Imagining Digital Solutions for Small and Micro Retailers of India
Our second blog in the series on digitising Indian retail businesses covers the various digital tools available and how they could benefit a small or micro retailer
With internet usage skyrocketing in the country, the concept of shopping stores is slowly shifting from purely brick and mortar to phygital1 and e-commerce websites, not only in tier-1 but also in tier 2 and 3 cities of India. But does that mean the end of physical stores? Apparently not. An article by the economic times says that 90 % of retail stores in India are still in the traditional, unorganised segment2. The article also claims that while online accounts for 65% of discovery, 97% of the shopping takes place offline. This is because there are commodities that are innate to the long tail segment and thrive in the physical space. Some examples of such long-tail retail are plumbing and hardware stores that primarily cater to service providers or mom & pop stores selling niche commodities in smaller neighbourhoods etc.,
The growth trajectory of smaller players depends on their ability to scale up not in operations but in their objectives. While going online could help in gaining visibility for retailers with authentic and niche product offerings, smaller retailers selling standard goods might not be able to stand out in a crowded marketplace where the price is no longer a differentiator. They should instead focus on value-added services such as excellent customer satisfaction and quality instead of only competing on the prices3.
There are over 300 integrated digital and on-premise retail solutions available in the market4 that help businesses achieve operational efficiency, save time and therefore allow them to scale up sooner. But most of these solutions concentrate on larger players who have funds allocated and make a considerable turnover year on year. For such retail giants, the money spent on CAC (Customer Acquisition Cost) and other overheads can be justified by the sheer sales volume. These digital solutions however remain at an unattainable height in terms of cost and capabilities for most micro and small merchants. This demands innovative, long-tail-friendly digital solutions that retailers can quickly adopt in their current stead, and sustain continuous growth while attracting new customers.
In the previous blog, we covered the different types of digital interventions available for long-tailed merchants in India under four main categories -
Cash and account management tools
Value-added services like digitisation of physical stores, customer management, online presence etc.,
In this blog, we cover the various stages in the lifecycle of a retail business from inception to maturity. At each of these stages, we highlight where the retailers might benefit from an intervention, digital or otherwise, what those interventions could look like and share some examples of the ones that exist in the market. We will also contrast the prevalence of digital tools among larger retailers and in other sectors such as FMCG with that of long-tail retailers. Albeit one might argue that the cost of these tools cannot be justifiable by a smaller merchant, we uncover that cost isn’t the only barrier to access when it comes to adopting new technologies. Smaller merchants tend to find the concept of using software daunting. They anticipate them to be complex, and time-consuming therefore deeming the tools as not meant for them. We’ll address these points in detail in our subsequent posts.
But first, let’s take a step back and look at the digital products available for retailers as solutions to problems faced by retailers by doing an exercise of functional abstraction5 where in we describe the digital tools in terms of their function or purpose, rather than their trade name, in our case the software. We take the various features of digital retail tools like Finance, Supply Chain Management, Customer management, Account management, Distribution and Online presence to abstract their true purpose in the retail business’ lifecycle.
Digital tools help retailers…
This kind of abstraction helps us provide solutions that are user-friendly, true to their function, and efficient.
An overview of the landscape of digital solutions
When it comes to an organised way of storing information, retailers can either choose
Over the next few sections, we take a look at the steps involved in setting up a retail business in India from the lens of the merchant. We will highlight the pain points they face in the process and solutions that can help ease their tasks.
Stages involved in setting up a Retail business
The inception of the idea and initial capital
Which retail business to set up is usually a personal decision of the entrepreneurs involved in the business, their families and sometimes even the market conditions. Most often when starting a business, Indian retailers make the choice based on their knowledge of the domain, the capital available to invest and sometimes the location or space they have at their disposal. Meanwhile, larger retailers employ resources to get data and insights on the market, location and consumer trends before starting their venture. While, any retailer might benefit from a market intelligence report on the business viability, location selection and market research, access to extensive data might be very expensive for smaller retailers.
At this stage, the retailer also needs to ready documentation in terms of business plans and reports to prove their credibility in order to secure finances and registration for the business.
Getting the finances straight:
Seeking a loan or investment from interested parties is an arduous and time-consuming task for most first-time retailers. Understanding the documentation required to prove their creditworthiness when starting afresh could prove to be difficult. Some retailers might also desire to avoid loans due to personal reasons and employ means to attract stakeholders who might want to invest in the business for a share in the profit.
Once the entrepreneur(s) get a lay of the business idea and funds, they can move on to formalising their business.
