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  2004 Jul Issue
   
Cover Story
Retail on Demand: Taking retailing beyond operational efficiencies
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Globalshop 2004: All in the art of presentation
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Cover Story Page 2 of 2
Retail on Demand: Taking retailing beyond operational efficiencies

Store Integration Framework:

This is where IBM steps in with its Retail on Demand through the Store Integration Framework platform. One of the most critical design points of the IBM Store Integration Framework, says Wong, is the flexibility to cater for different types of stores in terms of size and format.

“We are architecting the Store Integration Framework, our next-generation-store platform, with three fundamental objectives.”

The first objective is to provide an open, resilient and secure store platform that is highly flexible and scalable, so retailers can easily interoperate their existing store environment with tomorrow’s technology and solutions.

The second objective is to create an environment that permits IBM’s retail clients to rapidly deploy new integrated solutions in the store and on the Web. “We want to give our retail clients the capability to easily experiment with new consumer solutions and respond more quickly to changing trends. Just like promotion offerings, retailers need to be able to try new solutions in the store, and if these don’t work, throw them out without spending a lot of time and money. If they do work, scale up and roll them out to all stores to quickly maximise their return on investment (ROI),” he elaborates.

The new platform’s third objective is to provide tight integration between the enterprise and the store such that the retailer can effectively and consistently manage its entire enterprise as one entity.

“Some companies are saying the retail-store and consumer-technology solutions are all about devices at ‘the edge’. This is simply not true,” asserts Wong. “A successful retail enterprise runs on a carefully choreographed set of processes, designed to deliver great consumer-shopping experiences and efficiently distribute merchandise. Most store solutions need to be deeply integrated throughout the enterprise to gain the most business value.”
The core technology for the Store Integration Framework comes from IBM’s proven WebSphere family of middleware. This is the same open technology that delivers the secure, high-availability environment for companies like eBay.

“We work closely with our Retail Store Solutions division, which builds the most robust point-of-sale systems in the world [IBM has been named the POS Systems Company of the Year 2004 by Frost & Sullivan], to develop a new set of features specifically for the store,” Wong explains.

These features include new system management, systems and data integration, and retail-business functions. The result is an open, robust and highly scalable store platform.
“By using a combination of open standards, and integration and messaging technology, we can easily pre-integrate the Store Integration Framework with our client’s existing in-store and enterprise systems to offer a new store platform that enables the rapid deployment of new applications,” says Wong.

“This new-found capability is driving some really innovative ideas with our retail clients,” he reveals, adding that he is extremely pleased with the receptiveness of retailers to IBM’s new approach.

IT’s ROI:

Basically, retailers are interested in two things: To increase sales volume and maximise profit margins. A key measure on the effectiveness of its IT investment will be based on the ROI.

Says Wong: “ROI will vary by solution, but I think we are seeing some very interesting matrix in our various pilots. One of the more compelling is the ability to increase same-store sales by increasing market-basket size per shopping trip. This is being done by making relevant cross-sell/up-sell recommendations to consumers during the store trip. We are also seeing increased loyalty through greater return trips to the store and higher conversion rates, as consumers get better information to support their buying decisions.”

The next generation of retail-store solutions will likely need to be localised for each market, says Wong. This is particularly so for solutions that interact directly with consumers. “Just like websites, these solutions need to take into account local cultural preferences. That is why our regional business partners such as application-software developers and other hardware manufacturers play such an important role in the Retail on Demand strategy,” he explains.

“We see retailers are getting innovative about using the Web. In the early days, retailers were trying to figure out how best to leverage the Internet,” he says.

Wong is excited about this new retail synergy. “Retailers are start to realise that the Internet is not just about being another selling channel but rather a channel for building relevancy and intimacy with their customers. For example, imagine how a health-and-beauty retailer can build a trusted relationship with consumers at home and then show them in the store which products will suit them best. It is about creating relevance by integrating around the consumer at different touch points”

Services:

Another emerging development is that more retailers are moving towards IT outsourcing. “Outsourcing is certainly trending up, although I have not seen any data in Asia,” says Wong.

“One thing we see is retailers re-examining their business to determine what is core and differentiating it from what is just necessary to function as a business. Once identified, they are looking to outsource the non-core aspects of their business, and refocus their capabilities and investments on those that differentiate themselves. In retail, it is nearly universal that the retailer’s relationship with their customers is core.”

Recently, IBM announced an innovative outsourcing agreement with Boots, the largest pharmacy and health-care retailer in the UK. Under the agreement, Boots will be able to save money through outsourcing and, working with IBM, invest part of the savings in creating innovative new ways to build customer satisfaction and loyalty.

IBM is also one of the technology partners involved in Metro AG’s Future Store in Germany that has created quite a buzz on the international retail scene. What are the possibilities of creating such a store in Asia?

“What are we waiting for?” asks Wong. “I think it is important to remember that the Metro Future Store initiative was more of a pilot and demonstration of different available store technologies. An important takeaway from the project is that retailers do not need to and should not look at implementing all the new store technologies at once.

“We believe prudent prioritisation of solutions is necessary, but it is more important to plan ahead and avoid the trap of trying to using a Point Solution approach to build these new solutions. That would be analogous to building a house one room at a time, and having to integrate the wiring and plumbing each time. Retailers need to think ahead and carefully consider the advantages of using infrastructure for their stores,” he maintains.

