Syndicate 2: “How will retailers strategically re-align themselves to

the smart customer?”

Vhutshilo Masibigiri

Ian Bouwer

Lloyd Maistry

Ankie Kemp

Nazim Cassim

Rowland Solomons

30/9/2011

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Contents

1. Opportunity Statement ............................................................................................................................ 6

2. Description and background to the opportunity and why it is important. ................................................ 6

2.1 Research Questions we aim to answer .............................................................................................. 7

3. Project Scope .......................................................................................................................................... 7

3.1 Project Justification: ............................................................................................................................ 7

3.2 Project Product: ................................................................................................................................... 8

3.3 Project Deliverables: ........................................................................................................................... 8

3.4 Project Objective: ................................................................................................................................ 8

3.5 Assumptions/Limitations and exclusions: ........................................................................................... 8

3.6 Project Plan: ........................................................................................................................................ 8

3.7 ALP Project Plan Timetable ................................................................................................................ 8

4. Research Methodology ........................................................................................................................... 9

4.1 Method ................................................................................................................................................ 9

4.2 Sampling ............................................................................................................................................. 9

4.3 Data Collection .................................................................................................................................... 9

4.4 Data Analysis .................................................................................................................................... 10

5. Results .................................................................................................................................................. 10

5.1 Who is the Smart retail customer? .................................................................................................... 10

5.1.1 The Smart Customer ..................................................................................................................... 10

5.1.2 Demographic Profiles .................................................................................................................... 10

5.1.3 Psychological and Sociological profiles ......................................................................................... 10

5.1.4 The Smart Customer is ―A Pro- sumer‖ ......................................................................................... 11

5.1.5 What Is a Pro-sumer? .................................................................................................................... 11

5.2 What will the Smart customer’s shopping habits be? ....................................................................... 11

5.3 How will the use of technology influence the Smart customers shopping behaviour? ..................... 12

5.4 How do retailers re-align to the Smart customer? ............................................................................. 12

5.4.1 Aligning Service to the Smart Customer ....................................................................................... 12

5.4.2 How do retailers Appeal and Align to these Prosumers? .............................................................. 12

5.4.3 Supply Chain/Logistics and ―Value Chain‖ .................................................................................... 12

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5.4.4 Value Chain Visibility connects the Dots ....................................................................................... 13

5.4.5 Stores as we know them will no longer be relevant—many shoppers will never even visit one! .. 13

5.4.6 Consumers will shop seamlessly across multiple channels—and expect to find relevant content

on all of them ................................................................................................................................................ 13

5.4.7 What are the possible global challenges facing retailers? ............................................................ 13

5.4.7.1 Globalization .............................................................................................................................. 13

5.4.7.2 New Competitors and Channels ................................................................................................ 14

5.4.7.3 Consumer Power ....................................................................................................................... 14

6. Recommendations and Action Plan …from ―retail evolution to e-tail revolution‖ ................................. 14

6.1 Brick and Mortar to ―Click and Brick‖................................................................................................. 14

6.1.1 Click and Brick Model .................................................................................................................... 15

6.2 Customer Centricity ........................................................................................................................... 15

6.3 Brick ―Re-Modeling‖........................................................................................................................... 16

6.3.1 Retail Format ................................................................................................................................. 16

6.3.2 Merchandise Assortment Plans ..................................................................................................... 16

6.3.3 Smart Technology ......................................................................................................................... 16

6.3.4 Store Layout .................................................................................................................................. 17

6.3.5 Business Process .......................................................................................................................... 17

6.4 Click ................................................................................................................................................... 18

6.4.1 The Web ........................................................................................................................................ 18

6.4.2 E-tailing .......................................................................................................................................... 19

6.4.3 Social Media Marketing ................................................................................................................. 20

6.4.3.1 Twitter - micro-blogging ............................................................................................................. 20

6.4.3.2. Facebook ................................................................................................................................... 21

6.4.3.3 The importance of listening to your Customer – This is Centricity! ........................................... 21

6.4.3.4 The power of video .................................................................................................................... 21

6.4.4 Mobile Media ................................................................................................................................. 21

6.4.5 Catalogues..................................................................................................................................... 22

6.5 Customer Experience ........................................................................................................................ 23

6.6 Supply Chain ..................................................................................................................................... 23

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6.6.1 Instrumented .................................................................................................................................. 23

6.6.2 Interconnected ............................................................................................................................... 23

6.6.3 Intelligent ....................................................................................................................................... 23

6.7 Collaboration ..................................................................................................................................... 24

6.7.1 Collaborative Planning, Forecasting and Replenishment – CPFR (Solution) ............................... 24

6.8 Reverse Logistics .............................................................................................................................. 25

6.9 Bringing it all Together ...................................................................................................................... 26

6.9.1 Strategy ......................................................................................................................................... 26

6.9.2 Leadership ..................................................................................................................................... 26

6.9.3 People ............................................................................................................................................ 26

6.9.3.1 Before you can get buy-in, people need to feel and identify with the problem. ......................... 27

6.9.4 Culture ........................................................................................................................................... 27

7. Alternative solutions to problem / Opportunity ...................................................................................... 27

7.1 Gamification ...................................................................................................................................... 27

7.2 Virtual Retailing ................................................................................................................................. 28

7.3 Smart Store Concept ......................................................................................................................... 28

8. Conclusion ............................................................................................................................................ 28

Reference Lists ............................................................................................................................................ 30

Appendices .................................................................................................................................................. 31

Annexure A: ................................................................................................................................................. 31

Annexure B .................................................................................................................................................. 35

Annexure C .................................................................................................................................................. 36

Annexure D .................................................................................................................................................. 36

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Executive Summary: Screenagers

The retail landscape is rapidly evolving, with retailers facing a multitude of new challenges. These include;

advancement in technology, the changing mindset of consumers, a generation shift amongst consumers,

development of the web and the growth of the online sales channel. In the US non store online sales last

year was 80.3% of the total US online sales and accounted for $117bn of $145bn market. Whilst physical

store retail sales are flat throughout the globe with SA experiencing between 4-6% average growths with

on-line sales in SA at R1.2bn.

SA has 5.3m PC users of which 4.5m have access to the internet and broadband is growing at 60%. Smart

phones have given consumers a new platform to access the Internet. SA has 47m active cell phone users

and cellular data growth penetration is a key focus for all network service providers and is the next

significant level of growth. This level of interconnectivity is changing social values with consumers having

instantaneous access to information about retailers, products and other consumers’ experiences.

Consumers are interconnected to people they have never met in their lives. Social websites such as

Facebook, Flikr, LinkedIn, You Tube and Twitter are becoming the consumers favourite past time. SA Ranks

10th in the world on Twitter usage outranking China, Japan and the Philippines with half a million active

Twitter accounts. Facebook in SA has 3.9m active users. Consumers are socially interconnected.

Whilst technology advancement is creating new opportunities for retailers to explore, retailers are faced

with many other challenges in their physical store (offline) stores. Global players are entering the market,

forcing retailers to think global and act local. Global retailers use their power of global sourcing to bring a

new level of competitiveness to the market, this puts enormous pressure on margins and retailers are

investing in supply chain management to improve stock input costs. RFID is gaining traction in supply chain.

Demand forecasting is becoming crucial to ensure stocks are at the optimal level. Retailers across the globe

are approaching new opportunities such as self check out systems, regional distribution centres etc. What

we have found is that these approaches are scattered within the organization and fragmented. This will

pose a new challenge for retailers as end up with silos within the organizations.

Our group has adopted this subject with a focus to synchronize the approach for strategic deployment by

retailers. We have created a model for strategic conversation; we call this model the generic “Click and

Brick model for strategic re-alignment”. This model ensures a comprehensive approach to re-aligning the

retailer in multi format retailing and removes the fragmented approaches being adopted by retailers. This

research will aim to equip retailers in the changing landscape of the retail environment and details a step

by step approach to strategic re-alignment within a retail environment gearing up for multi format retailing.

We have set up a website to assist retailers with the full breakdown of our model:

http://www.screenagers.webs.com

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1. Opportunity Statement

“How will retailers strategically re-align themselves to the smart customer?”

2. Description and background to the opportunity and why it is important. Sam Walton once said: “There is only one boss, the customer and he can fire everybody in the company

from the chairman on down, simply by spending his money somewhere else.”27

The mindset of customers is rapidly evolving. We are living in a generation of change and in a society that

demands instant gratification. With the evolution of technology the customer can now have everything

they require on demand. The need for patience has dissipated and expectation levels have expounded be it

on quality, service delivery or experience, to this end retailers are going to be forced to change and evolve

to meet the needs of its Smart customer. The need for change will arise in various forms such as strategy

re-alignment, retail format review, store layout, supply chain efficiency and most importantly being

customer centric and using technology to adapt to the change.

