26 November 2009

Katja Ocvirk, partner manager at LS Retail, discusses how retail must adapt to changes in customer habits brought on by the recession and how best to cut costs.

Things will never be the same again, or, more correctly, should never be the same again. We as a global community must learn to think differently, or else the financial crisis we have recently escaped is likely to return. Believe it or not, retailers offer a great example of not only how to adapt to the new situation, but also how to benefit from it.

A year or so ago the focus was on the classic retailer pains such as inefficiencies in the supply chain, neglect of new technologies and staff insufficiency.

Last year, however, the situation changed dramatically. Responding to the economic downturn, customers have gained new habits when it comes to how they shop and will not lose them in a hurry.

Suddenly, retailers are faced with additional pains. Brand monogamy, for example, is out. No one is loyal any more if there is no additional gain. ‘Repertoire’ shopping is winning against ‘impulsive’ shopping, which means that people are more careful about their shopping habits. They divide expenditure over a larger period of time and will purchase fewer items per store so that they can get the best current price on every item. As such, retailers cannot rely on good displays and a great shopping environment for success.

In a world saturated by marketing campaigns old-fashioned direct recommendations are gaining in importance. Traditionally this process takes time, but these days social networking has given it a totally new dimension.

It has also become obvious that in some areas people support their community by trying to purchase locally produced goods. Awareness of green consumer responsibility also remains high, but the main battlefield for any retailer remains price.

All these changes to shopper habits mean one thing – retail business must change too. In the past, retailers were focused only on cutting costs. Meanwhile, on the sales side, constant price reductions started to lower brand name image. As a result, there was often a negative atmosphere within companies, which is very dangerous in retail. The staff should feel comfortable when dealing with customers in stores and this simply cannot be done if they fear for their livelihood. You can sense something is wrong and who wants to return to a store that is not appealing?

Retailers must find other ways to reduce operating costs and find new revenue. So, what are the new business concepts in retail likely to be going forward? Since brand monogamy is out, loyalty schemes must be updated. The trend is to make them more personal and more connected to other, non-competitive, brands. Retailers should think about making loyalty schemes more ‘horizontal’ by combining retail with other services such as banking, insurance, mobile phones and affordable holidays. Plus, offering them on a personal level creates additional trust.

In an environment where you have already cut the operating costs down to a minimum and squeezed suppliers for additional discounts, what else is there to cut? Replenishment is usually the answer. There are many issues a retailer needs to check before deciding on a suitable replenishment strategy: Are you sure you are using the right method for your business? Do you have many out-of-stock situations? Do your stores have enough space to display your entire assortment? For how long would you like your stock in stores to last? Fixed or dynamic replenishment cycle? Centralised or decentralised? Push or pull models?

It’s also worth building new business models. For example, you could combine store shopping with Web shops and customer relationship management, making personal loyalty promotions possible. Another could be selling advertising space in your stores to your suppliers. In general, combining traditional retail with services seems to work.

New technology that will change the shopping experience is also becoming a reality. Mobile shopping is finally coming into its own. Wallets will eventually be replaced by mobile phones, or some other gadget, that will safely store your credit card information and enact payments through technologies such as near field communication, radio-frequency identification and Microsoft Dynamics payment tools.

All of these scenarios are possible if you have the correct data for decision making. But a fancy business information (BI) system will not help if the data from the BI cubes does not reflect the situation in stores. So, the first step is to deal with essentials, and build from there.

A full end-to-end or complete enterprise resource planning (ERP) solution is usually better than a separate ERP, point of sale combination. It runs on the same platform and by avoiding transaction problems it is fully connected. Therefore accurate real-time information is available. There is a growing demand to extend the ERP functionality to the POS itself and this is realised in the form of integrated solutions.

Flexibility and scalability are essential for the future, but have traditionally been difficult to combine. LS Retail NAV however, which is powered by Microsoft Dynamics NAV, is capable of blending two such qualities. It enables retailers to react instantly to customer information and allows employees to spend more time on customer service than on maintaining and servicing old systems.

LS Retail solutions provide the retailer with tools that have the flexibility, control, automation and execution capabilities necessary to respond and compete in today’s complex retail environment.

Overall, the financial benefits come from operating a single platform, which drastically reduces the number of people needed to set up and manage the application. The look and feel of the Microsoft Dynamics platform is modelled on Microsoft Office meaning that most users are already familiar with the environment, plus there are no integration issues between the two.

This article first appeared in the Retailspeak Partner Guide 2010

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