Wong says the Asia-Pacific region is one of the fastest adopters of technology in the world, which augurs well for the retail industry. “On behalf of IBM, I have spent many years in the Asia-Pacific region, where the consumers’ speed of adoption of technology solutions never ceases to amaze me. In many cases, I think the challenge is for retailers to have the systems they need to catch up with the rapid pace of the changing tastes and sophistication of Asia-Pacific consumers.”

These are compelling reasons for Asian retailers to recreate their IT road map with reliable and reputable IT providers such as IBM.

“Retail is a great industry and one that is very important to IBM. We have more than 30 years of leadership in creating effective, innovative retail technology, and most of the world’s leading retailers are IBM clients in one form or another,” says Wong.

IBM has led the way for many ground-breaking innovations in retail - everything from the UPC code to inventory-forecasting techniques and supply chain to electronic product code (EPC) and radio-frequency identification (RFID).

“I believe we have earned the right and permission to work together with the industry to develop innovations like Retail on Demand. Together with our retail clients, business partners and industry trade bodies, we are ready to deliver the next generation of retailing.”

Indeed, IBM’s long years of experience in the retail industry allow it to be both a catalyst and an enabler. As Wong says: “We are not just about technology but also the fusion of business and technology that, together, can deliver on that strategy. We are not about technology parts but retail solutions. We provide the technology assets and the business process know-how needed by retailers to exploit the technology for their core business.”
From the beginning, IBM has been at the forefront of delivering open and interoperable solutions so that its clients across the globe can protect their existing investments and guarantee they will have choices in the future. That, basically, is the Retail on Demand road map - to provide retailers of today with choices, he says.

“It starts with vision and quickly moves to execution. We have spent two years formulating the Retail on Demand vision, [which has led us] to continue to learn and evolve. We understand retail - not just technology but also the detailed business processes needed to efficiently and effectively manage a retail operation. We should not be setting the retailer’s strategy and value proposition; that’s its job. But once that strategy is defined, we can bring it to life in new and innovative ways.”

How to build meaningful relationships

The only way for retailers to survive and grow in today’s extremely competitive environment is to be “operationally efficient”, says Christopher K Wong, IBM’s director of strategy for Retail on Demand, EBO.

“Successful retailers need to continuously seek ways to differentiate themselves and offer a clear value proposition to consumers who are becoming so much more sophisticated, self-sufficient and increasingly resistant to irrelevant marketing,” he says.

The advent of the Internet has impacted the retail industry more than any other factor. “The Internet has definitely reshaped how consumers think and shop. I mean, 10 years ago, who would have thought that shopping on the Internet could possibly be more satisfying than shopping in a physical store?” asks Wong.

“But by recognising consumers and capturing key information, Web retailers know who their consumers are, what they like and, thus, how to be more relevant with each successive visit. Contrast that with today’s store experience. For consumers, the store is a completely anonymous experience. At best, the retailer knows who you are and what you have purchased only when you are checking out and ready to leave the store.”

This is where IBM’s Retail on Demand comes into the picture. “Our goal is to once again let retailers build meaningful and relevant relationships with their customers while they are shopping and, importantly, if their customers choose to let them,” says Wong.

IBM is working with its business partners - such as Active Decisions, Cuesol, Triversity and many others - to deliver solutions that give retailers the capability to better understand and interact with consumers before they come inside the store, continue the interaction while consumers are shopping in the store and even follow up, if needed, after they leave.
Wong cites the following examples in different retail segments:

  • A home-improvement retailer looking at how to help consumers construct home-improvement projects, like build a garden, should first help them to develop a project list, then select the right plants and follow up with the customers throughout the year to make sure the plants are cared for with the correct fertiliser and other plant-care products.

    “The shopper can build his garden at home [on his PC], save it, and then retrieve it at the store so he can try out the various plants that are available during different growing seasons. We can easily extend the same technology to different kinds of projects,” says Wong.
  • For the large electronics-speciality retailer advising customers on how to select complex consumer-electronics products - such as digital cameras, computers and plasma TVs - given the high employee turnover and rapid product announcements, it has become a significant challenge to make sure its store personnel is well trained to answer all the consumer’s questions, not to mention manage the varying sophistication levels of different consumers.

    “Through the use of employee-training solutions, hand-held employee assistants and consumer self-service kiosks, the retailer will be able to address a wide variety of consumer questions,” Wong points out. “The retailer will also be able to ensure that consumers don’t leave the store without having all the pieces, such as cables, memory cards, etc, needed to make their purchases work. Again, to implement each of these solutions separately would be challenging, yet with the right infrastructure, these solutions can be easily deployed and maintained.”
  • A grocery retailer deploys devices on shopping carts so they can interact with consumers while they are shopping. The consumer enters the store, swipes her loyalty card to ‘log in’. The system then downloads her shopping list from home and the consumer quickly selects the items she wants to pick up.

    “The system makes sure that the product is available and then maps out the locations of the product in the store. The products are being scanned as they go into the cart to facilitate rapid checkout,” Wong points out.

    “Meanwhile, relevant promotional offerings are being presented to the consumer based on the items in that consumer’s basket and the consumer’s location in the store. Now, we have the possibility of linking recipes, products and promotions while the consumer is shopping - buy chicken, offer recipes for chicken, offer promotions on needed ingredients, send the recipe home.”

 

 


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