The world is becoming a global village and technology is advancing at an exponential rate. Today we are

interconnected to anyone anywhere in the world. The retail customer of today is predominantly, Baby

Boomers3, the Gen X and Gen Y customer.

The Gen X customer accepts diversity, is pragmatic and practical, is self reliant, rejects rules, mistrusts

institutions and uses the PC and technology. The Gen Y customer celebrates diversity, is optimistic and

realistic, self inventive, rewrites the rules, finds institutions irrelevant and consumes technology.

This generation (Y) has given rise to a new breed of customer, the customer we call the millennial3.

Millennial’s are already displaying interesting attitudes and behavioral differences from the preceding two

generations. These differences will manifest themselves in a variety of areas including employment, leisure,

technology, social expectations, family, personal conduct, consumer behavior and commerce.

The Millennials3 are the largest generation in history and they are already becoming significant influencers

in the marketplace on today’s consumers. Over the next few decades, Millennials will continue to stamp

their own unique imprint on business and society. The millennial generation is more diverse than the

generations of their parents or grandparents and while estimates on their spending power are somewhat

wide ranging, they all signal the enormous consumer force the Millennials are – and that will increase as

they enter into their earning years. It is interesting to note that there are signals that many Millennials will

be compulsive spenders. According to Baylor University business professor Jim Roberts18, 10% of this

generation can be classified as clinically compulsive buyers.

……So WHY is all of this important to the retailer?

Social values will change for the next evolution of the retail landscape. Shoppers will want more experience

and faster service with precision convenience. Technology will drive retailers to study their customer’s

behavior and get involved in their lives. Innovation will become a constant goal for the retailer to remain

relevant and competitive. Service will no longer be about efficiency. Retailers will need to think Global and

act local. This calls for new retail thinking, a paradigm shift. What we do today and what we know today will

be Alt+Ctrl+Del. This research aims to provide insight into new opportunities by providing information to

retailers, so that they can strategically align to the smart customer.

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2.1 Research Questions we aim to answer • Who is the smart retail customer?

• What is the smart customer’s demographical profile?

• What is the smart customer’s psychological and sociological profile?

• What will the smart customers shopping habits be?

• How will the use of technology influence their shopping behavior?

• How do retailers re-align to this customer?

• What internal environmental changes need to be made to re-align to this customer in terms of:

Leadership, structural, systems, people and processes?

• How will store layout, replenishment systems, marketing and web development be influenced

by this customer, and what re-alignment is required in this space?

• What will the supply chain look like?

• What are the possible global challenges facing retailers?

• These recommendations must be implementable, achievable, practical, and adaptable.

3. Project Scope16 It was late summer, and after a meeting the staff of a successful venture company asked their new CEO

if the winter was going to be cold or mild? Having a lot of money they invested in energy and oil

companies the staff was understandably concerned. “I’ll get back to you on that” he said.

After a few days he had an idea, he went to the website of the Weather service and e-mailed to ask if

the coming winter was going to be a hard one?” The early indications are that this winter is going to be

quite cold” said the meteorologist at the weather Service. So the CEO went back to his team and told

them to invest a bit more money in energy companies.

A week later he e-mailed the service again and asked if it was going to be an exceptionally cold winter?

“Yes,” the meteorologist replied again, “it’s going to be very cold”. The CEO went back to his team and

said that they should invest in every opportunity that they could into energy companies. Two weeks

later he e-mailed the weather services again, “are you absolutely certain it is going to be a cold winter?”

The reply was “absolutely, it will be one of the coldest ever in last decade”,

“How can you be so sure?” asked the CEO. The meteorologist replied, “Because the venture capital firms

are pouring money into energy companies like crazy.”

The moral of the story: Is that good information about the Future is hard to find!

3.1 Project Justification: The project justification will provide an opportunity to be exploited by the retailer. The retailer will

understand the smart customer with insight into their character and expectations. The retailer will

understand the market demands being imposed. A business need will be researched. The research will

provide insights into technological advancements and a study of the current changes in the retailers’

industry environment. Qualitative analysis will be conducted on the retailer’s customer, how will these

changes affect the retailers’ strategy?

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3.2 Project Product: The project product will provide a solution to how the retailer needs to transform their business model to

ensure the smart customers’ needs are being met by the retailer from a technological point of view,

ensuring the retailers’ use of Smart technologies will deliver a sustainable competitive advantage to the

retailer. The project will provide a framework for the work required by the retailer to achieve the benefits

of the changing social environment and its customers’ needs. The project will exclude direct assumptions

and will not be prescriptive to the retailer in their choice of strategy but will act as a framework for possible

strategic decision making. A proposal will be provided for possible structural, systems, people and process

changes to ensure alignment of the strategic direction.

3.3 Project Deliverables: The final deliverables of the project will include an approx. 20 page structured business case incorporating;

an executive summary, an introduction to the problem with a brief history, an explanation of the

importance of the problem to the industry, it will cover all the objectives and the scope of the project by

providing specific solutions and proposals, an outline of the research methodology. The results of this

research will be presented as a summary with alternative solutions to the problem and recommendations

and actions plans. A conclusion, a glossary and reference list will be provided.

3.4 Project Objective: The project objective will provide recommendations for successful implementation of Smart technologies

and strategies.

3.5 Assumptions/Limitations and exclusions: While research will be based on global changes it will be limited to local implementations based on changes

in the current South African market in terms of Government Policy, Technological changes that are

dependent on SA infrastructure, legal limitations, and economic conditions.

3.6 Project Plan: The project plan of how our group: “Screenagers” will tackle the ALP including deliverables, deadlines and

who is responsible appears in the table below:

• Ankie Chair

• Nazim Team Leader/Ideas Person / Finisher

• Lloyd Shaper

• Rowland Contacts Person / Team builder (Will facilitate logistics)

• Ian Critic and Communicate to stakeholders and coach

• Vhutshilo Implementer

3.7 ALP Project Plan Timetable

Deliverables Delivery Date

Project Scope and Team Charter 29 June 2011

Team & Conference Calls and Research and conduct interviews 29June to 4 August 2011

Submit 50% completed Document 5 August 2011

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Work on document completion and error correction and continue

research

6 August to 24 August 2011

Aim to complete document 100% 26 August to 10 September

2011

Submit final draft report 16 September 2011

Refine and complete finishing touches to report 3 October 2011

Submit final completed written report 4 October 2011

Dry Run of Final presentations 5 October 2011

Final Presentation to SETA and GIBS 6 October 2011

4. Research Methodology4

4.1 Method

The research method used for this study is the qualitative method. Qualitative research refers to research

that produces descriptive data. This type of research was chosen because of the nature of the study

intended. In a qualitative research the results of the research can entail discovering unanticipated findings,

and the results can be summarized using the researchers’ own words. The following are characteristics of

qualitative research; unstructured questions, small sample, free flowing questions, and an interpretation of

rich data.

4.2 Sampling

The sample was selected from individuals who work in the retail sector. 148 questionnaires were sent out,

and 84 participants responded. The sample size is acceptable for a qualitative research as a minimum of 25

responses are needed for a qualitative research. There were two types of participants. The first group was

individuals who work in retail and who work with the members of the group (Syndicate Group 2). These

individuals were selected on a random basis. Anybody who was willing to complete the questionnaire was

given one to complete. The second group was school kids (Smart customers) who were willing to

participate in the study. For this group of participants, a consent letter was received from the parents

before they participated in the study.

4.3 Data Collection4, 5

The following data collection methods were used for this study; the questionnaire (Annexure A) and the

review of relevant literature. These two data collection methods were chosen because they are relevant for

a qualitative research. First a literature search of the relevant materials was done. Literature search was

done using articles, books and websites. A questionnaire was later distributed to 148 participants in the

retail sector.

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4.4 Data Analysis

Data analysis was done using a programme called survey monkey. The 84 questionnaires with the

participants’ answers were summarized. Ten questions were asked in the interview, and the responses are

summarized in the results and findings in (Annexure A).

5. Results 5.1 Who is the Smart retail customer? 5.1.1 The Smart Customer Serving the smart customer is complex; their needs cannot be defined by location, application, time of day,

or device alone. In fact, that is what makes them smart customers. They seek to be connected and serviced

no matter where they are, what they are trying to do, or when they are trying to do it. Although smart

customers are heavy technology users, they want solutions to be simple. In particular, application user

interfaces must be easily accessible for both work and their personal life, raising some issues relating to

overlap between the two. Retailers will need to ensure an exciting in store experience along with preparing

to have sales through other online services as a huge part of the turnover migrates to web.

