Ethics tops the agenda for retailers

It seems ethical clothing is not just a passing fad, with retailers now investing more to give themselves a cleaner conscience. Tesco's decision last week to introduce a new supply chain monitoring system and stop sourcing cotton from Uzbekistan, highlights the increasing pressure retailers are under to ensure ethical standards run all the way through the supply chain. 

The supermarket giant's stance is likely to put pressure on others, even at the cheapest end of the market, to consider where and how their goods are made. 

Sales of ethically-sourced clothing have rocketed in the past year as Marks & Spencer, Tesco and Sainsbury's have jumped on the trend started by small brands such as People Tree and Gossypium. The Co-operative Group's annual ethical consumer survey found sales of organic and fair trade clothing shot up 79% to £52 million in 2006 compared with the previous year, and the figure is thought to have increased again last year. 

About three million people boycotted certain stores in 2006 because they were unhappy with their ethical stance, according to the Co-op's report. Value retailers such as Asda, Primark and Tesco were also accused in a War on Want report of using factories in Bangladesh that apparently exploited their workers. 

Campaigns for workers' and farmers' rights are likely to continue. A recent poll in The Times newspaper found that 80% of UK shoppers think retailers are still not doing enough on social and environmental issues. Almost half said retailers should make improving working conditions at suppliers a priority. 

Debenhams chief operating officer Michael Sharp says there is growing interest among shoppers about where their goods are sourced. He points out that several retailers, including Debenhams, already have a ban on sourcing from Uzbekistan because of concerns about child labour. 

"There is a lot of sense in being aware of where cotton is coming from," he says. "It is part of a broader responsibility that we have as retailers. You need to be aware of ethical and environmental issues." 

Ethical certification organisation the Fairtrade Foundation reports a dramatic rise in sales of ethically-produced product. The group, which handles retailers' relationships with farmers producing cotton to ethical standards, says there was an eight-fold increase in sales of Fairtrade-certified cotton last year. It predicts a rise of at least 50% this year as Tesco, Marks & Spencer and a raft of other retailers step up their commitments. 

A fair trade future

Tesco, which launched its Fairtrade-certified range in-store in the past fortnight, is now the world's second-biggest buyer of fair trade cotton after M&S, and will be selling between 15 million and 20 million garments. 

Tesco clothing category manager Alan Wragg says customers are demanding the option of both cheap prices and fair trade. "Whether it is bread or clothing, we try to give customers a choice," he says. 

Next month, Fairtrade's promotional fortnight will also see launches from Debenhams, which has put together a men's range backed by Olympic rowing champ Sir Steve Redgrave, and Topshop, which is more than doubling its range of items bearing the ethical standard. Sainsbury's is raising its use of Fairtrade-certifed cotton by 50% by switching all its Tu T-shirts to the ethical fibre. 

Sharp says: "Debenhams is doing fair trade because customers are interested in buying that product." However, he believes shoppers are confused about the meaning of fair trade and that there is little point in putting out basic T-shirts using the more expensive cotton without clear differentiation. 

"Steve Redgrave gives us something that will attract customers' attention. If you are going to use Fairtrade certification, you have to take a differentiated approach," he says. 

Dual-certified organic Fairtrade cotton is the fastest growing ethical product. Tamara Thomas, business development manager at the Fairtrade Foundation, says: "Most of the retailers we work with have an increasing section of their range which is Fairtrade-certified and are looking to make it organic too." 

At present just 5% of Fairtrade-certified  cotton is organic, but that is expected to rise to 20% this year. Production will increase six-fold in 2008. Most garments made from organic Fairtrade-certified cotton are sold by small independent labels, such as Hug and People Tree, but Thomas says the major chains are keen to get in on the act. 

She says: "All the major retailers I work with are interested in sourcing Fairtrade organic cotton. They are trying to confirm there is enough availability for them to produce an authoritative range." 

