Microsoft Retail Store?

Hmm...Microsoft recently announced its intent to open retail stores. The blogosphere is drawing comparision to an Apple store where customers get exposure to Apple products and the essential Apple "experience". What I am wondering about (and many others are too) is the merchandise itself. Now unlike Apple, MS doesnt really manufacture PCs. So is it going to be X-Box, Zune etc and potentially a tie-up with an OEM without a significant retail presence? (Dell?). How would other partners (HP, Sony etc) react? Found some images online of how the store would look like? If I didnt know it was a model of an MS Retail concept store, I would have almost thought it is some kind of upgraded Best Buy!!!...I am waiting to see what is MS's retail strategy.

Get it to your doorstep for free

As holiday season is getting closer and closer, and consumers are shifting more and more to buying online, a host of retailers are offering free shipping. A recent report by CNBC interviewing Shop.org president, Scott Silverman talks about how nearly 50% of the US population will make online purchases this holiday season. An interesting part is that free shipping is become very common. A random check on the websites of top retailers (Macy's, Targer, Neiman Marcus, JC Penny's) shows free shipping offers of some kind. In most cases they are conditional upon the total purchase. The shipping option is however restricted to only standard shipping. Any kind of expedited shipping will be charged. Also if the boxes are to be shipped to multiple addresses, only the delivery to one shipping address is for free. In some cases, the option of free shipping is available only if you choose to put the items in minimum possible boxes which is very intuitive since most parcel carriers charge by the box, unless you exceed their 100 wt requirements. So it seems like free shipping is no longer a promotion, its become a cost for doing business. This entails, the retailers to rethink their contracts with standard parcel carriers. Another aspect of free shipping is service level - how soon is the customer going to receive the package. Standard UPS Ground shipping can take anywhere between 5 - 7 business days. So is the customer going to buy something that he needs to gift and choose a free shipping option? One way to support a high service level and still provide free shipping is by doing what is referred to in the small package industry as zone-skipping. The idea is to identify regional parcel hubs and sort your packages by those hubs and line haul (fill a truck) it to the regional hub. Basically, you are avoiding your packages going through multiple sortation points in your parcel carrier's network. At the same time this strategy can help the retailers negotiate better rates as they are effectively doing a lot of the sortation work that the parcel carrier would have to do. Of course with more retailer joining the free shipping bandwagon, the rate negotiation advantage might tilt towards the parcel carriers.

Global Effects

Retail is probably as old as civilization itself. From the time that our ancestors bartered grains in exchange for cloth, the idea of retail has been in existance. However, the growth in globalization has led to it being governed by so many diverse factors. A large proportion of everday retail pertains to basic needs like food. I came across a very interesting article in the Boston globe on how the grocery bills are rising in the US due to a multidimensional supply-demand tug-of-war. On on side you have rising oil prices leading to increased transportation and packaging costs which are passed down to the consumers. On the other side you have growing demand for basic food commodities like oil seeds due to economic emergence of BRIC (Brazil, Russia, India and China). An interesting fact was cited in this article - "China will import almost 50 percent of the world's oilseeds within a decade, becoming the world's largest importer, according to estimates from the Organization for Economic Cooperation and Development." I wonder if another green revolution of some sort will be required to dramatically increase productivity so that the growing demand for food commodities can be satiated. At the same time efficiencies in storage and transportation might be required to curb the seeming growing spiral of increasing costs.

Consumer Behavior

Continuing from my last post on "Active Design", an interesting article appeared in the NY Times on how more and more marketers are using consumer behavior rather than consumer perceptions obtained through market studies and then figuring out what fits their profile the best. Behavior based marketing is taking a step further and looking at what the consumer actually buys and identifying correlations to design the product offerings. In other words, if you know how your consumers "Acts" then you can design for her to act and offer her what she acts for. The article talks about the role of new media in helping identify consumer behavior and also market product offerings identified through an understanding of consumer behavior - "The ability of new media to monitor what consumers are doing — like keeping track of which Web sites they visit — is fueling the interest in behavioral targeting"

Re(t)a(i)l-Politic

The news of Reliance Retail shutting down operations in northern state of Uttar Pradesh(UP) and other states is being looked upon as an eye-opener to the landscape of organized retail in India. I did some online research to see how the agri suppy chain in India looks like. I found a presentation made at Images Retail Forum by Ashok Singhal who is the chariman of KSA-Technopak, a leading consulting company in India in the retail and CPG verticals. A snapshot of the different players in the agri supply chain from Mr. Singhal's presentation is shown below

As agricultural produce moves further from the producer (farmer) there is wastage happening at every stage and margins added to the costs which eventually build up to 3.5 times the cost at which the farmer sold his produce. The table below (obtained from Ashok Singhal's original presentation) gives the breakdown of the margins at every stage.