5.1.2 Demographic Profiles According to the census estimates of South Africa, the country is experiencing increased migration into the

cities which intensified after the 1994 elections20. The Western Cape and Gauteng Provinces are

experiencing the highest number of migration from rural areas, with the Limpopo and the Eastern Cape

experiencing the highest outflows of younger people into other Provinces. These migrations are increasing

the rate of urbanisation in Southern Africa. The increase in urbanisation will also give rise to other

unintended consequences such as cultural convergence. Cultural convergence is simply a trend which gives

rise to an integration of cultures with shared ways of thinking, values, and behaviour patterns (for example,

shared music, shared celebrity experiences, shared TV programmes, etc.). The increase in cultural

convergence and the nature of our Smart consumers with regard to technology convergence will give rise

to a new urban population and a new urban culture.

5.1.3 Psychological and Sociological profiles The word screenagers26 is a term that combines two words to describe “teenagers who are online” and

who are “always looking at the screen”. This generation is tech savvy, media savvy, and is more racially and

ethnically integrated than previous generations. They are addicted to motion, change and constant activity

and therefore they have a short attention span. They expect things to change as quickly as on TV, and in

computer games. They are visually and graphically orientated and more comfortable with online content

delivery rather than traditional methods of training. They also spend most of their time watching TV, while

playing computer games, listening to their MP3s, texting, playing game consoles, surfing the internet,

scrolling through their iPods or simply staring at screens. They can spend up to ten hours a day glued to

TVs, computers, phones and video games. They can spend time on different tasks simultaneously, such as

playing computer games and texting.

Unlike the generations that preceded them, this generation is socially different. They are highly

individualistic even though they belong to chat rooms and they bounce off ideas to friends. The social

networks are a place where they bounce their ideas, while they keep to their individualism. They respond

well to viral and social media marketing, love celebrity endorsements, respond to rapid visuals, and they

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are unpredictable. They are much more ethnically and socially diverse than the generations before them.

They are extremely technically literate and are connected to online, digital information, entertainment and

contacts all the time. They are in constant communication with their peers through texting (cell phone)

and/or computers. Their widespread social networks influence their buying decisions. If they like

something, they share with their friends online, and if they do not like something, they also share that with

their friends.

5.1.4 The Smart Customer is “A Pro- sumer”23

In the past companies manufactured products and then tried to figure out how best to sell those products

to the consumer, generally through mass market channels. We now live in a demand-driven economy

where sophisticated consumers drive change in the marketplace, fragmentation of the media has closed

the pipeline to the mass market, and new products and trends are born and die in a blink of an eye.

Retailers need to now re-align to this paradigm by being consumer centric.

Consumers now have access to information and services 24 hours a day, seven days a week, 365 days a

year, their ability to consume messages far surpasses the retailers’ ability to provide content, and because

of this the power has forever shifted to consumers. How do retailers then tap into the consumer as trends

are taking shape, to ensure that they are on the leading edge rather than the tail end of consumer trends?

To understand this retailers’ must understand the smart customer, this is a group of consumers called

“Prosumers” and they are the key to growth.

5.1.5 What Is a Pro-sumer? The term “prosumer” is defined as someone who blurs the distinction between a “consumer” and a

“professional” or “producer”. The term has since come to mean a Professional Consumer. Because of their

complex lifestyle, which combines a demanding workload and an active family life, prosumers are eager

adopters of Web 2.0 products and service a convergence of process innovation, global marketplaces, and

advanced technologies that fundamentally changes the way consumers buy and retailers sell. Prosumers

typically embrace Web 2.0 technologies such as social networking (Facebook, MySpace), blogging, video on

demand (VoD), podcasting, VoD casting, virtual realities, mobile communications, and other Internet-based

technologies and services that allow people to stay connected whenever and wherever they desire. This

will become the mainstream of tomorrows’ screenagers.

5.2 What will the Smart customer’s shopping habits be? “Screenagers” are woken up by an alarm on a cell phone and they check the latest gossip on the same

device, often before they get out of bed. They go to school or work in a vehicle that features screen-based

information or an entertainment system, and they spend most of their day interacting with one kind of

screen or another. In the evening they interact with their friends via screens and may finally sit down to

relax with the internet.” (Future Minds – Richard Watson)26

“Screenagers” think differently and that has an influence on what they want and need from the retail

industry.

The Smart customer expects the shopping experience to recognize their needs, reward them and interact

with them in the unique ways that provide them with a sense of instant gratification that adds value to

their already busy lives, but at the same time appeals to their sense of individualism. They will share their

thoughts, activities and experiences with others and therefore the Retailer will have to ensure an enjoyable

and value adding shopping experience at each and every interaction with the smart customer.

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5.3 How will the use of technology influence the Smart customers shopping behaviour? The fact remains that “the digital era is changing our minds which results in significant shifts in our attitudes

and behavior.” (Future Minds – Richard Watson)26. These shifts will have a tremendous impact on the

shopping behaviour of the smart customer – Retailers will have to embrace this trend and prepare to meet

these customers’ demands and expectations by creating a shopping channel of technology both in store

and in the virtual store that appeals to this smart customer.

Retailers need to be present everywhere their customers go and ensure they have a positive experience at

every point. The retail experience will have to be converged so that it can connect with the Smart

customer at each and every touch point in the shopping channel as the Smart customer has a high

propensity to evangelize good brand experiences and an even higher propensity to share poor brand

experiences, hence the Smart customer is not likely to associate with a brand again once he had a bad

experience at any point in the shopping channel.

The abovementioned facts make it clear that the Smart customer expects a seamless technological

experience when he/she shops on-line, in the brick and mortar store or the virtual store, feeling instant

gratification and entertainment at the touch of a button.

5.4 How do retailers re-align to the Smart customer? 5.4.1 Aligning Service to the Smart Customer Certainly a variety of store formats and channels are not new to retailers. For example, Sears has built a

formidable presence with its traditional department stores and catalogue, and is now expanding with

specialty home stores and services, and it publicly stated that the key to Sears’ growth will not be brick and

mortar. Growth will come from a wide range of services, plus e-tailing, this helps fill their need for instant

gratification while saving shoppers time. The key observation about this situation is that there now is a

need for retailers to have a model that meets the demands of the “Individualistic-Shopper” one that they

can reach out and touch and be touched at any time and place- “Instant Gratification”. Retail and retail-

related businesses should have a strategy on how they will get ahead or at least stay with this wave of

change, rather than getting swamped by it. The need to embrace and deal with a multi-channel strategy

seems obvious.

5.4.2 How do retailers Appeal and Align to these Prosumers? Not surprisingly, appealing to Prosumers requires innovative thinking and bold action by leadership. By

leveraging Creative Business Ideas, that is, by creating ideas that are transformational, align with the

business strategy, and drive profitable growth. Retailers must find ways to tap into and leverage the power

of the Prosumer if they are to succeed in tomorrow’s economy.

5.4.3 Supply Chain/Logistics and “Value Chain” Smarter Commerce is redefining the value chain in the age of the customer. It starts with putting the

customer at the center of your operations –which of itself is not a new idea – however, truly

operationalizing this strategy is not easy. It requires synchronizing your entire value chain to deliver

consistent and predictable outcomes and necessitates improved collaboration and visibility for your

customers and partners.

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5.4.4 Value Chain Visibility connects the Dots Leading retailers are pushing ahead by using collaboration among their network partners with business

intelligence to make collective and fast decisions. They are using business intelligence and advanced

analytics to analyze, monitor and detect changes, from the highest priority events to the most minute

transaction, that influence customer service.

From adjustments in forecasts due to real-time point of sale or actual orders, to production schedule

adjustments from a supplier to in-transit shipment status from a carrier they are aware and reacting

quickly. Visionary leaders are integrating and synchronizing end-to end information among all parties,

bringing together pertinent data on events to monitor activities and performance to plan. They are

implementing dashboards, in multi-media, on multiple devices, to proactively manage their supply chains.

5.4.5 Stores as we know them will no longer be relevant—many shoppers will never even visit one!8

In the Future, the sheer diversity of both shoppers and shopping trips will require a multiplicity of formats,

each tailored to a specific local market. The name of the store game will be precision retailing and

successful stores will be those that leverage their closeness to customers to interpret demand signals and

swiftly act on them. Some stores will focus on the time starved, others on the “green” consumer. Some will

simply be showrooms—like Vogue magazine’s twist on pop-up retail, which allows visitors to try on items

from the racks of clothes on display, receive advice from stylists and sample products from the perfume bar

or make-up station. The store space sells nothing—but the information that attentive store staff can derive

about customers’ preferences could prove invaluable to Smart sales prospects

5.4.6 Consumers will shop seamlessly across multiple channels—and expect to find relevant content on all of them8

Consumers are abandoning product “ownership” in favor of a “leasing lifestyle”, characterized by a quest

for access to fewer items closer to the point of need. In the Future, Internet penetration will turn this multi-

channel lifestyle, into a global phenomenon. Interconnected and using a single mobile device, pro-sumers

will be able to configure their experiences from a variety of locations and via a diversity of channels.