The Soil Association predicts that sales of organic cotton products in the UK will rise to £107m in 2008 from £45m in 2006. 

Rebecca Calahan Klein, programme director at charity Organic Exchange, says: "There is definitely a long-term shift in the market. Most of the companies driving the market have multi-year plans for expanding their use of organic cotton." 

Thomas is confident there will be enough organic fair trade cotton to meet demand this year, but stresses that retailers need to make long-term commitments so farmers can feel secure in switching production to organic, a process that can take three to four years. 

Questions of commitment

However, some retailers are wary of wading in to the ethical market too deeply, in case it is a short-lived trend among consumers. A number of retail bosses privately express doubts as to whether shoppers will be willing to pay more for a clean conscience if the economy continues its downturn. 

Ethical supply can also be at odds with the demands of fast fashion. The Fairtrade stamp acts as a guarantee that farmers growing the cotton earn a living wage, but it also demands that the entire supply chain uses approved operators working to ethical standards. Achieving certification for a product can take up to six weeks, which is an obvious deterrent in the fast-fashion arena where speed to the market is crucial. 

Meanwhile, hiring a social audit firm or buying a supply chain monitoring system such as String, the online programme that Tesco will launch next month and which is already used by M&S and Wal-Mart, can be prohibitively expensive for a small or medium-sized retail group. 

The Ethical Trading Initiative (ETI) says that those without the major retailers' resources should question their suppliers and try to establish if they are already used by a respected retailer and member of the ETI. "Ask if they've been audited by someone else, and if so ask if you can view the report," says ETI spokeswoman Julia Hawkins. 

With the likes of Tesco and M&S now making ethical standards a core part of their business strategy, the issue looks set to remain high on the retail agenda this year. 

Verdict Research analyst Carol Ratcliffe says that after a decade of price deflation on clothing, consumers will be prepared to pay a few extra pounds for additional "emotional benefits" this year. "If the economy falters in 2008, we can expect shoppers to become more price sensitive and sales of ethically-sourced clothing would grow a bit more slowly," she says. "But I don't believe ethical fashion is just a flash in the pan." 

Essentials: 

£52m: Sales of ethical and fair trade clothing in 2006 

50%: Predicted rise in sales next year of Fairtrade cotton 

5%: Percentage of Fairtrade-certified cotton that is organic 

£107m: Predicted sales of organic cotton products in 2008

Source: drapersonline.com

Retailers, Get Ready for the Magic of CRM

It's ironic that while the retail sector in India is estimated at US $350 billion, organised retail is estimated barely at US $8 billion. The upside is the expected growth rate. By 2010, organised retail is expected to grow up to US $22 billion, an estimated 40 % compounded annual growth of return over the next few years. 

Numerous international retail giants from Australia, the United Kingdom, and the United States are entering the Indian market with enormous hope and investments. At present retailers in India only prefer to increase the number of outlets within a city or to other regions as a part of their expansion drive. But they will now need to fight the burgeoning retail space with many new shopping centers and growing new markets like the kids' retail revolution in apparel. To manage the tremendous volume of transactions and to beat international competition, Indian retailers have an immediate need for Customer Relationship Management (CRM) tools. 

CRM will happen. It's simply a question of how long it will take and in how many ways retailers will benefit. Customer Relationship Management is important, especially for your repeat customers and for them to feel camaraderie with the retailer. A good CRM will provide the right framework to retailers so that they can personalize merchandise purchases, services and responses across all communication channels for the customer's satisfaction and for increased sales.

Low cost, high value 

But before retailers embark on any CRM software, they need to ensure it comes at optimal cost, with minimal risk, high value, and a higher return on investment (ROI). It should install quickly, interface readily with existing systems, be easy to learn and to use, and deliver uncompromising performance. 

Driven by changing lifestyles, strong income growth and favourable demographic patterns, the Indian retail market is growing at compounded annual rate of 5 % and expected revenues of US $320 billion in 2007, according to a report by AT Kearney and the Confederation of Indian Industry. And big international and domestic retailers have realized this growth. 

