TABLE OF CONTENTS. Introduction 3. Market Trends, Potential & Opportunity 3. Challenges in Today s Merchandising Landscape 4

Transcription

1 JULY 2012

2 TABLE OF CONTENTS Introduction 3 Market Trends, Potential & Opportunity 3 Challenges in Today s Merchandising Landscape 4 Business Transformation Approach for 5 Modern Merchandising Integrated Framework for Modern Merchandising 6 Merchandising Maturity Assessment Model 7 Conclusion 9 About the Author 10 About HCL , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

3 Introduction The retailer s landscape is becoming increasingly complex. The rapidly growing multi-format store network, blurring category lines, overlapping channel proliferation and an ardent focus on customer centricity are all adding to the complexity. This has made it imperative for the retailers to keep their merchandising systems up-to-date. Though the retailers themselves are aware of the hot spots to focus on, but the challenge remains adapting and improving the present day merchandising systems to embrace an integrated methodology for assortment & space planning, cross-channel multi-store multiple geo price optimization and demand forecasting. The modernization of merchandizing systems is the need of the hour and retailers must reshape their outlook towards merchandising and develop an understanding of the latest trends, the challenges as well as the opportunities to re-align business objectives for optimizing operational efficiency and improving gross margins of their merchandising chain. Subsequently, on the IT applications front, application functionality enhancement (to support new product & store formats) and enhanced functional capability to plan assortments/merchandise mix in-line with the changing consumer expectations are major asks from the retailers. Market Trends, Potential & Opportunity According to the latest RIS & Gartner report titled, The Adoption Status of 2012 Top Technologies in Merchandising, merchandising functions such as replenishment, forecasting, item management, category management, allocation and assortment planning are focus areas for technology investment and further improvement. (Refer to Figure 1) Figure 1: Status of Adoption in Merchandising Technologies - RIS & Gartner 2012 The retailer investments while modernizing their IT applications landscape can be classified into two types. Investments in optimization solutions within an enterprise: As the market pressure intensifies, in order to remain competitive and on the offensive, companies will need to re-evaluate their merchandise planning , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

4 phases for optimizing assortments, pricing strategies and clearance/markdown processes. On the merchandise execution front retailers are enabling realtime supply chain replenishment for stocks and order that helps optimize order quantities for the distribution centres & stores. The 2012 Retail Outlook Guide from Retail TouchPoints (RTP) indicates that in the last two years global retailers have heavily invested into merchandising optimization, pricing & markdown optimization technologies. Potentially, these technologies are helping the retailers to understand style, size and volume distribution to lowest supply chain echelon at a more granular level. Investments in solutions to understand customers behavior better: Integrating space plans with assortment is where retailer wants to make improvements so as to have tailored offering for specific customer segments. Retailers are becoming more and more focused on consumer data to close the loop between planning and merchandise execution, thereby, accounting for what actually has been sold and plan for subsequent stages of cross-channel engagement with potential customers. MerchandisingMatters.com, an industry portal & community website for content, collaboration and mindshare recently shared the results of an ORACLE study wherein insight into cross-channel shopper behaviour was found to be an important criteria for driving multi-channel operations offering real-time visibility to merchandise for pricing, promotions and inventory information. Challenges in Today s Merchandising Landscape The cost cutting card has played itself out, there is no more cost to cut, and the only option is to manage revenues well and improve profits through smarter offerings to target customers. In order to achieve business goals and objectives, the merchandising IT landscape should be sufficiently equipped. Integration between all merchandising processes has the potential to deliver huge benefits to the retailer; thus eliminating complex interactions within the merchandising planning & execution processes. Figure 2: Current State Merchandising Systems IT landscape , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

5 The current state of merchandising systems, people & process is quite complex and challenging. Figure 2 - depicts the current state of merchandising systems IT landscape across many global retailers. We have observed similar challenges across our retail customer base. We classified them broadly under three headers: Assortment & Space Planning - Limited analytical capability on merchandising mix considerations - Limited ability to tailor assortments by store segments against consumer preferences - Lack of customer-centric assortment planning capabilities - Restricted space planning capabilities - Continued channel planning in silos - Limited consideration to channel affinity within assortment plans - Lack of solutions for integrated planning & execution Price, Promotion and Markdown Optimization - Limited consideration for adapting pricing decisions across cros-channel, multi-store format, multi-geo scenarios - Limited price optimization capabilities for increasing cross sell and upsell opportunities - Need to adapt & translate from a singular pricing model to a more customer centric model Forecasting - Lack of consumer buying behaviour driven forecasts - Lack of forecast performance analysis based on cross-channel selling patterns - Limited strategies to reduce increased holding costs arising from inaccurate forecasting and longer replenishment times across-supply chain echelons - Complexity of diversity of categories resulting in a chain reaction of forecasts which eventually in itself is an uphill task to be managed well Business Transformation Approach for Modern Merchandising Today, many global retailers strive to embrace and leap forward from traditional merchandising practices to modern merchandising. In this business transformation scenario, much emphasis is given to adapt the current state of IT systems with a modern yet ever-changing next-generation merchandising environment. While evaluating the need to adapt to a modern IT landscape, the following are considered as the top 5 criteria. a) Improve & reach better levels of assortment localization b) Increase category gross margin levels c) Adapt merchandise, space allocation and pricing for new and preferred formats of sale , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