5.4.7 What are the possible global challenges facing retailers?14

Major players in the retail sector are facing an era of unprecedented change. Significant and pervasive shifts in global consumer expectations, spending patterns, attitudes and behaviour are having profound effects on market dynamics in all markets and at every level. New competitive realities have clear implications for the current and future relationships between consumers, retailers and their suppliers. Key changes in the environment include:

5.4.7.1 Globalization Retailing has resisted the pressure to ‘go global’, on the basis that the buying habits of shoppers in different countries were too dissimilar to extend proven formats from one country to another. However, successful retailers are testing this orthodoxy by looking for growth through international expansion. Examples include: Wal-Mart entering Europe, Latin America and Asia and South Africa, Staples and Office Depot expanding globally, Carrefour consolidating its position in Latin America and Far East. It is still too early in many cases to gauge the success of these moves, but the impact on local markets has been significant. The arrival - or threatened arrival - of international players in South Africa has been the catalyst for major changes, including the consolidation of local players, the formation of alliances and experiments with international operations by national retailers. These pressures have highlighted some of the limitations of the more decentralised players, who struggle to achieve consistency of brand experience. For the most successful retailers, domestic markets are now too static to satisfy their need for sustained growth.

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Arguments encouraging expansion and acquisition in new territories include: Shareholders, available resources, replicable formulas, global outlook, enabling technology and supplier dynamics.

5.4.7.2 New Competitors and Channels Consumers now have a greater choice of products and delivery channels than ever before. They are better equipped to make informed purchasing decisions, with easy access to high quality information about products and services – particularly on performance and pricing – in traditional and new media formats. In addition to established industry and non-industry commentary, consumer word-of-mouth has become a key information channel in the form of published consumer reviews and referrals, particularly over the Internet. Retailers are detecting a growing preference among consumers for customised products and service offerings. Faced with a greater number and variety of complex offerings, consumers are looking for help, guidance and reassurance from brands they trust.

5.4.7.3 Consumer Power18

The Internet will not replace traditional retailing, but it has become an important additional channel, strengthening existing store and catalogue formats. Its power will increase in line with improvements in bandwidth and content. Consumers will continue to use established channels as well as newer ones, however, the use of the Internet as an information tool will influence product and channel choice. Trust in established brands will be a key factor. In markets where trust in web-based retailers is strong, this currently says more about the strength of retail brands than it does about confidence in the Internet. The Internet has a long way to go before it becomes a channel to the mass market. The US and Scandinavia aside, few other regions are close to bridging the chasm between early adopters and an early majority of users. Dotcoms may be out of favour with investors, but the Internet will continue to grow as efforts to popularise and extend the use of new media continue.

6. Recommendations and Action Plan …from “retail evolution to e-tail revolution” Our syndicate proposal to retailers is a model for strategic decision making and re-alignment of company strategy towards the smart consumer with multi-channel and multi format retailing. This model is all encompassing of the factors to be considered when creating a multi-channel retail format, and acts as a guideline for strategic direction, re-alignment and clarity of purpose. As the internet penetration increases in South Africa and with the current generation’s techno-savvy consumer, SA retailers will find that in the next generation sales will start to migrate platforms to some extent. It is imperative that retailers who are “smart” adopt “smart technologies” and re-align their strategies towards facilitating a minimum of a dual platform channel to harness on a continual growth curve for the smart consumer. Smart customers shop across channels so retailers will need to offer a multi-channel choice and be prepared to manage customer relationships as they shop and communicate across several channels. E-tailing is setting new high standards for pricing, product, assortments, information, ease of shopping, services, and speed. Retailers should revisit the “I’m going to be better at assortments, or service, or experience” because this is a one-dimensional approach that is retail-centric rather than customer-centric. It is “What my store is going to do for you” rather than “Here’s how I can offer you a solution to your wants/needs”.

6.1 Brick and Mortar to “Click and Brick” Coined in 1999 by David Pottruck17, co- CEO of the Charles Schwab brokerage firm, “Click and Brick” refers to a business that offers online services via the web as well as the traditional retail outlets (offline), and refers to running the two divisions in a co-operative and integrated manner where they both support and benefit from each other.

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“The generic click and brick model for strategic re-alignment”

Fig 1

6.1.1 Click and Brick Model Retailers must acknowledge the existence of a brick store (physical store) as well as a click store (virtual store). Whilst a brick store is not new and has formed the essence of retail since the 18th century, retailers will need to revisit key elements of the brick store for strategic re-alignment to ensure a seamless shopping experience. Similarly, since the advent of the dot.com age, the web space has provided elements of retail in fragmented spaces. Combining these two formats and ensuring the sum of the two is greater than the individual formats will enhance success into the next decade of retail revolution.

6.2 Customer Centricity Whilst having a Virtual and Physical store format could be easily created, key to the success of any of these formats will be defined by customer centricity. Consumers want individualism. Customer Centricity is about individualism. Retailers need to ascertain consumer demand for their future viability. Customer centricity needs to transcend across virtual and physical store spaces. “Know your customer” - this is the secret to success. Supply side marketing: 4P’s, typically stated that you should have the right product, at the right place, at the right price and promote the product. A formal approach to Customer Centric marketing is SIVA6, which is basically the four P’s renamed and re-worded to provide a customer focus.

The SIVA6 Model provides a demand customer centric version alternative to the well-known 4Ps supply side model (product, price, place, promotion) of marketing management. The four elements of the SIVA model are:

Solution: How appropriate is the solution to the customer’s problem/need?

Information: Does the customer know about the solution, and if so how, who from, do they know enough to let them make a buying decision?

Value: Does the customer know the value of the transaction, what it will cost, what are the benefits, what might they have to sacrifice, what will be there reward?

Access: Where can the customer find the solution? How easily/locally/remotely can they buy it and take delivery?

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This model was proposed by Chekitan Dev and Don Schultz in the Marketing Management Journal of the American Marketing Association, and presented by them in Market Leader - the journal of the Marketing Society in the UK.

Product Solution

Promotion Information

Price Value

Place Access

Customer centricity has to be the sole driving force of corporate strategy. Investing in technology to ensure a customer centric retail approach is the key to success. Wal-Mart adopts the philosophy of customer centricity through a simple model of: Easy; Fast and Full. It must be easy to execute operationally, how fast we get it done and how full the shelves will look when customers shop in their stores. (Andy Ellis – VP of Supply Chain, Wal-Mart: Presentation In Toronto)1. Driving customer centricity must be a top down approach (M&S London).

6.3 Brick “Re-Modeling” A customer centric approach to retailing requires key elements of the brick store to be reviewed. There are 5 key elements that the model calls for review:

6.3.1 Retail Format The formats of a retailer is the overall appearance and feel that it presents to customers, primarily its look and layout, the type of merchandise it stocks and the approach taken to pricing.

The format, together with range, pricing and marketing, is one of the key elements in creating sustainable competitive advantage, and often the hardest to get right. A good format will both draw in customers and help present products well to generate sales. Retail format must be reviewed with all these elements and strategically re-aligned to corporate strategy.

The retail format must offer customers a shopping experience with faster service and precision convenience and provide the customer with instant gratification.

6.3.2 Merchandise Assortment Plans Assortment plans must be tailored to suite the customer demographic, be based on demand and tailored around the customer. Retailers, through use of smart technologies, and software optimization need to create a comprehensive solution for localized assortments taking into account shopper demand, space, productivity and profitability. At the heart of assortment optimization is the identification of every items’ true incrementality to its product segment and the category. This comes from establishing a scientific platform of transferable demand underlying accurate consumer decision trees. In addition to incrementality, assortment optimization can run scenarios to maximize sales, profit, space and productivity, as well as balancing for unique shopper segment objectives. Customer centricity drives the assortment plans.

6.3.3 Smart Technology There are a myriad of electronic POS and technology being introduced for retail outlets. Key developments are taking place at IBM, Accenture and a host of software companies such as JDA, Retek and Oracle and customer centricity software being built by SAS (through meetings held with IBM, SAS and Microsoft – Toronto). Retailers need to ensure that a proper project team is in place to determine the optimum retailer requirement and intelligent decisions need to be made in this area. Retailers need to ensure that the

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current foundation data within their business is sound for new platforms to be introduced. Some of the major trends identified are as follows:

• Self Checkout - While lagging behind Europe, retailers in North America are beginning to invest in more self-checkout technologies. Walmart and Tesco are investing in self checkout systems.

• Digital merchandising – This is more than just the electronic illustration of static images. New technologies are capable of tailoring messages to the audience in order to influence buying decisions. Integration into analytical tools converts consumer data into actionable knowledge.

• Mobile integration – Smart phones are creating opportunities for retailers and consumer packaged goods companies to make the shopping experience interactive. As the technology evolves, the potential exists for the device to become the consumer’s wallet; this will have a tremendous impact on the future of POS.