To sustain competition from the giants, Indian retailers must differentiate or brand their business. Customers expect retailers to do this is by personalizing products and services. And this is where a rightly implemented CRM comes into play.

Growing Communication Channels 

India has more than 129 million mobile communication subscribers and the number is expected to go up to 300 million in 2008. This is a strong marketing channel retailers cannot afford to miss. "Truly loyal customers can't imagine doing business with anyone else. They are your best means of advertising because they've become advocates for your company. They bore their friends with stories of how great you are," write Shaun Smith and Joe Wheeler, authors of Managing the Customer Experience. 

To implement the right CRM, retailers need to analyze customer preferences and trends, and then merge analysis with inbound and outbound calling via CRM technology so that customers can communicate with the retail chain by fax, phone, web, SMS, and the like. The CRM framework links and integrates these channels to individualize the customer's experience and ensure satisfaction. 

Similarly, competition must be kept under a check. If a retailer offers volume discounts, its competitors must likewise offer comparable value to the customers. If a retailer has tools to reach more customers with personalized purchase offers, or to process orders faster, or with fewer errors, or more efficiently, other vendors must adapt or gradually surrender market share. 

But unfortunately, only 30% of companies worldwide have actually implemented a commercial CRM software package. And most of these are only a year old. Of this minority, 54% have implemented just one part of CRM. With so much room for improvement in meeting customer demands, CRM can only help. 

Contact centres form an integral part of CRM because they directly impact how customers feel about the retailer's products, services and business. With an efficient system at the contact centre, retailers can help customers buy what they want and need. For instance, retailers are yet to utilize the opportunity of selling daily needs to a population that is using the latest technology to purchase almost everything. 

If you are looking at moving to customer-centric marketing, this means that all customer functions are subject to CRM's analytical processes. This helps retailers understand both how the customer base is presently segmented and, for the future, according to what retailing values. Other analyses identify new services, evaluate their ROI, shift focus from less to more profitable customers, etc. The outcome from CRM analytics is better service, improved planning and profitability, and more appropriate pricing. 

Customer Analysis 

CRM analysis can help retailers make a smooth shift to a customer-focused enterprise by allowing processes like differentiating customers into segments, discovering precise needs of customers, and redesigning compensation and rewards to effect behavioural changes. This process establishes the context that stimulates the customer to shop and buy. Hardcore marketers make their own analytical understandings with the help of a CRM to evaluate what their customers need. 

Improved Sales 

Better services imply the customer's improved ability to make purchases. They will make informed decisions and be happy with their purchase. Such efficient shopping will only mean a patronizing customer. For the retailers, this means higher transaction rate, increased revenues, and a wider profit margin. 

Smart retailers are looking up new and critical CRM tools like the unified agent desktop that allows customer service agents to respond faster and with greater accuracy and consistency every time a customer picks up the phone, accesses e-mails or chats. The unified agent desktop brings the customer into focus at the desktop and turns the agent's screen into a hub that can access all enterprise applications and databases necessary to respond rapidly to the customer. 

The result is increased quality and decreased operating costs, leading to one of the most handsome ROIs in the industry. It also eliminates data redundancy like repeating customers with the same requests or relying on agents to recall the correct systems to enter a new customer record or service request. 

Questions to ask about any CRM Framework: 

Does it allow the supervisor or manager to access and process analytical data online? (Preferably through a web portal)  

Does it use just one screen to manage all customer channels - e-mail, voice, chat, fax, web self service - so that agents stay productive and don't get lost in the transaction? 

Does it offer a universal view of your retail CRM data on a single screen - contact information, history of recent activity, knowledge base, workflow interaction, resource management?  

Does it make efficient use of your and the customer's time by minimizing clicks so that managers and agents don't have to toggle to other screens or other applications while the customer waits impatiently? 

