Shopper's Stop’s Footfalls to Fortune

In India, mom & pop stores will never go out of business because they follow the paradigm of ones.

May 01st 2006

In early 2000, B. S. Nagesh, MD & CEO, Shopper's Stop, planned to cross over into a pan-Indian chain, and it was costing the company dearly. IT helped him find a way, getting more footfalls, making every footfall count, and Nagesh still believes in IT like few other C-level executives do. From reducing supply-chain shrinkage to making stakeholders of business partners and bringing in corporate governance, Nagesh brings technology to bear in a continuing test to use every square-foot of his organization

CIO: You are a pioneer in adopting technology, and 15 percent of Shopper’s Stop’s net worth is invested in IT. What is behind this approach?

Everybody says Shopper's Stop's shrinkage (loss of goods

due to theft and inventory mismanagement) is the lowest in the retail business. For the fourth year running, we have stayed at a 0.4 percent shrinkage level. Financially-speaking, shrinkage is put down as another part of the costs of goods. With the high cost of goods, one percent of shrinkage seems relatively low. However,

if shrinkage is looked at as a percent of profit, then a mere three-to-four percent shrinkage seems huge. This is where technology plays a very important role. It identifies areas of shrink. Our approach to IT has always been governed by our mission statement which is 'Nothing but the Best.' We have also been governed by our ignorance. As a company, most of us do not come from large-retail backgrounds. Initially, we did not have the vision or the budget to hire consultants to help us decide on the right technology. But we were sure that we would not settle for anything but the best in technology. If we are to make an impact on our customers and on our organization, human, financial and IT resources are highly critical. For example, our IT product store, HyperCITY, will run on E3 technologies, which is among the most advanced dynamic replenishment technologies; it develops its

own replenishment logic by studying trends. This has brought a lot of business intelligence to Shopper's Stop.


CIO : Will you continue to invest in IT at a similar rate? What will motivate you to do so?

Our investments in IT have steadily been increasing. There are two reasons. One, IT is crucial for corporate governance. To me, this mean knowing which parts of my business are adhering to the law. This cannot be done without IT. Governance within IT is another challenging task and the second reason. Even that needs technology. While adhering to Clause 49 of SEBI's Listing Agreement, we realized that a high-risk area within the organization was IT. Business is so dependant on technology that IT governance is paramount. Going forward, I do not see our investments in technology decreasing at all.

CIO : Your first ERP deployment, crashed and took over six months to fix. Did it leave behind a bitter taste? What did it teach you?

If I were asked to do things all over again, I'd make sure that human resources were deployed first, followed by financials and then technology. At that time, we decided to get technology first with financial and HR trailing behind. It was one of the key reasons behind the failure of the initial implementation. We bought the car and then looked for the drivers. It was a fundamental mistake. We were a smart organization, though, and had the foresight to spend between Rs 10 12 crore, on technology at a tine when our turnover was a mere Rs 28 crore.


CIO : What we lacked, in hindsight, was the ability to tackle change management; getting the right people to drive the technology initiative and supporting it with financials. At that time, we ruled out hiring JDA consultants from abroad because of foreign exchange regulations and because they cost a bomb. A lack of resources and too few change management initiatives running across the organization, made our lives tough. We have leant from it. HyperCITY, which is to be launched soon, has very advanced applications running on JDA. Its implementation has been done by an internal task force, which is more sensitized to these issues than we were. Personally, the biggest challenge after the crash was to chose between two courses of action. One was to persist with the failing system and see it through and the other was to dump the software in its entirety. At that time, everybody suffered a high-level of demotivation and blamed the software for the organization's woes. Nevertheless, we decided to continue with the technology. I think it is the toughest decision I've had to make. Today, people refer to how great we are technologically, but few know of the time when we questioned our belief in technology.

Today, we open our store at 9 AM and at 9.30 of the very next day, we see figures flowing in from the SKU level.

This is where CIOs can play an important role. During the implementation of a technology, CIOs must understand its consequences-both its upside and downside-to a business. They must prepare the whole team for possible downsides.