• Price Optimization – Having the ability to drive higher margins. Software that interprets consumer behaviour gives retailers the ability to manage inventory coverage more effectively and exercise better control over promotional and clearance markdowns.

• RFID technology - is experiencing a time of renewed interest by retailers. The cost of RFID technology has dropped marginally, but there are more ways to apply its use. Some of these include re-usable devices in the logistics process, as a tool to increase inventory accuracy on high SKU items (i.e. fashion goods).

Implementing smart technologies is a complex process. (See Annexure B).

6.3.4 Store Layout11

Partnering with vendors on a collaborative growth program could greatly assist in store layout and design. This would typically involve shopper analysis and interviews along with observation of shopping patterns. Customers should seamlessly navigate a store no differently to navigating an internet website, and enjoy a shopping experience that guarantees loyalty. Incorporating technology at customer touch points enhances the customer experience. Store layout must also take into account the environment, the smart customer knows the value of protecting the environment and retailers must design store layout with protection to the environment as core. Using customer centricity and consumer shopping behavior, retailers will be able to customize a shopper’s purchase based on their shopping patterns. Technology will enhance this experience. Examples of this are already being tested with QR technology (quick reference). Metro AG in Germany has launched a version of the “smart store”12 the layout of this store is incorporated into smart telephone technology that uses the phone to navigate their customers though the store.12

6.3.5 Business Process Retailers moving towards a brick and click model will require business process re-engineering, which is the analysis and design of workflows and processes within the retailer. According to Davenport (1990) a business process is a set of logically related tasks performed to achieve a defined business outcome. Re-engineering is the basis for many recent developments in management.

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Fig2

Retailers will be faced with more complex and unstable business environments. The retailers’ need for changing its business processes will increase significantly, therefore, processes must be easy to adapt to changes and will need technology enabling the retailer to adapt to the change. Furthermore, the changes to business processes will be made by the business instead of IT. The business will be able to model new business changes and implement those without help from IT. To do this retailers will need BPMS (Business Process Management Software) like technology and business analysis skills among its employees. For the South African retailers this area requires high focus when considering a brick and click model as current systems will need to be enhanced to act as a platform for new technologies. This could require a substantial long term financial investment. Retailers must quantify the long term benefits derived from these enhancements when making these decisions. IBM has uncovered that this area of focus in the decision process is of paramount importance as discovered by IBM in their installation of new technologies into Wal-Mart (Canada).

6.4 Click Click in the model refers to using one or more of the following electronic mediums to communicate with the smart customer.

6.4.1 The Web The first attempt in achieving a click presence is to ensure that a website is created for the retailer. A website will allow a retailer the following benefits:

• Far cheaper and much more flexible than print advertising The Internet is extremely different from print advertising in that space is cheaper, the advertisement is accessible for a longer period of time, and the content can be changed and can potentially reach a wider audience.

• Retail market expansion

The Internet will allow the retailer to break through the geographical barriers and become accessible, virtually, from any country in the world by a potential customer that has Internet access.

• 24/7/365 Given the internet penetration and the time that the smart customer spends on the web or web

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enabled devices, there is no more turning customers away when it’s time to close shop, the smart customer will visit the website for information they are looking for.

• Retail convenience

It is far more convenient to research a product on the Internet.

• Retail value add and satisfaction Through offering convenience, a point of reference and that touch of individualized customer service, a retailer can ultimately add value to their offering and the customer experiences a higher level of satisfaction. A website can add value in other ways too, by featuring tips, advice and general interest content that allows the retailer to entertain their customers.

• Improves retailer’s credibility

A website gives the retailer the opportunity to tell potential customers what products are about and why the retailer deserves their trust and confidence. In fact, the pro-sumer uses the internet for pre-purchase research so that they can determine for themselves whether a particular supplier or brand is worthy of their patronage, and won’t take them for a ride. The Internet also allows for Viral Marketing where the website visitors spread positive word-of-mouth about the retailer - your customers do your marketing!

• Promotes the retailers’ Brick and Mortar presence Retailers can promote their brick stores by publishing maps on their website, which shows directions and landmarks graphically, as well as product ranges and specials available in stores. The retailer may advertise a promotion on its’ website encouraging the customer to visit the physical store (e.g. At branches near you! ).

• Retail sales growth opportunity A website serves as a great place to refer potential investors to, to show them what your business is about, what it has achieved and what it can achieve in future.

• Two-way communicative marketing Customers can quickly and easily give feedback on your product and/or marketing approach.

• Customer market research Retailers’ can use features on their website such as visitor polls, online surveys and website statistics to find out what their customers like more and how they feel about certain aspects of the retailers business to determine how the retailer can improve the way they do business.

6.4.2 E-tailing E-tailing or e-retailing refers to the selling of retail goods electronically over the Internet. The term is a short form for "electronic retailing", and surfaced in the 1990s for being frequently used over the Internet. E-tailing usually refers to the business-to-consumer (B2C) transactions. Retailers will need to evolve from an information website to a transactional website, as sales migrate from a brick platform to a click platform. E-tailors’ sales in the US increased by 2.1% in 2009. As a share of total retail sales, E-commerce sales were 4.0% or $145 billion, up from $142 billion in 2008. Non-store retailers accounted for 80.3% or $117 billion of the sector’s total e-sales. Nearly all non- store retail e-sales occurred in the electronic shopping and mail-order houses industry group. This data clearly shows the missed opportunity in brick and mortar retailers creating a click and brick platform!!

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Fig 3 The convenience of online shopping is unmatched indeed. Shopping out of your home or office reduces the stresses of waiting in lines and dealing with irritating sales people.

6.4.3 Social Media Marketing9

Social media marketing will become an increasingly important element of many retailers marketing efforts. Social media can benefit all types of business, including high street shops, restaurants and pubs. Recent research has underlined the fact that many consumers now use the internet generally, but social media specifically, as their first port of call when looking for products or services. It is also the case that as many as 70% of consumers now use social media to air their grievances about retailers with which they have had a bad experience. Retailers must ensure that it is properly harnessing the power of social media which can benefit and control the way the retailer is perceived online. Retailers cannot simply sign up to a few social networks and then forget about them. This is not an effective strategy. The retailer will only get the most out of social media if it makes a proper time investment. So how can the retailer best use social media as a marketing tool for their retail business? Here’s how some retailers have used social media marketing to great effect.

6.4.3.1 Twitter - micro-blogging Twitter and other micro blogging platforms provide an incredible, free marketing opportunity for retailers. The benefits are two-fold. (See SA Twitter Stats, Annexure D :) Firstly, it provides the retailer with an opportunity to monitor what customers are saying about the retailer in real-time, while allowing the retailer to respond instantaneously.

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Secondly, it allows the retailer to engage instantly with the customers about promotions, new products and other related news. South Africa recently hit the 10th spot of the world’s top Twitter countries (467 500 monthly South African visits), according to Canadian research company Sysomos. SA is ahead of Japan, the Philippines and China in this race! Zappos, the American footwear retailer, set the benchmark for Twitter engagement. It was an early adopter of the technology, using it for customer service and to promote offers, and has since set up an aggregation page that displays every mention of its brand – again, in real time. This helps to present Zappos as a reputable brand, and an active part of the social media community.

6.4.3.2. Facebook Facebook in South Africa has 3.9m active users. (See Annexure C) Facebook is by far the most popular social network, and marketers have long been considering ways to make it work for them. It may not be an effective marketing tool for every retailer, but it is worth spending a bit of time trialling it to see whether it is right for your business. IKEA (As Observed in Canada) - have been responsible for some of the most innovative uses of Facebook. Late last year they ran a campaign in which photographs of IKEA storerooms were posted on the network, and Facebook users were told that whoever ‘tagged’ themselves on an item first would win it. This clever combination of interactivity and competition helped to create significant exposure for the retailer across Face book – and, of course, got people talking offline as well.

6.4.3.3 The importance of listening to your Customer – This is Centricity! Social media marketing efforts will only succeed if retailers are prepared to listen to their customers, rather than talk at them. Unlike most other forms of marketing, social media facilitates conversation, rather than a one-way flow of information. PepsiCo (reference syndicate meeting in Toronto) understands this well; they monitor many social networks for mentions of their brand name, and respond to users where appropriate. Bear in mind, though, that users will be instantly turned off by anything resembling spam. So avoid mass following on Twitter, or going on ‘friending’ sprees on Facebook. Instead, think about ways that you can encourage users to come to you.

6.4.3.4 The power of video Many retailers underestimate the power of video content but for many people; video is a far more engaging medium than text or still image. Comparatively few marketers bother experimenting with it, however, as it is difficult to get right and the videos can be expensive to create, a ‘viral’ video is often seen as the holy grail of social media marketing and content of this type has driven massive sales for some canny retailers and brands. Pepsico Cananda – ran a “create your own TV advert” campaign. This was an instant success and had a huge following on YouTube. This was an excellent example of a viral video campaing.