6 d) Identify root causes to revive and utilize insight to facilitate appropriate ways & means of category expansion e) Focus and improve operations on a customer-centric scale For such transformational adaptation, operational, process and data optimization is a key theme in merchandising solutions. Optimization and data insights are helping top-tier retailers become more customer-centric in their offerings to the ever-widening customer base and enable customer-centricity retailers need to close the business process gaps from merchandise planning to execution. In HCL s perspective, a next-generation merchandising IT system would offer a wholistic view of variuos business functions at an ERP level. Most of the best in class ERP available in the market offer functionalities for the managemnet of product & location hierarchies, vendor management, item ranging, promotion and price management, markdowns and clearances, space managment, order management, inventory management, replenishment and forecasting. Though enterprise packages provide these functions, retailers may have to modify/revamp/develop business-centric custom applications around assortment planning, store clustering, customer-centric promotion models/ algorithms, a product/buyer/vendor compliance models, etc. Moreover, it is quite important to note that the entire architecture of the next-generation merchandisng applications will be completely industry-centric. Any function considered important for a given industry may not be as important to the next. For example, in case of Grocery Replenishment Planning demands more interest, while in the case of Apparel and Fashion, a buyer may be more focussed on Assortment planning. Encapsulating the above would be an integration layer, ideally an enterprise service based on a service-oriented platform connecting transaction systems and business intelligence platforms. Depending on the channel of sales i.e. brick & mortar stores, online, mobile etc. business presentation layers can be organized on a desktop, mobile phone, Web application, to get real-time insights into assortment performance vis-à-vis customer demand, promotion effectivess visà-vis seasonality. One can expect the presentation layer to be cutomized with respect to business user requirements adapted over appropriate technology platforms, so as to seek right insight for making planned decisions. Integrated Framework for Modern Merchandising To accelerate the move towards customer centricity in merchandising, optimization and lower level of granularity in planning, HCL is offer a complete bouquet of services for modernizing retail merchandizing suggest the adoption of best-in class industry-specific frameworks & assessment toolkits. Based on the final analysis/execution outcome of the assessment toolkits, pointers to next-gen architecture of merchandising systems landscape are obtained. Each of the idealistic next-gen merchandising IT solution component processes and system level interactions are evaluated through HCL s Business Benefit , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

7 Realization Framework across business processes, key KPIs, inputs & other constraints that may impact merchandising decisions such as similar products from the competition, geo-specific targets, and availability/limitations within existing historical data. HCL uses a variety of tools, techniques as well as evaluation frameworks to assess the current state of merchandising in business operations, and thereby identify areas of quick & realizable improvement. The Merchandising Maturity Assessment Model is one of the widely used HCL frameworks. Merchandising Maturity Assessment Model The Merchandising Maturity Assessment Model is a framework to assess the current state of merchandising capability (from an IT systems standpoint) within any retail business organization. Figure 3: Merchandising Maturity Model (A Sample) , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

8 As such, the Merchandising Maturity Model evaluates maturity across each merchandising function (such as assortment planning, merchandise planning, macro and micro space planning, product/range management & optimization, price/promotions/ markdown planning, execution & optimization, OTB planning, forecasting, replenishment and allocation) through various tenets of the retail industry. The business tenets encapsulate the line of business of retail operations (such as grocery, soft lines, hard lines, fashion and apparel, toys, jewelry, sports and footwear), medium/channel of sales (such as online, catalogue, mobile, brick & mortar (i.e. super store, super market, hypermarket, departmental, convenient, specialty, etc.), multi-geography (such as U.S., U.K., Europe, Asia Pacific, Japan, etc.), multi seasons (such as spring, summer, autumn, winter, Thanksgiving, Christmas etc.) multiple customer touch points (such as social media like Facebook/Twitter/YouTube, online mobile apps, , newsletters, other communication media like TV/radio/Internet, blogs, kiosks, coupons, loyalty Cards, etc.). Maturity dimensions arrived based on industry best practices are evaluated on an ordinal scale ranging from 0 (non-existent) to 4 (super capability). The figure above illustrates some of the maturity dimensions we consider for evaluation. The findings from the maturity assessment model would aid the category manager/business line heads with a single view of organizational maturity on merchandising operations. Pain areas with limited maturity under each combination of maturity dimensions/business tenets is further evaluated from a business process mapping/it application or landscape standpoint, wherein, gap areas/impacting key business activities and performance metrics are identified as the starting points for further business transformation. In addition to the merchandising assessment framework, HCL also brings to the table the following tools, techniques, evaluation frameworks/models for evaluating and improving the current state of merchandising operations within a retail enterprise. 1) Customer Clustering Model: Clustering customer segments aids a retailer to collectively understand their actions at a group level. Feedback from this model would help in targeting the right audience in a vast majority of customers, thereby helping retailers to send apt promotions to focused customers. Such an approach is bound to increase the customers propensity to respond and buy. Through this model, retailers can further identify customers to be targeted for ad-hoc seasonal campaigns. 2) Markdown/Clearance Optimization Model: This model identifies high/ low performance across markdown/clearance programs and identifies the optimum criteria for executing planned markdowns/clearances. Leveraging this, retailers can identify data items/transactions/trends that impact markdown/clearance programs, to further optimize post markdown margin and reduce overall loss. 3) Responsive Pricing Models: The model helps identify right pricing decisions based on customer buying preferences. Leveraging this model, retailers can aim to regulate pricing decisions with a localized merchandise mix and thereby avoid unplanned impact on upstream/downstream business processes , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

