Saurabh Toteja, business manager retail and consumer sector at ICT company Mahindra Satyam, on the retail challenges of global expansion
“The economic downturn is forcing a string of high street retailers to take radical restructuring steps or face possible administration, with a recent survey conducted by the Confederation of British Industry (CBI) finding that last month; UK retail sales have fallen to their weakest level in a year.
“This comes as no surprise given the recession is forcing prices upwards, leaving consumers to tighten their purse strings and budget harder for the bare necessities such as groceries and fuel.
“To combat the dip in consumer spending and decline in UK high street sales, retailers are introducing new incentives to entice shoppers, such as extending their seasonal sales periods or slashing prices even further. Recent research by PwC unveiled in mid June, 70% of high street stores were advertising sales or promotions, in comparison to 60% last summer and 40% in 2009. As well as taking such necessary steps in-store, retailers are also looking for new market opportunities abroad as a means to increase sales profits and drive growth.
“Mothercare chief executive, Ben Gordon, recently announced the chain would be focusing on international growth as UK sales decline, while more recently Mulberry claimed it anticipated overseas sales to overtake those in the UK within two years.
“However, a desire for a smooth running global operation presents many challenges, as the international supply chain is fragmented with multiple intermediary points. Unforeseen events can take place along the way that affect the entire supply chain, such as the prolonged period of snow and ice in the UK last winter, which created a huge backlog in deliveries and many an unsatisfied customer.
“Retailers need to prepare for such events by carefully drawing up contingency plans to mitigate the risk, so if something goes wrong in one country, the whole supply chain does not collapse. Since a small chink in the chain can have a huge knock on effect elsewhere, processes need to be tightly integrated.
“Given the fragmented nature of the global supply chain and the potential risk of disruption, a fundamental challenge is in how to smoothly route merchandise from A to B in the most efficient way, in order to meet time sensitive ordering requirements. At the same time, international regulations, duties and merchandising restrictions need to be complied with, without disrupting the routing process. After all, the efficiency of the supply chain is only as good as the operations working behind the scenes, and technology has a huge part to play in tracking and maintaining stock in international locations, managing workflows, avoiding data duplication across brands, and administering a smooth currency exchange.
“For each and every business function to work efficiently, the technology infrastructure running these processes needs to be flexible and agile. So for retailers running disparate, legacy IT platforms, this may mean a fresh approach to consolidate systems, or an entirely new technology upgrade altogether.
“For a large American clothing retailer that recently broke into the UK market, the challenge from the start was the business operating model, together with IT. With an operating structure laid out for a single country – and an incumbent legacy mainframe system that could only hold three currencies – it would have taken up to 18 months to add a required new currency. By changing its operating model, thereby redefining a platform for international growth, together with a new Oracle Retail system, it provided it with the framework for a comprehensive set of business processes.
“This enabled the inclusion of the online and physical pricing strategy, and ensured the new business – including an additional currency – could be added to the portfolio in just three months. The system can be repackaged and flexible, and thus tailored to each and every project, so cost and time in a fast paced, dynamic retail industry are kept to a minimum. The retailer is benefiting from pre-configured tools for a faster return on investment, improved productivity and reduced time to market.
“There can be significant benefits to expanding internationally, including better risk management, enhanced brand awareness, increased sales profits and fresh opportunities for growth. However, in order to survive in a disparate, saturated global marketplace and maintain and grow industry leading margins, retailers need to develop a flexible business model. This means resources need to be pulled together and business processes streamlined, whilst ensuring compliance with international regulations and duties, with one version of truth for all data and aligned visibility across all departments and levels of the organisation.”