6.4.4 Mobile Media10

There is massive development in the mobile communication space and a number of benefits that the retailer can exploit to ensure seamless interaction and marketing with the smart customer. MXit is South Africa’s biggest mobile social network at the moment. It’s a mobile application that allows users to chat on the mobile data networks at the fraction of the cost of a text message. It’s HUGE under the younger generation, but has so far failed to gain real traction market above 25.The network is estimated to have around 15 million users worldwide, and around 9 million users in South Africa.

Some of the key benefits are:

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• Target the audience – in the average “brick and mortar retailer” most customers come from within a 3-5km radius of a store. Currently, fifty percent of all search queries on mobile devices have a local intent. (Source: Ref Microsoft Canada)

• Reinforce the brand, strengthen and supplement current marketing efforts – Large numbers of people (37% to 40%) respond to traditional media ads (outdoor, radio, TV) with mobile lookups or search. (Source: Ref Microsoft Canada)

• Get a Jump on competition – Analysts believes that, based on the current rate of change and adoption, the mobile web will be bigger than desktop Internet use by 2014. (Source: Morgan Stanley) If a mobile user gets a bad experience when they visit a website, 61% off them probably won’t go back. 40% will go to a competitor’s site. (Source: Gomez) Currently, 98% of all websites are not mobile compatible.

• Expand reach –Web traffic from mobile devices increased 110% in North America over the past year and 148% globally (source: Quantcast) In the US, mobile internet usage is at least one-third (Source: comscore)

• Increase traffic – Adding a mobile friendly site results in an overall traffic increase of 13%. (Source: Nielsen) Increase your traffic with improved visibility on search engines like Google, Yahoo! and Bing.

• Connect with potential and existing customers – Leverage what mobile phones do best, communicate. Exploit the capabilities of the mobile device to connect with customers.

• Improve conversion rates of visitors into customers – A simple icon-driven interface delivers an attractive and easy-to-navigate experience on all mobile phones including high-end smart phones, mid-range and budget phones. Convert traffic into customers with features such as Call Us, Find Us, and Tell-A-Friend. (Source: Adobe Mobile Experience Survey)

• Increase Repeat Visits – Mobile users want quick easy access to information. Present just the right information for convenience and utility when needed most and allow access to information up to 6 times quicker than on a full website. Mobile users prefer usability and good user experience over brand names alone. (Source: Harris Interactive) Satisfied customers come back.

• Grow revenue – leverage features like Coupons, discounts.

6.4.5 Catalogues30

Catalogues have been successful in US. Print catalogue mailings are perhaps the biggest factor in generating online customer orders for cataloguers. Consumers who receive catalogues are more likely to become frequent buyers online, accounting for 15% more transactions, and will spend on average 16% more than customers who did not receive catalogues. Consumers who receive catalogues in the mail are more than twice as likely to make an online purchase. Consumers like to have a hard copy catalogue to review items before purchase, so putting the catalogue and internet hand-in-hand makes it safe and accessible for customers to make their orders whichever way they like. The customers are able to place orders on the phone, online, and through the mail. So no matter what way a customer prefers to order, the item is being sold. An estimated 167 million consumers made consumer catalogue purchases during the last year, showing potential advantages of catalogue marketing and making it one of the best ways to get the product into the hands of consumers. Catalogue shoppers place about 11 orders annually, and consumers and businesses combined spend roughly $150 billion on catalogue purchases per year. 59% of catalogue shoppers will keep catalogues they order for at least three

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months or until a new copy arrives - leaving the retailer’s product in plain sight for any visitors or household members to view and consider purchasing. Ultimately catalogues save time, appeal to those who are fearful of shopping due to crime rates, offer convenience, allow leisurely decisions, offer privacy, often offer toll-free telephone numbers to place orders, and allow comparison of quality and price. Sears has 70% of the catalogue market valued at $1.2mil US as confirmed by Michael Leblanc VP of The Shopping Channel Canada.

6.5 Customer Experience24

Customer experience is the “moment of truth”. It is that moment when a customer comes into contact with the store or the brand. In a physical store, customer experience is enhanced by the in-store experience, such as layout, product assortment, merchandising, pricing, use of point of sale materials, lighting, and so forth. The in-store experience can also be enhanced by customer service. In a virtual store, the customers’ experience is enhanced by the simplicity or the user-friendliness of the website, the catalogue, the ordering process and the delivery of goods. The customer must be satisfied for them to see value in the retailer and the brand. Customer experience may be direct or indirect. Direct experience is when the customer experiences the brand and/or the retailer first hand and indirect experiences are through the word of mouths. The main role of the retailer in both the physical and the virtual stores is to make sure that the customers have the right type of experiences with their stores and services. Loyalty is not built through loyalty cards but earned through customer experience. Retailers must be “customer experience architects.” (ILDP 2011 Class Notes)

6.6 Supply Chain22

The model requires the digital and physical infrastructures of the retail supply chain to converge. Thanks to the falling price and rising reliability of sensor technologies, practically any activity or process can now be measured. Objects can communicate and collaborate directly, without human intervention. Entire systems can be connected — not just supply chains with other supply chains, but also with transportation systems, financial markets, electric power grids and even natural systems like rivers and weather patterns. Every insight derived from a world of smart objects can lead to action— and more value. With so much embedded intelligence, supply chain management can progress from decision support to decision delegation and, ultimately, to a predictive capability. As the world begins to work differently, we will see a different kind of supply chain emerging — a smarter supply chain with three core characteristics:

6.6.1 Instrumented19

Supply chain information that was previously created by people will increasingly be generated by sensors, RFID tags, meters, actuators, GPS and other devices and systems. In terms of visibility, supply chains not only will be able to “see” more events, but also witness them as they occur. They will rely less on labour-based tracking and monitoring, as objects like shipping containers, trucks, products and parts report on themselves. Dashboards on devices, perhaps not yet invented will display the real time status of plans, commitments, and sources of supply, pipeline inventories and consumer requirements.

6.6.2 Interconnected Smarter supply chains will take advantage of unprecedented levels of interaction — not only with customers, suppliers and IT systems in general, but also among objects that are monitoring or even flowing through the supply chain. Besides creating a more holistic view of the supply chain, this extensive interconnectivity will also facilitate collaboration on a massive scale. Worldwide networks of supply chains will be able to plan and make decisions collectively.

6.6.3 Intelligent To assist executives in evaluating trade-offs, intelligent systems will assess myriad constraints and alternatives, allowing decision makers to simulate various courses of action. A smarter supply chain will also be capable of learning and making some decisions by itself, without human involvement. For example, it might reconfigure supply chain networks when disruptions occur. It could acquire rights to use physical assets like production capacity, distribution facilities and transportation fleets on demand through virtual

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exchanges. This intelligence will be used not only to make real time decisions, but also to predict the Smart. Equipped with sophisticated modelling and simulation capabilities, the smarter supply chain will move past sense and-respond to predict-and-act. Clearly, supply chains have the potential to become much smarter, but this will not happen simply because they can. Smarter supply chains will emerge because they must. The customer must consciously infuse intelligence into their decision making and management systems, not just infuse our processes with more speed and capacity.”

6.7 Collaboration2

Retailers must collaborate to build customer centric focus. Collaboration in the Supply Chain is important because Supply Chains are integrated and complex and retailers can no longer afford not to collaborate in the fast changing retail environment. Inventory investments are high and retailers need to balance the need for reducing inventory holding and ensuring no stock out situations which will negatively affect the customer experience. Inventory holding is the single biggest cost within the retail supply chain and is held in multiple locations i.e. suppliers, manufacturers, in transit, multiple distribution centres and the back end of stores. Retailers in South Africa face the common situation where slow moving lines are over-stocked and fast selling lines are under stocked. Inventory can be controlled unlike consumption and thus the need for collaboration amongst partners in the Retail Supply Chain. The Bull Whip Effect is caused by the misinterpretation of information by the retailer when demand spikes due to unseasonal demand and the retailer interprets as a new level of demand and therefore floods stores with the new level of inventory when demand actually remains flat. The Bull Whip Effect- (PENN State) is caused by the non transparency of information, a deficiency in business knowledge and a lack of collaborative processes. Thus the matching of supply with demand has become one of the business drivers for improving on shelf availability and reducing inventory holding.

Three enablers are required to provide completive supply chain advantage:

Transparency of Information: Retailers and manufacturers have common goals around reduced inventory, increased sales, fewer returns, increased service levels and reduced supply chain cost but do not share the same information.

Knowledge and Insight: Ensure that the supply chain teams increase their knowledge of their suppliers

Collaborative Processes: The sharing of information will thus become a key driver to ensuring the continued competitive advantage of retailers.

