Indian “Retail-Operations”, “Bench-marking & Excellence” Survey 2013 | a RAI-TCS Study

The organized retail industry in India “turns 20 this year”. While the last two decades have been about high growth and pace, it’s time to take stock of the health of the industry as a whole. To provide a snapshot of key drivers of industry growth, profitability and operational excellence, the Retailers Association of India (RAI) and Tata Consultancy Services (TCS) have commissioned the first ever – Retail Operations Bench-marking Excellence Survey (ROBES). 

The survey profiles 35 leading retail brands in the country to understand process maturity and current practices around the following : 

  • Customer Service 
  • Marketing & CRM 
  • People Management 
  • Visual Merchandising
  • Space Management
  • Inventory Management

Highlights of this first ever survey on retail operations bench-marking and excellence of Indian retailers reveal that the current sentiment among Indian retailers is to optimize their existing investment through a strong focus on operational efficiencies and process improvement, improving numbers all around. Retailers are expanding but cautiously – format expansion is fourth on their priority list for the coming year.

The new buzz phrase is about being “EBIDTA positive.” New stores are given a strict timeline to perform. And this time around, retailers are unapologetic about closing stores if found un-viable. Overall, there is a more clinical, hard-nosed approach to retail and store operations in particular. Retailers are looking closely at their own internal efficiencies and toward each other to understand what can be done better.

Key takeaways emerging from this study include the following:

  1. Overall process maturity – Still some way to go 
  2. Store profitability is paramount and patience is running thin 
  3. Customer service is the true differentiator  
  4. 88 percent retailers mystery shop at their own stores 
  5. Inventory management is a critical focus area 
  6. Shrinkage – Persistent efforts are helping keep the faith 
  7. Below the line (BTL) marketing is the way forward 
  8. Weakened store expansion and strong focus on optimization of existing investment 
  9. Employee engagement is key to sustained growth 
  10. Technology adoption is slow 
  11. Multi-channel – high interest but low on action 
  12. Customer Loyalty Program: Miles to go before we sleep 

Overall process maturity – Still some way to go: 

The overall process maturities based on fundamental, must-have processes across the following six segments reveal ample scope for improvement and sharing of best practices. People management in particular continues to be an area of intervention. In functions like space management and marketing, while retailers seem to be comfortable, they could get more out of their operations if they had the necessary tools and measurement practices like measuring promotion performance. Visual merchandising is one function that respondents seem comfortable with in terms of process maturity. However, this function is increasingly being viewed as a potential revenue driver rather than just a hygiene “store look” enabler.

Overall Process Maturity - Cross Segment

Store profitability is paramount and patience is running thin: 

Retailers are making no bones about the fact that store profitability is critical. Given the hard lessons learnt from the last economic downturn, retailers are looking at a mix of cautious expansion with a strong focus on store profitability. This has affected store location, size and assortment decisions more than ever before. Retailers are not shying away from store closures (where they are found to be unviable) and resizing exercises to make them EBIDTA positive as soon as possible. Store managers are increasingly being trained on the P&L and seen as being accountable for their store’s bottom-line.

Customer service is the true differentiator : 

The market is crowded with many similar brands. Retailers are coming around to the view that service is the true differentiator; customers will develop trust through right advice and exceptional service, which will reflect in increased loyalty.

This strategic focus on the customer has not yet translated into a full-blown operational and process focus on in-store experience metrics. For example, while value retailers state that the customer experience during billing is key; 33 percent do not measure the time taken to bill during peak hours; and 56 percent do not measure the average queue length during peak hours.

Billing Efficiency at Peak Times

88 percent Retailers Mystery Shop at their Own Stores: 

The survey shows that “mystery shopping” has emerged as an important tool for retailers to get an “outside-in” view of their stores with 88 percent respondents saying they conduct mystery shopping studies at least half-yearly. Most of those who have a program in place say that it helps them get an outsider’s perspective on their stores and ensure that store employees give their best at all times.

Frequency of Mystery Shopping Audits

Inventory Management is a critical focus area:

Processes around inventory management at the store are a key focus area for all retailers. The study indicates that inventory management as an area has become stronger. Better visibility through perpetual stock-take measures, increase in bar-code scanning of incoming and outgoing merchandise and higher control over shrinkage means that the industry has increased process maturity in this area.

There is increasing evidence of a partnership between the Operations and Finance functions – with both process and policy being attuned to inventory management. Perpetual stock takes are outsourced to specialist firms by an increasing number of retailers who seem to have reaped significant benefits from this move.

