and these depend on a combination of political, economic and cultural variables. For example, in the UK, discussion of out-of-town store developments has recently focused on the social undesirability of their impact on city centres. In recent years, many city authorities have launched major urban renewal projects. The movement of people away from large cities to smaller cities and towns is a detectable trend. It s conceivable that restricions on out-of-town retail parks will be introduced. In other parts of the world, meanwhile, limits on the size of new stores are being lifted.

In the next few years it seems clear that there will be continued pressure on retailers operating within saturated markets. General trends must be analysed in order to maximise sales - the increasing number of men who shop for food, for example, or the declining frequency with which people undertake regular shopping duties. The rapid analysis of all the many variable involved in gauging the potential profitability of a retail site in any part of the world is a task which only IT can perform, but it must be done consistently and coherently using all the required information available.

Retail Environments of the Future
Location and access is always a problem for retail developments. Inner city sites tend to require efficient public transport systems while out-of-town sites are often irresponsibly profligate with parking space, which might more profitably be used for some other purpose. Land prices or rents are always a major factor in determining profitability. The future store will probably optimise its usage of space. Warehouse shelving is one approach, the other is to display only sample items on shelves, rather than goods for sale, and to use information technology to process orders entered on some sort of keypad or using a bar code reader.

The supply chain itself may be adapted to fit the demands of IT-based retailing by using central warehousing and distribution points to deliver not to a store but direct to a customer s home once he or she has confirmed an order. A related development (probably only available with some types of product) is to have products made up at the point of sale. This already happens with some stores belonging to the US video and games multiple, Blockbuster Entertainment, where video titles or computer games are copied to a customers order onto blank tapes or discs, thus saving on storage costs. This, of course, is one step away from teleshopping in which the store is abandoned altogether and products are ordered remotely and delivered to your door.

It seems unlikely that stores will become redundant, although in particular cases something similar is happening already. For retailers, the store represents a exploitable selling environment. Store ambience is a significant factor in encouraging impulse and other unplanned purchases, and it is unlikely that customers will ever be happy just to shop from an interactive video terminal or using a virtual reality helmet and keypad. Instead, IT can be used to help design and layout stores (as the UK variety retailer W.H.Smith has done) to maximise sales opportunities, while in-store customer terminals and kiosks provide multimedia merchandise displays and information points, or even virtual reality store guides. Particular advantage can be taken of electronic shelf-edge labelling which will allow item pricing to be targeted at individual customers. In a recent report, retail specialists at consultants Coopers & Lybrand in New York argued that stores will combat the threat from teleshopping by combining retailing with entertainment, in the form, presumably, of theme-based outlets mixing rides, video shows, and competition booths with straightforward sales points - possibly along the lines of the Mall of America complex outside Minneapolis which hosts 400 stores and a theme park on the same site.

This is less fanciful if looked at from the other end. Instead of extrapolating from the conventional retail environment with one or two children s rides or a playpen, extrapolate from conventional theme parks, museums, and cinemas. The idea of selling things in this sort of context is already well established and is it is likely that selling will continue to become integrated into other leisure-time activities.

It is certain that increasing use will be made of database marketing in which sales promotion is targeted at particular well-defined socio-economic groups, often defined through membership of a club or subscription list. These may be tied to customer loyalty schemes. Data-mining techniques will be used to identify trends from the mass of undifferentiated sales data generated by stores. The introductio of the smart card may mean the eventual decline of the checkout as purchases are recorded automatically on a card and item prices deducted electronically from your account. The unmanned checkout is already a possibility, although many customers will certainly prefer to deal with a human attendant for many years to come.

It is possible that home shopping will eventually overtake conventional retailing altogether, but this will certainly take longer than most people would predict. Even in the most developed areas of retailing, mail order still represents a small fraction of all retail transactions. Yet teleshopping is growing rapidly in many parts of the world thanks to TV channels like QVC, and the penchant of some groups for buying from a TV screen. Catalogue sales, too, whether mail order or from door-to-door sellers, also represent a growth area in retailing. The success of stores like Ikea and Argos, which use catalogues as a more-or-less vital adjunct to conventional retail setups, is yet another straw in the wind.

Despite numerous predictions of the end of conventional retailing, one or two words of caution are in order. Supermarkets have shown that successful retailing depends more on effective back-office technology than on glitzy customer-oriented systems, while a recent report from the UK s Interactive Media in Retail Group (managed by James Roper and Touche Ross Management Consultants) argued that successful interactive media projects are likely to involve an investment in excess of œ1 million . The technologies necessary to transform retail, in other words, are expensive and immature and, for the most part, retail outlets will continue to look the way they do today well into the next century. If competition and recession continue to drive down margins (as they are doing among the grocery supermarkets and discount stores), the adoption of expensive new technology will be further slowed, at least until merger and industry shake-out re-establish the potential for growth.

Global Parameters of Trade
Globalisation is clearly already an imperative for many retailers, but it appears that a smooth ride is not yet guaranteed. The developed world remains set on the course of solidifying into three or four trading blocs. At present, these seem to be cohering around the US and NAFTA (the North American Free Trade Area), the European Union, and Japan, but the longer term future is fraught with difficulties thanks to the emergence of China as a major economic power and the impact of continued conflict in East and Central Europe on the stability of the continent as a whole.