6.7.1 Collaborative Planning, Forecasting and Replenishment – CPFR (Solution)2

The objective of CPFR in retail is to improve partnerships between trading partners though collaborative processes and shared information and ensuring the customer centricity through Supply Chain responsiveness.

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Fig 4

In the Strategy part of CPRF model business goals for the relationship are set. The goals define the scope of the collaboration between partners and assigns roles, responsibilities, checkpoints and areas of escalation.

Planning Identifies the significant events that affect supply and demand, such as:

• Promotions • Inventory policy changes • Store openings/closings • Product introductions

The outcome of the planning stage of the CPRF model is a joint business plan agreed by the partners’ party to the collaborative process to ensure customer centricity. Demand & Supply Management the Sales forecasting projects consumer demand at the point of sale which is used to determine future and current demand as well as replenishment of stores. Order planning / forecasting determines future product ordering and delivery requirements based on:

• Sales forecast • Inventory holding • Transit lead times

Order generation is the transformation of order forecasts into actual customer demand of product and services. Order fulfilment when the manufacturers pick, pack and ship the product and retailers receive the product into stock. Analysis evaluates planning and execution data against pre-defined tolerances and alerts both collaborating parties when outcomes occur outside of the tolerances. It also includes an exception resolution process. The use of metrics is to:

• Evaluate achievement of joint goals • Uncover trends affecting Supply Chain Collaboration • Develop alternative strategies to improve Supply Chain Collaboration

6.8 Reverse Logistics The model emphasises the importance of reverse logistics and retailers are cautioned to ensure that a full reverse logistics picking system is in place. Whilst its importance cannot be neglected in brick stores, the importance of reverse logistics in a click format is paramount to the success of the click format. Reverse

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logistics is about product recalls, commercial returns, wrong deliveries, warranties, repairs & refurbishment and end-of-life returns. It has historically been an undervalued part of supply chain management, but is currently gaining much more attention due to its direct impact on profit margins, companies’ environmental image and corporate social responsibility. It is therefore imperative that retailers integrate reverse logistics as a key component of their Supply Chain Strategy in the click and brick model.

6.9 Bringing it all together The model is held together by a foundation which is strategy; two pillars support the strategy namely Leadership and People. And finally the culture of the organization holds the model in place for effective execution. These will now be briefly discussed.

6.9.1 Strategy Strategy forms the foundation of the model. The retail organisation needs to ensure that the brick and click strategy is incorporated into corporate strategy. This aligns all strategic thinking in the organisation. Strategy is the overall scope and direction of a corporation and the way in which its various business operations work together to achieve particular goals. According to, Johnson and Scholes (Exploring Corporate Strategy)13 strategy is defined as follows: "Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations". The retailers of South Africa need to execute and implement the strategy through a variety of structures, systems, policies and procedures, as well as the activities of the firm. Executing and implementing the strategy will lead to the achievement of the company’s goals. Leadership needs to align the strategy by consistently scanning the environment and aligning the processes. Key in adopting a brick and click strategy is ensuring that a structure is in place to support the click model and that this structure is aligned into the corporate strategy.

6.9.2 Leadership The first pillar that strengthens the model is Leadership. Strong leadership is required to articulate vision, inspire and communicate the strategy with relentless execution. Leaders need to continuously scan the environment and identify the risk that could impact and make their business vulnerable. Leaders should become more prone to collaborate with suppliers, vendors and support functions in designing joint business plans. At the heart of all decisions should be - the customer as well as identifying all resources and technology required to enhance customer experience. Key considerations would be establishing more integrated teams that will lead customer centricity e.g. establishing of a customer insights team with representatives at executive level and middle management/ operational level. Leaders should also be engaged with relevant new technology by means of social medium platform or surround themselves with tech-savvy teams that could drive the process e.g. establishing a twitter page to interact and respond to customers directly.

6.9.3 People People are the second pillar in the model that holds the strategy together. People are the points of contact for the customer and must be the brand ambassadors in providing the customer experience that the customer seeks. People must become the retailers’ “customer experience architects”. Management must be able to tell a change story that covers all 5 attributes that motivate employees namely:

1. Impact on society

2. Impact on the customer

3. Impact on the organisation

4. Impact on the immediate working teams/environment

5. Impact on ‘’me’’

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6.9.3.1 Before you can get buy-in, people need to feel and identify with the problem.

Kotter's eight step change model can be summarised as:

Increase urgency - inspire people to move, make objectives real and relevant.

Build the guiding team - get the right people in place with the right emotional commitment, and

the right mix of skills and levels.

Get the vision right - get the team to establish a simple vision and strategy focus on emotional and

creative aspects necessary to drive service and efficiency.

Communicate for buy-in - Involve as many people as possible, communicate the essentials, simply,

and to appeal and respond to people's needs. De-clutter communications - make technology work

for you rather than against.

Empower action - Remove obstacles, enable constructive feedback and lots of support from leaders

- reward and recognise progress and achievements.

Create short-term wins - Set aims that are easy to achieve - in bite-size chunks. Manageable

numbers of initiatives. Finish current stages before starting new ones.

Don't let up - Foster and encourage determination and persistence - on-going change - encourage

on-going progress reporting - highlight achieved and Smart milestones.

Make change stick - Reinforce the value of successful change via recruitment, promotion, and new

change leaders. Weave change into culture.

Source website www.kotterinternational.com.

All the above is still relevant and will assist retailers to align with the impact of employee adaptability with

regards to change.

6.9.4 Culture28

Culture is the ultimate glue that holds the model together. Culture engineering will be required to respond to the different generation gaps, demographic and sociological consumer. Culture is driven by leadership in the pursuit of driving the organisations’ strategy. The latest thinking on organisational culture implies moving from a diversity focus to a human equity focus. Human equity embraces the theory of individualism and uniqueness moving away from the ‘’group’’ mentality. It involves inclusion, which means the collective and unique abilities of all employees should be managed, respected and cultivated to the benefit of the organisational culture. In short this means, moving from value add culture to a virtue driven culture that embraces customer centricity at the core. Culture is important in change management and culture drives this change. (Source: Trevor Williams; Diversity in Workplace)

7. Alternative solutions to problem / Opportunity Retailers who do not adapt to a click and brick model are able to enhance elements of their physical store environment and still use technology to excite and engage with customers. Some of the examples available to retailers are as follows:

7.1 Gamification Retailers wishing to not invest in e-tailing could still invest in social media marketing using social websites such as face book and linked in etc. The whole notion of getting the customer to engage with the retailer is important. Some retailers have invested in “Gamification” where e-tailing is not involved, rather the retailer uses web technology and mobile technology to engage with the customer. This involves creating a game out of social media to engage with the tech savvy customer. The objective being to get the customer

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engaged with a product and then sells a solution. This is the retail alternative to implementing a full scale click retail option.

SCVNGR.Com is a website that uses game playing to engage with the customer.

7.2 Virtual Retailing Tesco in Korea have invested in a virtual store concept using mobile technology with QR coding. Whilst technically this concept does not involve e-tailing over the internet it does require elements of the brick and click model to be considered. The major one being supply chain and collaboration.

7.3 Smart Store Concept Retailers could also invest in “pure play” (off line) – which entails investing purely in the brick space and creating an interactive shopping experience. Metro AG in Germany has adopted this concept.

8. Conclusion Based on the research provided and the click and brick model developed it is our recommendation that retailers adopt this model as a strategic tool to engage in strategic discussions within the senior leadership of the organization. The model is only beneficial when incorporated into corporate strategy and not when approached on an ad-hoc basis. Costs have not been investigated as the scale of execution could vary by retailer size and objective. The ultimate key to success is to incorporate multi-format retailing.

The long term strategic goal of bricks and clicks must be to make 1+1=3. By combining and integrating multiple channels the retailer can leverage the advantages of both on and offline to create a more formidable retailer more relevant to the Smart consumer.

Retail as we know it will no longer be the same!

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Glossary

Glossary

Word Meaning

Aggregation Aggregator refers to a web site or computer software that aggregates a specific type of information from multiple online sources

BT British Telecoms

Bull Whip Effect The Bullwhip Effect (or Whiplash Affect) is an observed phenomenon in forecast-driven distribution channels. Since the oscillating demand magnification upstream a supply chain reminds someone of a cracking whip it became famous as the Bullwhip Effect

BPMS Business Management Process Software

Brick and mortar A traditional "street-side" business that deals with its customers face to face in an office or store that the business owns or rents

Cloud computing Cloud computing is the delivery of computing as a service rather than a product, whereby shared resources, software, and information are provided to computers and other devices as a utility (like the electricity grid) over a network (typically the Internet).

Micro blogging Micro blogging is a broadcast medium in the form of blogging. A micro blog differs from a traditional blog in that its content is typically smaller in both actual and aggregate file size. Micro blogs "allow users to exchange small elements of content such as short sentences, individual images, or video links

Pro-sumer Prosumer is a portmanteau formed by contracting either the word professional or less often, producer with the word consumer.