Shrinkage – Persistent efforts are helping keep the faith: 

The survey indicates that retailers who have a zero tolerance refer to shrinkage in rupee terms while others refer to it in percentage terms.

Also, smaller retailers view store staff as entrepreneurs who have to necessarily achieve zero shrinkage. No bonus is given to manage shrinkage as it is viewed as a hygiene factor. Retailers are also looking at decreasing shrinkage levels by focusing on process, policy and technology initiatives. Instant penalties for shrinkage at the store along with strict discipline in daily global counts, surprise and regular stock audits by external auditors has led to a culture of greater stock accountability.

There also seems to be a direct correlation between shrinkage levels and the retailer’s merchandise barcode scanning process maturity.

Below the line (BTL) marketing is the way forward: 

BTL is emerging as a strong focus area for retailers in the coming year. Catchment initiatives are seen as a “must do” across retail segments to arrest declining same-store footfalls. Store managers are increasingly being pushed to develop their catchments and bring in more customers.

However, efforts are still localized with only 37 percent of respondents having an integrated CRM program. Also, 70 percent of those interviewed do not use any tools to execute promotions other than spreadsheet and email.

Weakened store expansion and strong focus on optimization of existing investment: 

Market acquisition through new store launches has taken a back seat and store profitability has become the top of the mind objective for the coming year. While store managers are being trained and measured on store profitability, there is also a need to tighten up central functions. For a majority of respondents (56 percent), lease cost is more than 10 percent. However, most retailers surveyed do not see the need to use advanced space management techniques and continue to manage space allocation and efficiency using spreadsheets. Only half of those interviewed had visibility of their spaces at a department level. Not surprisingly, only 19 percent of respondents scored above par on overall process maturity in space management.

Space Management - Overall Process Maturity

Employee engagement is key to sustained growth:

Employee training has assumed importance given high attrition levels and ever-increasing customer expectations, especially as people management is the weakest among the surveyed respondents. There is a growing realization that happier employees create a better store atmosphere resulting in far more effective customer interaction and sales.

For example, some areas for improvement include the following – 

  • About 33 percent of the respondents had attrition rates of more than 8 percent per month – which means that they replaced their entire staff every year.
  • 22 percent of respondents do not provide insurance or medical benefits.
  • Only 26 percent of respondents make employee training a part of the store manager’s Key Result Area (KRA).
  • 27 percent of respondents do not have well-defined, documented career plans for their store employees.

Engaging with a younger, ever evolving and far more technology-savvy and informed set of customers has necessitated a constant upgrade of the store staff capabilities. Is there a clear people management strategy in place to cater to the changing shopping behavior of the savvy digital shopper ?

Technology adoption is slow: 

There is an overall laggard in terms of technology adoption (compared to banking, travel and hospitality). This is found to be so in areas like task management and scheduling, mobility, space management and in-store customer experience management.

Multi-channel – high interest but low on action: 

The advent of digital shopping is a significant change agent. And it is challenging the conventional ways of managing the stores on almost all the parameters :

  • Format definition / roll out plan / operating models in the light of multi-channel customers
  • Role of sales people
  • Store processes

There is high interest in E-commerce but low commitment and action; a “wait and watch” game is being played out. In our view, there is an opportunity to redefine the business model through digital channels.

Customer Loyalty Program: Miles to go before we sleep: 

The survey indicates that this is an area of evolution for department stores and fashion retailers. Retailers do not see this as a top priority and tellingly use the two phrases– “loyalty” and “rewards” – interchangeably not recognizing that they are a part of a continuum.

Those retailers who have invested in loyalty programs are starting to see the results. For fashion and departmental stores, 25 percent of the store sales accrue from “loyal” customers. At the same time, 44 percent of retailers in this category do not measure data around customer loyalty.

Not many have a rich customer database or leverage it to reach out to their individual customers. Only 40 percent of the respondents had an integrated loyalty program. This is another area that retailers have on their radar for the coming year.

” The Indian customer is younger, increasingly more tech-savvy, willing to experiment, demanding and short on patience. On the other hand, he/she willing to spend and frequent stores if treated well and given a good deal…..

Store operations in general have evolved significantly in the last five years – in terms of internal processes, systems and some technology usage. However, there is yet a long way to go in terms of managing customer experiences, streamlining internal processes and adopting technology”…..


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