Source: cxotoday

Opening a Big Box: Organized Retail Confronts the Challenges of Local Markets

Unused to modern, organized retailing, the Indian consumer is still figuring out how to extract value -- beyond lower prices -- from the stores, supermarkets and shopping chains that are popping up everywhere. Meanwhile, retailers face other challenges: Indian consumers shop frequently and are used to travelling short distances to their stores; brand penetration is lower compared to developed-country markets; and interstate goods movement is fraught with taxes, delays and other inefficiencies.

All that means warehouses have to be closer to stores, which in turn have to be closer to their so-called "catchment" areas, where the new retailers have to build store-specific customer loyalties. Training large numbers of employees in such virgin territory, and promoting retailing as a respectable and attractive career path, are other challenges, according to senior executives from Best Buy, Staples and Aditya Birla Retail, who participated on a panel titled, "New Paradigms in Indian Retail," at a recent Harvard Business School conference.

"Indian consumers themselves don't know what they want," said Sumant Sinha, CEO of Aditya Birla Retail, which has rolled out 500 stores across India in the past year and is part of the $24 billion Aditya Birla Group. "They are evolving," he said, especially those in urban settings. "You put a hypermarket in front of them; they've never seen it before. So there's no way they can understand the concept. You really have to go with your gut in India and wait for the reaction."

The Aditya Birla Group began considering a foray into retailing after it was approached by Wal-Mart a couple of years ago, Sinha recalled. Those talks didn't progress "because they were looking only for a front-end partner. We like to control our businesses."

But the group found the numbers compelling. "India is a trillion-dollar economy, of which retail accounts for about 40%," he noted. "Of that, 40% to [nearly] 60% is spent on food and groceries, and of that, about 60% is rural and 40% is urban." The group recognized that "the food and grocery business was under penetrated from a retailing standpoint," and that drove its decision to enter the business. Within a year of launching operations, the company has 500 supermarkets, employs about 10,000 people and is hiring at the rate of a thousand employees each month, he added.

What struck Sinha right away was "the fact that Indian consumers are extremely value conscious." For them, "value is not just price" and includes other connotations such as "quality, convenience and trust." Most other Indian retailers are going after price to build customer loyalties, and are perhaps getting it wrong, he said. "It's not as if they haven't been shopping before organized retailing arrived -- they have been shopping for decades and decades at mom-and-pop stores. It's about shifting these consumers from their existing shopping behavior into a different shopping behavior; they are also testing the new format. At this point of time, you have to just go with what you think will work. It's very early days to figure out how that will play out."

Lukas Ruecker, who oversees emerging market business as vice president at Staples, the office products retail chain, agreed with Sinha's assessment. "The market is changing so rapidly in India that we haven't even invested in consumer research," he said. "This is going to be an ongoing experiment. The Indian consumer doesn't know what he wants; you have to shape his opinion."

Describing Staples as a cautious strategist that would "rarely be caught being first at anything," Ruecker noted its first international foray was into China in 2004, followed by Brazil, Argentina, Taiwan and then India about six months ago. He expects Staples to open 11 stores in India by the end of this month. Staples' Indian business is made up of both retail stores and institutional customers it serves with "the only pan-Indian delivery system for office products," he said. It partners with the Mumbai-based Future Group, a fast-growing diversified business house with prominent organized retail banners including Pantaloon and Big Bazaar.

"When you enter emerging markets like India or China, you really learn only through experimentation," said Kal Patel, executive vice president of emerging business at Best Buy. He recalled that when he worked on Best Buy's China launch a few years ago, "we had to throw away consumer research. The assumptions you have from a top-down marketing standpoint don't stand up in these markets."

In developed markets, "you can sit down in a corporate office with a whole bunch of analytics and make predictions for next year," Patel said. "In [China], we're asking our store managers and store employees to tell us what they think they can grow if we give them more tools and the things they need. They are coming back with three or four times more optimism."