Even accepting the rough compromises that constitute GATT, the tenor of world trade is increasingly protectionist. In itself, this will have little impact on retailing, since protectionist measures tend to focus on a relatively small number of critical industries, typically in manufacturing and agriculture. However, protectionist measures may continue to circumscribe the ownership or control of retail operations in foreign countries and may restrict their ability to source products from outside a given area. Past experience suggests that it is always possible to circumvent such restrictions, but problems may arise from such circumvention or from the imposition of local or regional trading regulations, and technical or consumer standards that may make it uneconomic to operate across borders. Meanwhile, the problems of distance selling across borders are huge - the issues that need to be addressed include currency fluctuations, tax harmonisation, technical and quality standards, consumer protection, and the enforcement of appropriate regulations. Still, the European Commission reports that over 200 million cross border transactions took place in Europe in 1992, and the number is growing.

Currency fluctuations can also disturb the environment for cross-border retailers running significant treasury management operations. In all these instances, IT can help simply in terms of its contribution to the management of complex situations.

Some retailers, like McDonald s and Toys R Us, have resolved many of these issues by maximising the uniformity of their operations - all Toys R Us stores are designed to the same principles and hold roghly similar stock, all McDonald s sell a similar small range of products. But not every store can operate like that. It is important to distinguish between the globalisation of retailing, and the globalisation of some retailers or some products.

The former does not yet exist in any real sense, and will probably have to wait for a global communications infrastructure on which to build various teleshopping formats. The latter exists in a handful of special cases able to exploit genuinely global markets - for toys, hamburgers, Cola drinks, and so on. Global operations for particular retailers can actually take a variety fo forms - from investing in a foreign retailer, through partnership deals to opening a store in a foreign country. While IT can support full-blooded international expansion, it seems likely that other factors will restrict most individual companies to limited forms of internationalisation.

The Impact of IT
Clearly, IT can represent a substantial investment for any organization - perhaps as much as 8% or 9% of turnover for an industry leader in a quadrant four industry (making strategic use of IT). This sort of investment will buy sophisticated electronic trading and stock-replenishment systems that will allow large retailers to cut prices while maintaining a high quality of customer service. We have already observed that IT investment of this type can create barriers to entry for smaller, competitive firms. The result is that the adoption of IT for competitive advantage by one retailer helps encourage the grouping or merger of smaller retailers competing in the same market. Of course, IT is not the only route to a scale economy to do this, but it is increasingly pivotal to cost and quality advantages.

Small retailers can compete in other areas, such as convenience, range, quality or speed of service, but increasingly large retailers are attacking these areas, too - late night opening, credit facilities, special lines and new checkout technology offer the customer all the advantages of small, unit retailers (apart, perhaps, from personal service) and, often, at a cheaper price. IT is increasingly the key enabling technology which allows large retailers to improve their performance in terms of convenience, range and service.

In response, small retailers tend to move downmarket or to specialise even more intensively. Multiples are therefore obliged to tune the IT function, in order to cut prices on popular items or to focus their sales efforts ever more tightly. The logic of competition between large and small retailers promotes the development of IT in particular directions.

Successful Implementation
Without doubt IT has proved itself of crucial importance for the growth of large-scale retailing because it has allowed certain organizational forms and management approaches to work. IT has allowed widely dispersed outlets to be locally managed and centrally coordinated, it has brought effective control to supply chain management and created the basis for powerful analyses of consumer trends. IT can help flattened the management hierarchy of retail organizations and create more efficient channels of communication. It can provide a wide range of support functions for planning, developing, managing and operating retail outlets.

Where it has so far made little impact is in stimulating demand. It is only possible to grow so far by controlling costs, and it remains uncertain what IT can do to promote sales and at what cost. In the immediate future, retailers will probably look to managed foreign expansion as a means of generating more profit, and this is bound to have the effect of squeezing retail in general. Eventually, the new forms of IT currently being heavily sold will start to be seriously implemented - particularly if TV home shopping, mail order and catalogue sales continue to take market share from conventional shops. But this may take some years. Meanwhile, the development, integration and management of existing systems will be the technological priority for most retailers.

The successful implementation of IT projects depends on a number of factors. Among the requirements for a successful project are:

It must support corporate objectves. Projects which divert resources from an organization s main business will fail.
It must involve users in its design at every stage. This includes the operators of the eventual system, and staff and managers who might in some way benefit from the system or be otherwise affected by it. The development of projects which will involve customers as users (for example, multimedia kiosks) will also benefit from input from representative members of the public.
It must be supported by senior management or it will not be taken seriously.
It must fit with the organization s technology policy, or it will attract unnecessary and unplanned expenditure.
It must take into account the human factors which it will influence. In effect, this means that any IT project must include consideration of the change management and staff development issues involved, and must acknowledge the likely organizational and operational impact of implementation.

It should go without saying that the project must also work!

The potential of IT in retailing is tremendous and, as yet, largely untapped. But it is a potential for expensive failure as well as spectacular success. As always, the important consideration is not the technology itself, but its management and integration with corporate goals. IT only delivers the goods when the goods themselves have been identified and located.

Monday, September 10 2001

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