QR A QR code (abbreviated from Quick Response code) is a type of matrix barcode

RFID RFID is a tracking system that uses intelligent bar codes to track items in a store(Radio Frequency Identification)

Reverse Logistics Providing a service primarily focusing on the return of damaged, expired or repairable products to the principal or manufacturer.

Shopper centric Putting the shopper at the heart of every business decision.

Shopping patterns Shopping Patterns describe propensities of consumers' behaviours,

SKU A stock-keeping unit or SKU is a number or code used to identify each unique product or item for sale in a store or other business

Social media Social Media refers to the use of web-based and mobile technologies to turn communication into an interactive dialogue

Tech-savvy It means someone who knows a lot about technology

Viral An object or pattern that is able to induce some agents to replicate it, resulting in many copies being produced and spread around.

Virtual store Online retail store with distribution channels.

Viral Video A viral video is one that becomes popular through the process of Internet sharing, typically through video sharing websites, social media and email

Web Enabled Device Devices with a web browser (XHTML-MP or WAP 2.0) and media streaming or downloading capabilities like Mobile Phones, PDAs, the Sony PSP, and more.

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Reference Lists

1. Andy Ellis: VP of Supply Chain, Walmart Presentation in Toronto Canada. September 2011. 2. Andy Helveston (2011). Collaboration in the Supply Chain :

Andy Helveston Regional Director , Supply Chain Planning, Johnson & Johnson Consumer Products Company (Penn State Supply Chain Course)

3. Boomers and Millenials: Age does matter on point Retail Research, 2008 4. Brynard, P.A. & Hanekom, S.X. (2006). Introduction to Research in Management-related Field.

2nd Edition. Cape Town. Van Schaik Publishers.

5. Condrington, G. & Marchall, S.G. (2004). Mind the Gap. Johannesburg. Penguin Books. 6. Dev, C. & Schultz, D. (2005). In the Mix: A customer-focused approach. Marketing Management Journal

of the American Marketing Association.

7. Driggs, W. & Kasolowsky, N. (2008). Creating Customer Loyalty – A Customer Centric Approach. Accenture.

8. Hoffman, J.L. & Sang, R.V. (2010). From Retail to “Me-tail”: Tomorrow starts today. Accenture.

9. http://thesocialcustomer.com

10. http://www.mobilecommercedaily.com

11. http://www.retailtouchpoints.com

12. http://www.smart-store.org/fsi-internet/html/en/29830/index.html 13. Johnson & Scholes. Exploring Corporate Strategy.

Accessed September 2011 from http://www.tutor2u.net/business/strategy/what_is_your_strategy.htm. 14. Laura Durham . 201 Opportunities and Challenges for S.A retailers – Supermarket and Retailer, August 2011,

(accessed August 2011 from www.supermarket.co.za)

15. Merl, M. & Rucinski, M. (2008). Back to the Future – Customer Infused Retailing. Accenture.

16. Patler, L. TrendsSmart: The power of knowing what is going to happen. (2003). Naperville, Source Books. 17. Pottruck, D. (19 December 2010). Brick or Click Methods.

Accessed September 2011 from http://www.attachmetric.com 18. Roberts , J. “Compulsive Buying and Risky Behaviour Among Adolescents”,

Psychological Reports, Vol.86, No.3 (2000),pp763-770.

19. Sam Palmisano: Chairman, President and Chief Executive Officer. IBM Corporation 9.

20. Statistics South Africa. Mid-year Population Estimates 2010. Statistical Release P0302.

21. Statistics South Africa: Census in Brief. Census 2011 Estimates

22. The smarter Supply chain of the future : IBM Institute of Business Value – October 2010 iibv@ue.ibm.com

23. Toffler, A. (1980). Prosumer. Accessed on ... from wwwworldwidewords.org.

24. W&RSETA ILDP GIBS class notes 2011.

25. W&RSETA ILDP Penn State University Class Notes. 2011

26. Watson, R. (2010). Future Minds. London. Nicholas Brealey Publishing.

27. Watson, S. & Huey, J. (1993). Made in America. United States of America. Bantam Books.

28. Wilson, T. & Sayers, I. (1997). Diversity at Work: A Business Case for Equity. Canada. John Wiley and Sons 29. www.brandchannel.net: The Future Evolution of the Consumer and Retail Markets –

HP invent / VIA International 2011, (Accessed August 2011) 30. www.cdmgnic.com: The 12 Keys to Profitable Catalogue Marketing – Creative direct marketing group.INC –

2010, (Accessed August 2011)

31. www.deloitte. Co.za. Consumer 2020, Reading the signs. Deloitte. 2011( accessed July 08, 2011)

32. www.harrisinteractive.com.

33. www.marketing-insights.co.uk : Digital Marketing Insights – C.M.O .com – 2010, (Accessed August 2011)

34. www.netlingo.com accessed July 2011 35. www.pwc.com/us/en/retail. Retailing 2015, New Frontiers PWC &TNS Retail Forward, 2007,

(accessed July, 13 2011)

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Appendices

Annexure A: SMART SHOPPER QUESTIONAIRE – (www.surveymonkey.com)

Total Started Survey: 84 Total Completed Survey: 84 (100%)

1. Which are group to you fit in?

Response Response Percent Count

9 to 15 years 23.8% 20

16 to 22 years 0% 0

23 to 29 years 23.8% 20

30 – 36 years 31.0% 26

Above 37 years 21.4% 18

Answered question 84 Skipped question 0

2. How frequently do we use internet services either by phone or computer mediums?

Response Response Percent Count

Once a week 10.8% 9

3 times a week 9,6% 8

5 times a week 10.8% 9

7 times a week 7.2% 5

More than 7 times a week 61.4% 51

Answered question 83 Skipped question 1

3. How would you classify your technology ability using cell phone, computers or any other digital gadgets

Response Response Percent Count

Unskilled 0.0% 0

Beginner 1.2% 1

Intermediate 30.1% 25

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Advance 56.6 47

Professional 12.0% 10

Answered question 83 Skipped question 1

4. Did you have any formalised or in formalised training?

Response Response Percent Count

Yes 89.0% 73

No 11.0% 9

Answered question 82 Skipped question 2

5. What types of marketing communication will you prefer when shopping for goods and services

Response Response Percent Count

SMS 22.9% 19

E-mail 31.3% 26

Pamphlets 9.6% 8

Face to Face 16.9% 14

Radio 1.2% 1

TV 9.6% 8

Social networks e.g. Mixit, facebook& twitter 8.4% 7

Answered question 83 Skipped question 1

6. Which of the following preferences are important for you when you are shopping for goods and services?

Response Response Percent Count

Shopping environment 15.5% 13

Quick and Fast service 21.4% 18

Right product assortment and range 13.1% 11

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Availability of parking space 0.0% 0

Accessibility and location of shops 0.0% 0

Interaction with salesman 0.0% 0

Shop layout and fittings 0.0% 0

All the above 50.0% 42

Answered question 84 Skipped question 0

7. Have you made any internet purchases in the last 12 weeks?

Response Response Percent Count

Yes 32.1% 27

No 67.9% 57

Answered question 84 Skipped question 0

8. If your response to 7 above was “No” what do you think was a problem?

Response Response Percent Count

No access to internet 1.7% 1

Inadequate skills using internet 3.4% 2

Unable to make purchases as I need my parents

consent

27.6% 16

Prefer personally to shop for is 41.4% 24

Risk of safety 25.9% 15

Answered question 58 Skipped question 26

9. Which categories or service do you prefer to purchase online via mobile phone or computer?

Response Response Percent Count

Accounts 48.1% 39

Entertainment reservations 19.8% 16

Books, CD, DVD, Toys & Games 25.9% 21

Foods and non Foods 1.2% 1

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Clothing & Apparel 2.5% 2

Furniture and Equipment 2.5% 2

Answered question 81 Skipped question 3

10. Which of these categories would you prefer buying personally going to stores?

Response Response Percent Count

Accounts 7.3% 6

Entertainment reservations 0.0% 0

Books, CD, DVD, Toys & Games 22.0% 18

Foods and non Foods 28.0% 23

Clothing & Apparel 40.2% 33

Furniture and Equipment 2.4% 2

Answered question 82 Skipped question 2

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Annexure B

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Annexure C

Annexure D

Twitter Stats for South Africa as at July 2011.

85% of users tweet less than once a day. 21% have never posted a tweet. 93% of users have less than 100 followers. 92 % of users follow less than 100 people. 5% of Twitter users are responsible for 75% of all tweets. 50% of all tweets are posted from tools other than the Twitter website. 53% of Twitter users are women. 0.29% of users follow more than 2,000 people.