9 4) POG Automation Framework: Planogram automation framework presents a virtual view of the planogram based on the available shelf space and merchandise mix. Leveraging this, retailers can dynamically address the challenge of addressing the changing customer interests by reorganizing merchandise on shelves and moving merchandise up or down. Conclusion The science of merchandising & the art of handling merchandising functions is a difficult topic to comprehend. Understanding recent trends in merchandising functions, and it becomes quite clear how these trends make current day retailers IT landscape more complex in nature. At this juncture, We reveals the path to get ready for the next-gen IT landscape using the tools, techniques & ideas it [HCL] has developed over years. We also propose a merchandising maturity assessment model for evaluating the current state of merchandising systems & processes, across functions, tenets of retail industry on various maturity dimensions such as assortment management, price control, collaborative standpoint, integrated planning & fulfillment and replenishment. Consolidated customer insights gained through analysis of data captured across cross-channel customer touch points can present a complete insight into 3 key W s who (the customer), what (the product), and why (the behavior) to optimize successful merchandise and assortments at various store locations. Extending the thoughts from this whitepaper, the impact of merchandising on downstream process (like supply chain, stores, customer management, etc.) & upstream retail value chain processes (like supplier management, collaboration with suppliers, supplier participation in PLM, etc.) can be further analyzed to suitably adapt the proposed maturity framework supported by new tools, techniques and ideas for evaluating modern merchandising systems. References 2012 Outlook Guide What are the Key Retail Trends to watch in Retail Touch Points 22nd Annual Retail Technology Study 2012 Embracing the change Presented by RIS & Gartner MerchandisingMatters.com (Dec 2011) Customers expect consistent experience across all channels , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

10 About the Author Satya is a Retail Business Consultant with 14 years of experience in global retail. He has been involved in many transformational initiatives across the retail value chain involving supply chain optimization, multi-channel integration, merchandizing modernization, business process re-engineering and IT strategy definition. Satya is a certified supply chain professional (CSCP) from APICS. Currently, Satya leads the Retail & CPG Domain Solutions Group at HCL, which is responsible for creating new solutions to drive innovation and thought leadership across the Retail & CPG business unit. Hari currently works with HCL s Retail & CPG Vertical Solutions team. He has over 7 years of consulting experience as a Retail and CPG Industry Solutions Principal Consultant. He worked as the Solution Architect for HCL s Merchandising Assessment Maturity Framework and model definition. He is an experienced process consultant in conducting business analysis and defining business requirements for large business transformation and IT enhancement programs on merchandising, supply chain, stores and ecommerce. Rajiv currently works with HCL s Retail & CPG Vertical Solutions team. He has 4+ years of experience in Program Management, Business Analysis, Solutions Building and Consulting. He is responsible for creating domain offerings and frameworks for Retail and CPG organizations , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.

11 CUSTOM APPLICATION SERVICES ENGINEERING AND R&D SERVICES ENTERPRISE APPLICATION SERVICES ENTERPRISE TRANSFORMATION SERVICES IT INFRASTRUCTURE MANAGEMENT BUSINESS PROCESS OUTSOURCING ABOUT HCL About HCL Technologies HCL Technologies is a leading global IT services company, working with clients in the areas that impact and redefine the core of their businesses. Since its inception into the global landscape after its IPO in 1999, HCL focuses on transformational outsourcing, underlined by innovation and value creation, and offers an integrated portfolio of services including software led IT solutions, remote infrastructure management, engineering and R&D services and BPO. HCL leverages its extensive global offshore infrastructure and network of offices in 26 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare. HCL takes pride in its philosophy of Employees First which empowers our 82,464 transformers to create real value for customers. HCL Technologies, along with its subsidiaries, had consolidated revenues of US$ 4.0 billion (`19,412 crores), as on 31st March 2012 (on LTM basis). For more information, please visit About HCL Enterprise HCL is a $6 billion leading global technology and IT enterprise comprising two companies listed in India - HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India s original IT garage start-ups. A pioneer of modern computing, HCL is a global transformational enterprise today. Its range of offerings includes product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals. The HCL team consists of 90,000 professionals of diverse nationalities, who operate from 31 countries including over 500 points of presence in India. HCL has partnerships with several leading Global 1000 firms, including leading IT and technology firms. For more information, please visit , HCL Technologies. Reproduction Prohibited. This document is protected under Copyright by the Author, all rights reserved.