The Impact of Information Technology in Retailing

Information technology (IT) has had a profound impact on the retail industry, transforming various aspects of the business from operations and customer interactions to supply chain management and overall strategic decision-making. The integration of IT in retailing has led to increased efficiency, improved customer experiences, and enhanced competitiveness.

Technology has always played a major role, creating a massive impact in reviving the retail industry, bringing it reknown and repute. It is assisting retailers to become highly-equipped and advanced in the way they enhance the experience for consumers.

The Industry Growth

As per Euromonitor International’s recent retailing research, the market size of Modern Grocery Retailers in retail value sales at current prices (including inflation) was Rs 603 billion in 2017. Modern Grocery Retailers grew at 13.2 percent in 2016- 17. The category is forecast to grow by CAGR 9.2 percent through 2017-22.

The search for a one-stop shopping destination keeps making consumers shift from traditional to modern retailing stores. Modern retail stores attract footfalls in their physical store in Tier I and Tier II equally, albeit for different reasons. Aspirational Tier II consumers look at modern retailers as places to experience the new age retail. Equally Tier II & III cities have lucrative geographies for expansion of modern retail.

Retailers are tapping on to this new market of aspirational consumers increasingly. The lack of presence of most of the international and a major portion of national brands in these areas, have led consumers to resort to online channels in Tier II cities.

IT in Retail Importance

• To collect and analyze customer data while enhancing differentiation.
• To increase the company’s ability to respond to the evolving marketplace through enhanced speed and flexibility.
• To work effectively; retailers need one system working across stores (or even across national borders) to make sure the most effective use of stock and improve business processes.

Helpful for Retailer:

• Transparency and tracking

Retailers must increase transparency between systems, as well as obtain better tracking to integrate systems from manufacturer through to the consumer while obtaining customer and sales information.

• Customer data

Many retailers struggle with information overload because they’re required to collect and sift through mass amounts of data, then convert it into useful information in a customer-centric industry.

• PCI Security Compliance

PCI Security Compliance addresses the retailer’s internal security setup and practices, in order to mitigate payment security risks. Every business engaged in credit card payment processing is required to comply with PCI Security Standards. If a retailer collects or stores credit card information that becomes compromised, the retailer may lose the ability to accept credit card payments. Other possible consequences include lawsuits, insurance claims, cancelled accounts, and government fines.

• Global data synchronization

Due to radio frequency identification/electronic product coding, the entire supply chain has become more intelligent. Retailers must enable the use of real-time data to watch inventory levels. In addition, radio frequency identification tagging positions the company to be able to safeguard its shipments by allowing products to be tracked from manufacturer through the entire supply chain.

Advantages of Information Technology in Retailing

• Automating processes

Automating a process render many advantages to the retailers. It reduces costs, increases accuracy, reduces processing times, enables quick decision and speeds up customer service.

For example, EPOS (electronic point of sales) uses scanning systems. It ensures accurate prices, enables checkout staff to work faster, and it eliminates the need to fix price label to goods. All these factors reduce the cost considerably.

• Collecting data about the customer

The purchase details of individual shoppers are collected and analyzed. Product extensions and promotions are based on the analysis of purchasing patterns of different types of shoppers.

Demographic information about the customers is known from a loyalty card database. The entries in the loyalty card are related to transactions data furnished by EPOS. These data can be further used to profile a customer base. This facilitates specific offers to be made to certain types of customers.

A retailer may send mail order catalogue to all loyalty card holders who have bought in the previous year. Moreover, internet and e-commerce sites use previous transactions information to personalize their sites for each shopper by offering them product items that have been related to their last few transactions. They automatically greet them by name when they enter the site.

• Feedback on marketing decisions

Analysis of EPOS data helps the retailer in knowing the effect of promotion, prices, new products and packaging changes. Retailers can assess the impact of changes in layout or merchandising of stores in terms of category sales, competitor brands, gross profit and sales in the store. Innovative product ideas may be tested against the realities prevailing in the market. In short, the EPOS data analysis helps the company in

• Evaluating its promotions
• Calculating customer price responsiveness for core and seasonal products.
• Predicting the outcome of its newly adopted policies.
• Planning its promotional measures.

 

• Communication

The stores manager indulges in effective communication with his suppliers. He sends documents such as purchase orders, stock and sales information over third party communication networks. This is electronic commerce. This method works fast and costs less. It is sufficient for stores to place their orders one or two days and in advance against seven days earlier in the traditional paper based method.

Store computers transmit EPOS data to the head office on daily basis. So, the senior manager is able to assess the performance of every store and product group.

Stock replenishment is done automatically. The computer system receives daily EPOS data from each store and next day’s stock requirements are known.

The system automatically sends the requirement electronically overnight to the distribution centre. So, delivery of merchandise is possible the very next day.

Effective communication reduces the lead time. It is the time taken between sending an order and receiving the merchandise.

Tools for Planning the business

(i) With the use of sophisticated computer software packages, retailers are able to

• Plan, budget and forecast,
• Choose the most successful location; and
• Control their business.

(ii) Model decision making, statistical packages of sales forecast and data mining tools are available for retailers.

(iii) Retailers can also use geographic information systems (GIS).

(iv) Socio demographic data along with company transactions data and intelligent analytical tools are used to forecast sales in different stores.

