Linking up the enterprise through IT
Retail operations anywhere in the world are inherently complex due to four factors and more so in India where it is still in an evolutionary phase. Product complexity- Indian retail sector has more degree of product complexity as compared to its western counterparts because of its multi-lingual, multi-cultural society added with increasing population by leaps and bounds. A large number of SKUs, high degree of seasonal and fashionable items makes the retail operations interesting as well as complex.
Supply chain complexity- In the last few years Indian retailers have adopted SCM (Supply Chain Management) solutions to enhance core business processes like logistics, distribution, sourcing, management of point-of-sale data, inventory management etc. as the competition grows there would be a pressing need for the retailers to adopt enterprise wide IT platforms to manage critical and ever evolving operations. 3. Scale complexity – India is the second largest populous country in the world. Retail processes are handled on a very complex scale given the length & breadth of the country and pan India expansion by the retailers.
It becomes more so when there is no dearth of potential customers. Indian retailers are quickly adopting IT solutions to deliver a high standard of customer service. Process complexity- The entire value chain (manufacturer, distributor, retailer, and customer) has multiple touch points where it is integral to manage the interaction and to ensure the smooth flow of data. Geographical dispersion makes the retail environment more challenging in terms of coordination among key channel players. Supply chain management is still a critical problem area and Indian organized retailers are looking towards IT to streamline.
Retailers currently are keenly adapting technology like CRM (Customer Relationship Management), RFID (Radio Frequency Identification), POS (Point-of-Sale), manufacturing execution systems (MES), Enterprise resource planning (ERP) from SAP and other solution providers for the following modules. The two modern concepts of E-retailing and Knowledge management have few takers in the organized retail industry as these are relatively new to the Indian retail. Indian retailers are more convinced about the B2B e-commerce then B2C e-retail initiative. The reasons are non viability of the business and resource constraints.
Also application of Knowledge Management systems might be introduced in the future after the current IT infrastructure is consolidated and retailers becoming more comfortable with the environment. Financial resources- In India except Pantaloon and Trent- a TATA group enterprise no other organized retailer is listed on the stock exchange so analyzing the financial performance is difficult as the information is not readily available. Also the retail sector has not been granted an Industry status so it attracts limited funding from banks and financial institutions.
But for large retailers Funding has come in through venture capital and limitedly through banks to fuel further expansions. FDI is also restricted so there is a dearth of funding which can otherwise bought in much needed world class technology and best management practices. The only worry on the balance sheet is the increasing cost of real estate rentals which is causing the margins to shrink. Another worry is the delay in delivery of stores or completion of malls. This puts the financials of the company at risk as it increases carrying costs and builds up lot of inventory on the balance sheet.
Pantaloon Retail (India) Limited is India’s largest organized modern format retailer. It is the flagship company of the Future Group which is into multiple businesses across product and service lines. The company has over 11mn sq ft of retail space. It has 1000 stores across 63 cities and 65 villages in India. According to Pantaloon Retail’s Draft offer of letter for equity shareholders, 2005, the operations chart of the organization is as follows- Pantaloons- a fashion outlet chain, Big Bazaar- a hypermarket chain, Food Bazaar – a supermarket chain, Central- a chain of destination malls.
Other formats are – Depot, Shoe factory, Brand Factory, Blue Sky, Fashion Station, aLL, Top 10, mBazaar and Sitar & Sitara. The company employs 30,000 people and the number is growing with increasing number of store openings nationwide which has increasingly put pressure on its Human resource policies. Financials- The Company’s turnover has increased from Rs. 285. 3 cr in FY02 to Rs. 5048. 9 cr in FY08. Profit after tax has increased from Rs. 7 cr to Rs. 126 cr for the same period. The company has changed its accounting policy from ‘retail price-less mark up’ to a more conservative ‘lower of cost or net realizable value’.
The step was taken to reduce the inventory percentage of sales which was previously 28% of sales. The company is in a good financial position. Sector comparison- Contrast to the rest of the sector, Pantaloon Retail being the largest and the oldest organized player has easy access to credit from banks and financial institutions. Also it has put a hold on many yet to be developed prime real estate properties. Pantaloon is able to think years ahead of its competitors. Very strong forecasting had been able to help in negotiating real estate rentals and capital investments.
Its arch rivals Shoppers Stop and Subhiksha are struggling with their financials as they are facing increased coompetition. Information technology – Pantaloon is known to think ahead of its times. In terms of technology it is continuously revamping and reassessing its needs in order to sustain for a prolonged period given the booming retail scenario and the competition therein. It is the only organized player that has installed mySAP technology as its enterprise wide IT solution. Advanced technologies like RFID, Business Intelligence (BI) are giving it a distinctive competitive advantage.
Sector Comparison- Pantaloon has always believed in having the best technology for its businesses as it is always thinking in long terms. It also means high costs attached with the technology at the same time but the resultant payback period is already calculated. The rest of the sector especially the organized players are not as prompt as Pantaloon in technology adoption. Human resources- Pantaloon is facing the same manpower issues as the other players in industry. The issue has taken a strategic perspective given the competitive challenges involved. There are two major challenges which are being addressed by the company.