Technology Turns Adversity into Opportunity in Challenging Economy

By  Verlin P. Youd, senior vice president, Global Trade Sector, SAP AG
As the challenge of the global economy reaches a magnitude not seen in more than 70 years, retailers, at the forefront of reduced consumer spending, are the first to feel the brunt of any significant decline. The fact is fewer consumers are shopping and those that are, are spending less.

The retail industry worldwide employs more workers than any other industry and generates a significant share of the gross domestic product (GDP) of the global economy. In the United States alone, retailers employ more than 20 percent of the workforce and generate about 30 percent of the GDP.

However, there is a silver lining of opportunity amid the clouds of the current recession for those retailers astute enough to take the risk, not only to survive, but to succeed in times of economic turmoil - and look ahead to future growth.

Seizing Opportunity
In an environment like this you might expect retailers to slash all capital investments until the storm passes. However, we are seeing retail leaders investing today in a more focused way on technology - targeting critical business processes that offer the highest returns on investment and in turn, tackle the classic retail business challenge - enhancing the shopper experience.

Smart management teams realize that you cannot cut your way to profitability and the right investments can help control costs and yield significant benefits such as increased revenue, profits, and customer satisfaction. Areas where retailers can focus with an affordable IT solution and attain immediate value are:

Workforce Management: In-store labor is the largest controllable cost a retailer incurs and the second largest expense overall behind inventory. A workforce management tool provides a foundation for planning the appropriate service-level response to projected business volumes based on historical data, trends, and future plans. The business forecast provides the basis for determining how many staff a store needs at any given time. Plans may be adjusted to stay within a store's labor budget. For example, The Bon-Ton Stores, Inc. a well-known regional department store chain based in York, Pa., uses a workforce management solution to determine its labor coverage needs and from that data, develop a recommended and optimized labor schedule that delivers the ultimate shopper experience while balancing cost and regulatory compliance to labor laws.

Merchandise Lifecycle Pricing: As consumer demand declines, retailers must ensure that they get their fair share (or rather, more than their fair share) of a shrinking pie. With merchandise lifecycle pricing tools, retailers can assess the impact of price, promotion, cannibalization, competition, seasonality, and other demand influencing factors on shopper behavior. With these insights, it is possible to tailor pricing to offer shoppers what they need. Retailers can also leverage merchandise lifecycle pricing to optimize end-of-life or clearance merchandise strategies as one of the largest international fashion retailers recently did to increase sell through and profit margins. This is especially relevant in today's environment where executing profitably to clear obsolete merchandise is an imperative to survival.

Business Intelligence: Retailers spend far too much time searching for data and not enough time analyzing it, with a direct impact to the speed and quality of operating decisions. In these tight economic times, retailers need to be able to move quickly to optimize costs, retain their best customers, and identify new market opportunities. Business intelligence helps a national retail chain turn relevant data into revenue, profits, and customer satisfaction by keeping the shopper the focus of any initiative, targeting their needs and demands, and empowering employees with the right information at the right time and in the right place to meet - and exceed - those consumer demands.

Blueprint for Growth
No matter which of the classic approaches to growth a company follows -- selling new products, entering new regions, acquiring new customers, mergers and acquisitions, or business model innovation -- the right IT strategy is a critical success factor.

As retailers plot survival strategies, they must include a blueprint for growth that fits the company's capabilities and objectives, focuses on execution, and aligns IT with a solid business strategy.

Growth is, by nature, a change to an existing business structure. Crucial to embracing and dealing with this type of change are the people, processes, and systems required to support the overall strategy, which must include:

-Driving operational excellence: Mastering and standardizing core organizational processes are necessary to free up resources to focus on growth and reap the associated benefits. Without control over operations, growth can be overwhelming and put companies at risk.

-Focusing on organizational capabilities: Growth depends on an organization's ability to adapt to change. Crucial to its success are creating a change-ready organization and managing workforce talent effectively.

-Incorporating flexibility into business architecture: Growth requires process flexibility and the ability to respond with agility to change. To accomplish this, an enterprise must implement a business process platform to allow changing processes at the business's speed of change. Such an open platform provides better connectivity to employees, suppliers, partners, and customers.

A good example of using a core IT retail solution to expand into new markets is Hastens Beds, a Swedish manufacturer and retailer of hand-crafted beds. Since the solution implementation, Hastens has streamlined operations, boosted efficiency and customer satisfaction, and addressed the unique challenges faced by a growing international company that is both a retailer and manufacturer. As a result, warehouse inventory has been reduced by 67 percent, inventory accuracy has significantly increased, and better visibility into quality issues has enabled affected orders to be addressed proactively prior to customer delivery.

So whether a retailer is nimbly adjusting to market changes, protecting the bottom line in certain -and uncertain - economies, collaborating with trading partners, and-or innovating rapidly, the ability to optimize IT solutions for maximum efficiencies, minimized downtimes, and rapid innovation is a pivotal element in enabling its long-term success. Even in an economic downturn, retail is evolving and if retailers remain stagnant, they risk losing the center of their universe - shoppers.

Verlin P. Youd is Senior Vice President, Global Trade Sector for SAP AG, headquartered in Walldorf, Germany. SAP's Global Trade Sector includes Retail, Wholesale Distribution, Transportation & Logistics Industries.