• Adding value to the retail transaction

Customers prefer IT assisted transactions to traditional retailing because IT assisted transactions provide speed, accuracy and convenience. For example, ATMs are used at any time of day. Thus, use of IT adds value to retailing.

• Technology enabled shopping

Selling goods over the internet is becoming popular. Electronic means of selling include the following.

• Products: Grocery, clothing, footwear, music, books, videos, cameras, photographic goods, computer hardware and software, pharmacy goods etc.
• Services: Retail banking, personal insurance, financial service, real estate, stocks and shares, Tourism, florists, entertainment tickets, virtual education, information services, etc.

Thus, IT is transforming the nature of products, processes, companies, industries and even competition itself. The spectacular reach of IT is widely accepted today.

Components

• E-commerce and Online Retailing:

Information technology has fueled the growth of e-commerce, enabling retailers to establish online platforms for buying and selling products. E-commerce platforms provide a convenient and accessible way for customers to browse, shop, and make transactions.

• Point-of-Sale (POS) Systems:

POS systems, powered by IT, have replaced traditional cash registers. These systems streamline transactions, track sales, manage inventory, and provide valuable data for decision-making.

• Supply Chain Management:

IT has revolutionized supply chain management in retail. Technologies like RFID (Radio-Frequency Identification), barcoding, and advanced analytics help in real-time tracking of inventory, reducing stockouts and overstock situations.

• Customer Relationship Management (CRM):

CRM systems leverage IT to manage and analyze customer data. Retailers can personalize marketing efforts, track customer interactions, and enhance customer loyalty through targeted promotions and communication.

• Data Analytics and Business Intelligence:

Retailers use data analytics and business intelligence tools to gain insights into consumer behavior, market trends, and operational efficiency. This data-driven approach supports informed decision-making and strategy formulation.

• Mobile Commerce (m–commerce):

The rise of smartphones and mobile apps has given birth to mobile commerce. Retailers leverage IT to create mobile-friendly platforms, enabling customers to shop, compare prices, and make transactions using their mobile devices.

• Augmented Reality (AR) and Virtual Reality (VR):

AR and VR technologies enhance the shopping experience. Retailers use these technologies for virtual try-ons, interactive product displays, and creating immersive environments that engage customers.

• Social Media Integration:

IT facilitates the integration of social media platforms into retail strategies. Retailers use social media for marketing, customer engagement, and gathering insights into consumer preferences.

• Automated Checkout Systems:

Self-checkout systems and automated kiosks, driven by IT, offer an efficient and convenient alternative for customers. These systems reduce wait times and enhance the overall shopping experience.

• Personalized Marketing:

IT enables retailers to implement personalized marketing strategies. Through data analysis, retailers can create targeted promotions, personalized recommendations, and individualized communication based on customer preferences.

• Cloud Computing:

Cloud computing technologies have streamlined data storage, processing, and collaboration. Retailers use cloud-based solutions for inventory management, data analytics, and overall business operations.

• Artificial Intelligence (AI) and Machine Learning (ML):

AI and ML technologies are used for predictive analytics, demand forecasting, chatbots for customer service, and enhancing the overall efficiency of retail operations.

• Voice Commerce:

 Voice-activated technologies, such as virtual assistants, have introduced new ways of shopping. Customers can use voice commands to search for products, place orders, and receive personalized recommendations.

• Cybersecurity:

As retail operations become more digitized, the importance of cybersecurity has grown. IT is crucial in implementing robust security measures to protect customer data and secure online transactions.

• Internet of Things (IoT):

IoT devices, such as smart shelves and connected devices in stores, contribute to real-time monitoring of inventory, temperature control, and other operational aspects, improving overall efficiency.

• Feedback and Reviews Platforms:

IT facilitates the collection and analysis of customer feedback and reviews.

Limitations of Using Information Technology in Retailing

• Originally IT was used by retailers to automate control services such as finance, pay roll, and management accounts. Electronic point of sales systems can be afford only by a very few department stores. Basically, retailing is a highly dispersed business. Retailers have to incur enormous amount of expenditure on installation of IT equipment in their retail business.

• Retailing involves a wide array of products. So, a complex system is required to handle a large number of product lines.
•  In retail stores, staff may have limited knowledge about computers. So, computer specialists are to be employed to deal with the automation process. Only the largest retailers can afford to employ technically qualified people.
• The costs of routine investment in automation process is very high.
• Many IT projects fail and the risk of such failure is too high for retailers.
• According to Prof. John Sawson, many retailers concentrate on operational improvement rather than transformational ones. The expected pay off from IT has not been fully realized. Retailers devote only a small amount of their budgets to IT.
• Getting the full benefits of IT may actually take a longer time. Retailers should learn how best to exploit the new systems. Many U.K. grocers invested in EPOS in the 1980s. But only a few made effective use of information about customer’s shopping behavior. Only after making heavy investments and learning from experience, retailers could create IT based stock replenishment system.

• IT alone has not produced performance advantage in the retail industry.

Inspite of the above limitations in using Information Technology for competitive advantages, firms have gained advantages such as flexible culture, strategic planning and improved supplier relationships. Advantage lies in people and systems rather than systems alone. To derive full competitive advantage of IT requires long-term investment.