Smart shopping comes of age


28 Aug 2003

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With over a quarter of a million employees in an estimated 35,000 enterprises, retailing is one of the Republic’s major business sectors. As could be expected from the dominance of the multiples in supermarketing and some major chains in clothing and footwear, white and brown goods, pharmacy and other consumer areas, the top 10pc are believed to account for roughly 40pc of all national retail sales.

So the pattern in this as in so many other business sectors is of highly sophisticated leaders at the top end, with state-of-the-art information technology systems, and a majority of small to medium-sized enterprises that vary from equally smart systems to zero electronic footprint.

“The best retailers — not always the biggest — are facing a double squeeze on the technology front,” says Bob Semple of PricewaterhouseCoopers, who is Global Risk Management Solutions partner. “They are being pressured to produce an awful lot more from their IT systems and at the same time their budgets are restricted in the economic climate of the past couple of years. They are meeting that sophisticated challenge while lower down the scale there are all too many retailers challenged in getting even the basics of IT implemented properly.

“Stock management, key real-life and real-time metrics such as shelf life, wastage, profitability by product and dozens of others are critically important for all retailers and the fundamentals of computerisation. They have to be got right before any further progress can be made. But all too often there are pressures to meet the deadline and go live, and also business process issues — or just the human dimension,” he adds.

The computer is an unforgiving idiot, Semple points out, which actually follows idiotic instructions. “Business processes in retailing as in other businesses are complex and extremely so when you get to managing the supply chain and integrating processes from a number of partners. There has been a sharp increase in competition and we are all anxious to grab the benefits of smart technology — real-time information, highly efficient logistics and just-in-time delivery and so on. The trouble is that this also narrows the tolerance of the systems, so a relatively small glitch can have big knock-on consequences. For example, a minor road accident with a truck may mean my shelves are bare, because we don’t hold stock any more,” he explains.

Probably the world’s leading technology supplier to the retailing sector is IBM, which has been making point of sale (POS) equipment for decades and more recently involved in the back-office solutions such as supply chain, customer relationship management, data mining and so on.

“We see four key drivers in retailing today, all of which can be addressed using smart technology, or rather using technology smartly,” says David McNamara, client retail manager of IBM. “These are: empowered customers; competitive Darwinism; workforce productivity; and technology tipping points.”

The first is straightforward — higher standards and expectations everywhere combined with lots of information have made consumers choosy and mobile. As for the Darwinism, he points out that retailers that do not differentiate themselves, offer better value or a better experience will eventually become extinct.

“Workforce productivity is an important area where IT can make a contribution, not least because historically retailing has had quite high staff turnover,” says McNamara. “Efficient, easy-to-use systems — especially at point of sale — can raise quality for both staff and customers. You are also talking about real-time information and smart tools for store level and senior managements. Above all, you are talking about taking out costs across the board.”

As for technology tipping points, he explains that it all comes down to using IT to give your customers a unique or just a satisfying experience. “It could be clever and flexible loyalty schemes, self-scanning for regular customers, queue-busting by having staff with wireless devices check out customers and take card payments anywhere in the store. Information kiosks are potentially very important in-store for look-up or special offers and promotions. There are hundreds of new ideas coming along — and IBM has a research division pioneering many of them. Since quality and competitive pricing are now the norm, these will be some of the features that will attract and retain customers,” he adds.

But Irish retail systems firm Celtech, founded in 1992 by Darragh Fanning and a team of IT people from the retail sector, is firmly based on operational infrastructure for multi-site FMCG (fast moving consumer goods) retailers of any size. “Stop tinkering and think strategically,” he says. “Too many systems grow by sticking plaster layers as each new crisis or vogue comes along. It’s like greasing the wheel that squeaks loudest — the squeak goes but the business does not go or grow any faster. The problems come along because there are high costs in maintaining mixed systems from different suppliers and in any event there are soon quite simply too many points of potential failure.”

Kick them all out and start again? “In many ways yes,” Fanning responds. “Simplify your IT and centralise all of your information. Centralisation is absolutely the key, with real-time data — not near-time or batch updating or any of the other workarounds.”

But that means leased lines or other 24×7 connections, which could be expensive for smaller groups. “What we are certain of is that labour costs are going up and the telecoms costs graph is going down. The channel doesn’t matter — it could be a virtual private network over digital subscriber line or any always-on internet connection. A leased line does not have to be high speed. The important point is that once you have one single unified company database you have unambiguous control of your business, a single version of the truth. But you are saving costs all over the place because you are cutting out data replication and all of the complications of version control and so on. Now you can integrate directly with your web trade, group management can see absolutely everything at any time, local managers can see whatever they are entitled to, sales assistants can check stock in any store or stockroom and so on,” he explains.

He emphasises that ongoing savings and efficiencies are gained because everything in the business happens just once in one place, from new products and their barcodes to implementing price or Vat rate changes, from rolling out a new customer promotion to opening a new outlet. “All you need at POS level is a cash drawer and minimal PC with a web browser interface to the applications. But in turn you invest in a robust, fault-tolerant and resilient infrastructure. With that in place, you can quickly, flexibly and properly do what so many retailers take the sticky plaster approach to — adapt and grow the business to new market challenges, trends and customer requirements,” he concludes.

Radio is the rising retail star

Most experts predict that the growing use of RFID (radio frequency identification) smart tags is going to be the next big wave of innovation in retailing. Functioning in the same way as barcodes to identify individual products, a new universal numbering system will allow for even more precise identification — eg batch or individual pack numbering and manufacture or sell by dates.

Shelf edge pricing to be automatic and always accurate is not a store manager’s dream but a practical reality. If each shelf length has an embedded RFID reader and a liquid crystal display screen on the front, it will identify what products have been placed there and display the description plus the price as obtained from the central system. Then it can count the items as they go into customers’ trolleys and alert for re-stocking when required. An anti-theft feature will activate exit alarms if any item has not been properly checked out.

Slow sales on Tuesday afternoons? You could try a price promotion happy hour. Set it up in the office and the relevant displays will carry the new revised price until the promotion time ends.

Customer trolleys of tomorrow will have a colour screen at the front connected to the store system. IBM calls it a personal shopping assistant. Information on special offers or just interesting background information can appear automatically as you wheel past. “Your favourite wine, Mr A? Over to your left is the display, special personal discount to you today as a loyal customer. How much will all that come to? It’s already totted as the product tags were read, so your current trolley load total comes to €123.45.”

By Leslie Faughnan

Pictured: The IBM Intelligent Scale recognises all varieties of fruit and vegetable accurately (Veggie Vision), as well as any product with an RFID tag, so the customer saves time and wasteful errors are eliminated and the store maintains the correct margins