That strategy is ideal for Best Buy in its new markets, according to Patel. "The general principle is: The more local you go, the more front-end you go and ask the people who are serving [customers] -- whether in rural markets in India or in big cities somewhere else -- the better is your understanding of emerging trends," he said. "Fundamentally, we engineer our company based on the demand we get from the very, very different micro segments."

Half-empty Stores

Harvard professor of business logistics Ananth Raman, who moderated the discussion, asked Patel and the other panelists about their experiments with the design of their stores in India and how that might be different from those in their home countries. Best Buy has yet to enter the Indian market, but Patel recalled a conversation with his company's store designer who was tapped a while ago by an aspiring Indian retail group to replicate Best Buy stores in India. He refused to do the work, because using an American design in an Indian context made no sense to him. "The interesting thing is that Indians in India are bringing American assumptions into India," Patel said.

Ruecker said Staples did not copy its conventional store design for the Indian market, but created a wholly new one to suit local tastes. "We used our technology platform and ideas from our experiences in Portugal, Germany, the Netherlands and the U.S., and then modified them for India." He noted that Staples in India has its own logo, different color schemes and other variations "to make them a little more Indian." The response has been mixed. "Some people in Bangalore said it doesn't feel like the U.S. Staples; some others said it was fantastic and they liked it."

Unlike in western markets, the Indian store cannot be as big as 15,000 to 20,000 sq. ft., said Sinha, explaining that the markets there don't have as many brands to be stocked. "That, unfortunately, is the reality of India -- you just do not have enough branded products out there. If you put up a big store, it's probably going to be half empty. You have to think of a smaller-size store." Smaller stores also fit in well with the average Indian family's shopping experience.

"For many, many decades, Indian housewives have been used to buying things almost on a daily basis. You have vendors who come in push carts to your house," Sinha added.  Such observations lead to other questions, he noted. "You would assume that this behavior is borne out of a desire to buy fresh food and cook it every day. Or is it because the supply chain for fruits and vegetables is so poor that the food would become spoiled the next day?" Other reasons for buying food on a daily basis may include a lack of storage space or ways to keep food fresh for extended periods of time. "They don't have big houses or big refrigerators. And even if they have refrigerators, very often the power goes off."

Since the daily shopping habit isn't likely to go away soon, Sinha predicted that stores that are far away but have large catchment areas may not work; they have to be closer to customers. "Most Indian housewives don't have easy access to transportation, so going long distances to shop doesn't work for them," he said. "A supermarket in the Indian context is going to be a lot closer to customers and will have a lot more footfalls on a daily basis with much smaller basket, or ticket sizes."

Building Supply Chains from Scratch

Raman wondered if the supply chain in India is ready for organized retailing, or if a wholly new infrastructure has to be developed. Ruecker said for Staples, it was a major challenge in both India and China to move products from its warehouses to stores. "The overall logistics is so much more difficult from a port in Chennai or a port in Shanghai to stores," he said. Yet, unfathomable as it was, the system worked. "You rely on the fact that Indians have always figured out a way to do it. Stuff gets into the stores, it gets there in time, and all our stores are well stocked." But he is not taking too many chances. "We are willing to live with the faith, but we need modern warehousing (in India)."

According to Sinha, the logistics and supply chain infrastructure "has to be built from scratch; it's really about creating a new industry." He said his company started by outsourcing the logistics and warehouse management from third party companies, but eventually decided to bring those functions in-house. It turned out that the main problem the third party logistics suppliers faced was not a lack of expertise, but difficulties getting trained people to track and ship orders, which resulted in lost sales and excess inventories, he said. Aditya Birla Retail decided to take on the training responsibilities. Sinha added that it takes about three months to get new hires up to speed with the requirements.