Otherwise-and this is true for upcoming organizations with large IT initiatives-CIOs become sacrificial horses. When things go wrong, everybody blames technology. I always believed that when it all went wrong, it wasn't technology, but change management, that failed us.


Today, how do you see IT helping you provide better customer experience?

In retail, when people talk of customer experience, they always refer to a customer's experience on the shop floor. But from a customer's standpoint, the experience is broken down into more than a few attributes. The first is ambience. Part of ambience is safety and security. Technology plays a crucial role in defining a safe and secured environment. The more important components that influence a customer's experience are the knowledge of our sales associates, the availability of merchandise, and the billing process. We have found that 50-to-55 percent of a customer's experience revolves around two of these components: The availability of merchandise, and the ease and speed of a billing process. Out of the two, the availability of merchandise is more important. Here, I see IT playing a much more important role.

How does IT help you follow your paradigm of ones?

My whole thinking revolves around a paradigm of ones (one customer in one moment, to sell one product from one square foot.)


I see this concept applied from pawn shops to the Walmarts of the world. In retail, if you are do not understand that one customer, that one SKU, the productivity of that one square foot and gauge the outcome of these three in that one moment, you cannot succeed. In India, mom & pop stores will never go out of business because they follow the paradigm of ones. When a customer visits a small retailer, he is sure that the retailer will try to keep him

happy. Customers are okay if that square foot is in bad shape. They are also okay if the SKU is not available because they know that the retailer will deliver their merchandize home. To these retailers the most important thing is the outcome-it is in their control. It is the outcome which determines the other three.


In our business, we use technology to watch the SKU, the square foot and the customer, and hope for a positive outcome. Two facilitators outside of the paradigm are our sales associates and technology. There is an emotional connect that our sales associates build and rational connect between customers and technology.


In the near future, when sales associates become very expensive like they are European countries, the onus of the outcome will fall on the rational connect. Technology enables that rational connect.

To me technology is core to the paradigm of ones.


You have among the most advanced SCM systems in Indian retailing. How has the company reaped from it?

The number of stakeholders has increased. It wasn't an objective but it's become a benefit. As I've mentioned before, the biggest concern of our customers is the availability of products. Here again, there is a play of an emotional and rational connect with our supplier.


Our suppliers provide us goods based on purchase orders that we issue them. Here is where an emotional connect comes in: Using technology, can he want to sell more? Our B2S applications have actually increased this. It enables the supplier to stay informed of what we've sold and in what quantities. The supplier has evolved

into an interested stakeholder as he keeps a close tab of the availability of his products on our shelves. If a supply of a 100 pairs of trousers, which is supposed to last us four weeks, has been bought up, a supplier can ask for a purchase order for the next lot.

If more and more of stakeholders become proactive parties to business success, the outcome is always positive. This is what our B2B and B2S initiatives have done. They have also made people more responsible and accountable.


Additionally, they are taking away mundane, repetitive jobs out of the merchandizing process. For example, we have one of the largest dynamic auto replenishment processes among the Indian retailers. Twenty-six-to-thirty percent of our purchases are done on auto. The moment I sell a hundred watches, our distribution centre, based on an auto-purchase order, sends the store another hundred watches and dispatches a purchase order to the supplier to replenish their stock. We are also one of the users of reverse auction. All our projects generally go through reverse auctions. We not only use B2B for supplying but also for sourcing.


Going forward, what would you like IT to do for Shopper’s Stop?

Since the base of Shopper's Stop IT structure is more or less in place, progressively a large part of our investments will tend towards user education. We will also invest in understanding our customers with the help of CRM technologies; we have a large amount of customer information but few insights. We will focus on building data warehousing, datamining, and CRM capabilities. There will also be further investments in enhancing corporate governance, information insight, scaling and managing our SKUs, network and infrastructure management, and disaster recovery. We've had large IT investments in 1999- 2001, and then worked with incremental investments. Now again, I see a situation in which we will be making sizeable investments. We will scale up in the next two-to-three years. We are looking forward to a complete integration of systems across our group of companies and full connectivity using the Internet to facilitate B2B, B2S and to B2C.