So the claim of the Reliance Retail (through its "farm to fork" strategy) is that by bypassing the intermediaries it can provide value to the end customers and offer 'fair' prices to the farmers. In an ideal world that makes sense but the existing Indian retail environment is much more complex with many socio-political forces at play. I came across a very insightful article by S.A. Aiyer (Editorial contributor to Times of India) on the agricultural landscape in India. In a gist what Mr. Aiyer explains is that over the past decades as Reliance was building its businesses, it had to mainly deal with politicians, bureaucrats, bankers etc but with retail a hotch-potch of trade groups, comission agents and most importantly farmers have to be managed to get the operations going. Inexperience in dealing with such a complex group is back firing on Reliance. Its not that no one has managed in such a tough environment. The e-choupal scheme run by ITC is cited as an example of a successful model.

Virtually Real

A very interesting article by Ellen Brown was featured in Wall Street Journal on Kimberly Clark and other CPG companies investing in building virtual reality studios to test store display concepts and how consumers would respond to them. The idea is that rather than testing a concept in a store which takes longer time and is more costly, virtual reality prototypes can assist the manufacturers and retailers to gauge consumer responses. The article talks about a test where a customer is made to walk virtually in a store and pick up a pack of Huggies diapers. Now if the idea is to determine how easy it is to locate the product with the new display then probably this might work. Also it may give a good 3-D visualization for executives considering ideas. But what is not intuitive to me is how does this enable them to determine a consumer's choice. Now when we walk into a store, its an overload of stimulus in all forms - visual, audio, olfactory etc. Add to that group dynamics of a collection of people in a store. So just by having a sample consumer do a virtual reality walk through an isolated display and checking the eye movement would not be sufficient. There is no other display to attract the consumer's attention. There is no nagging baby on the cart diverting mommy towards the candy aisle. Human mind and its interaction with the surrounding is much more complex so I wonder how much a virtual reality gizmo will help.

Lessons from across the big pond

Tesco's entry into the US market is old news now. But I would like to refer to a very interesting article published by The Economist not so much from what Tesco is trying to do but the challenges it faces due to some fundamental differences in the way US Retail Operations are structured in comparison to Europe. Here is an excerpt which I found very interesting
"....In trying to compete with discount retailers such as Wal-Mart and Costco in a large country with good roads and cheap land that lends itself to big-box retailing, America's supermarkets have concentrated mainly on trying to take costs out of their supply chains. Labour is also cheaper in America. This has encouraged supermarkets to make two sorts of food: that which lasts long because it has been dried, canned, frozen or otherwise preserved, and that which is prepared from raw ingredients on site. "

However the preference for organic food and new age stores like The Whole Foods offering a range of pre-cooked food that has a shelf life of a few days, that might be changing.

On the other hand here is the contrast in the environment in which the European retailers compete

"...British supermarkets, in contrast, operate on a small, crowded island with restrictive planning laws. Whereas American stores are good at moving goods hundreds of miles and keeping them cheap, British retailers specialise in regular, frequent deliveries to heaving city-centre stores. Their supply chains are more sophisticated because they have to be. Stores can be so small that they have to switch from selling sandwiches at lunchtime to selling ready-made suppers in the afternoon.
Expensive labour and a shortage of space have encouraged British retailers to seek economies of scale from centralised food preparation. Rather than cooking on site, they make a wide range of meals that can last for a couple of days. These are not just staples such as macaroni cheese or lasagne. A typical London supermarket now stocks more than 50 different meals, including treats such as organic beef in wine, Keralan prawn curry and Asian noodles with vegetables. "

Bloody interesting ainhhh!!!!!!