Sinha said Indian municipal taxes (called octroi) and other laws governing interstate movement of goods also make things difficult. "You can't set up five large warehouses across the country to serve the market," he said. "You have to set up [very small] warehouses wherever you open each store. And so the profitability of each cluster becomes a function of [that arrangement]. The Indian supply chain infrastructure has a ways to go before it becomes efficient. Unless some laws change in India, it is not going to happen in a hurry."

What's more, many Indian companies, including arms of multinationals, are used to inefficiencies in delivering goods, according to Sinha. "In India you had companies always delivering half of what you asked for, and you don't know which half is delivered," he said. "They are not used to organized retailing. They recognize the value and benefits of modern retailing, but it's hard to get the discipline that is required."

"The reason we are in China and not in India is because of supply chain," said Patel of Best Buy. In preparation for its plans to enter India, Best Buy brought together consumer electronics suppliers and posed them the problem of generating efficiencies. "We told them to give us higher gross margins," he said, adding that Best Buy had bargaining power because it went about its sourcing globally. All the suppliers at the meeting recognized that "it was in everybody's interest to bring in efficiencies."

At the consumer level, Patel said he is acutely aware of how customer loyalties work in the Indian market. "You have mom-and-pop [stores] that have relationships with consumers -- they have a relationship with the family and the community. What we would do differently is we want to leverage that. However, at the back end you have so much inefficiency."

Best Buy has a retail academy in China in partnership with a couple of universities, "and that's how we are going into India and that's how you create self esteem for a retail job in that country," said Patel, citing Best Buy's 11,000-strong "geek squads" in the U.S. as one of his models. "Essentially, geek squads are about bringing high self-esteem to computer repair," he said. "We are going to use that [model] in India in sales and service."

Source: Knowledge at Wharton

Gen X, Y and E – Luring them all!

In an era when masses prefer time to money and luxury to time, nobody wants to be pushed into putting ‘extra’ effort, even while making a purchase. So, with expanded budgets and a splurge of luxury products online, population of e-stores is on a rise.

A NEW breed of consumers has emerged. Products of all categories and for all markets have become parity. Everything is available everywhere. In such a scenario, where do you think a consumer will go to buy his desired commodity and how? An inevitable fact is that people in present times value time over money and luxury over time. Be it booking an air ticket or buying grocery from the local store, nobody wants to push himself in putting that ‘extra’ effort. Therefore, web is the home for this new genre of people. With expanded budgets and a splurge of luxury products online, population of e-stores is on a rise. 

This brings us to talking about the headways the online retail industry is making today. The offline Indian retail accounts for ten per cent of the country’s gross domestic product (GDP). Mall space, from a meager one million square feet in 2002, is expected to touch an estimated 60 million square feet by end-2008. Well, if this made shivers run down your spine, catch this – the population of online consumers (potential and real) in India has reached 100 million by 2007-08! By 2004-05, 55 per cent of Internet users were already shopping online. And with industry growth figures multiplying cumulatively, more and more businesses are investing on e-retail industry doesn’t seem any surprising. 

According to co-founder and director of Rupiz Infotech, a leading conglomerate of online business ventures, including e-retail, the challenge lies in tapping a significant 45 per cent of online population that forms a large segment of potential buyers in the online Indian retail circuit. These buyers have high net-worth, are educated, well informed and intelligent. Luring this segment into transacting on web therefore doesn’t seem an easy task. An insight into their minds via a survey carried by IAMAI reveals that despite being net savvy, they do not have faith in the security measures taken by various e-stores. 

An upcoming retail store needs a special mention here. Deepak Mehta, co-founder and business head of Retails Direct (www.retailsdirect.com), a Rupiz Infotech venture, confirms that they employ 256 BIT digital encryption to ensure that all the monetary transactions are safe with site seals. But how many e-stores truly employ such measures is a question that certainly can’t be ignored. So, with the assortment of the most desirable products, best discounts, best product deals, best brand combos, easy payment options and faster delivery of products, let’s hope to soon see e-market places integrate better online security measures and come up as the most secure shopping junctions in times to come!

Source: merinews