Regulatory requirements licensing, registration and GST
As the first step, the retailer needs to choose the appropriate business entity and register their business. The next step is to secure the license to operate under the Shops and Establishments Act of their respective state and other operational permits as deemed necessary by the labour department.
Owing to the scale of the retail industry and the recent interventions, finding information and help for registering and licensing retail businesses in India has been made simpler. Retailers now have offline designated agencies that help in formalising their micro-enterprises under MSME schemes6. Tech-savvy retailers can gather information from various service providers like ClearTax, Legal Desk, IndiaFilings etc., the State government’s Shop and Establishments Act portals, as well as programs from the Ministry of MSME like the Udyan registration program which apart from helping businesses get registered also help MSME businesses with financing, GST, and tax saving.
While registering a business is considered optional in most cases, retailers who have formalised their business are more privy to government schemes, loans, subsidiaries and other benefits targeted as MSMEs. They are also highly likely to get business bank accounts and easy access to credit as banks and financial institutions prefer lending to a registered entity, which is considered authentic and recognised.
While a tech-savvy and informed retailer is more likely to find the registration process simple and straightforward, for a new-to-technology/ first-time retailer the registration requirements, licensing and other documentation might be confusing. They might appreciate a hand-holding, assisted module all the way from entity selection to licensing and permits.
After the registration and formalities, the retailer is officially open for business. They now move on to stocking the space with the goods they aim to sell.
Supply Chain & Inventory Management
A robust supply chain is the backbone of the retail industry. In most micro and small retail stores, sourcing for inventory is a manual-intensive process. Starting with finding the right suppliers, placing the orders, and figuring out the logistics to tracking the sales and in-store inventory there’s a lot of effort involved at each stage.
For example, the contact details for suppliers and distributors are either passed on from one retailer in the segment to another. If the establishments are in prominent locations, the suppliers directly walk in to introduce themselves. Even in the case of stocking the inventory, the orders were taken down on paper via phone calls giving chance to loopholes and human errors in terms of units, tracking and delivery of the goods. As for self-procurement, the retailers have to consider the time, cost, effort and safety of the goods. Though there’s been considerable innovation in the space of integrated and app-based logistics partners, the cost of such services is often higher than the budgeted overheads.
Digitisation can empower the entire supply chain right from the manufacturer to the distributor, all the way to the retailer, making it a smooth and efficient process through and through. In the below table, we cover the various aspects of supply chain management, logistics and inventory at a retail store and highlight possible solution areas that a small retailer might benefit from.
Another aspect of the retail business where software comes into play is understanding the cash flow and managing the finances.
Financial management & book-keeping
Cash flow is considered the lifeblood of any business, and it is especially important for retail stores. There are several things that retailers can do to manage their cash flow effectively, such as tracking the finances, setting budgets, and having contingency plans.
When it comes to tracking finances and making informed business decisions, active and accurate bookkeeping plays an important role. Maintaining accounts of their transactions helps retailers track their profit, losses and comply with tax regulations. Depending on the registered business entity type, the retailer might also be required to conduct an audit with a qualified chartered accountant and file regulatory records every financial year. This chart shows the movement of money in a retail ecosystem.
And the below table highlights the various digital and non-digital solutions that are used to record transactions within a retail store.
Over and above the day-to-day running of the business, there are certain additional areas where retailers could benefit from technological intervention. These interventions could be tools that help retailers understand and boost customer satisfaction, improve their physical and online presence or even learn new ways to expand their business in order to earn better profits.
Technological intervention for retail does not have to stop at the solutions available solely for the segment. There are plenty of tools available outside the retail domain that the merchants can leverage to ensure better customer satisfaction, improve their business or learn newer skills.
Distribution takes care of how the goods are handed over to the customer. The distribution network encompasses all the players and touchpoints that come between the manufacturer, the retailer and the end customer. It can be as personal as the shop staff, in-house delivery person, integrated delivery fleets, third-party delivery agents through aggregator apps or otherwise, the transportation partners and or the e-commerce platform where the seller has enrolled.
Revising the distribution system to work with the business needs can improve efficiency as well as enrich the customer experience. Smart staffing, employing better and improved delivery networks, onboarding logistics partners, investing in insurance etc., can help iron out any last-mile hiccups.
Marketing & Customer Management:
Today offline retail is about the experience. Long-tail retail stores that offer niche products paired with immersive customer experiences seem to be thriving compared their to big-box retail counterparts. This is because large-scale retailers with multi-brand commodities are unable to offer an authentic and personalized experience to their customers. When retailers offer value-added services that ensure customer satisfaction, it builds loyalty and gives the shopper a reason to visit the store more often.
Ensuring customer satisfaction could mean offering credit to regular customers, intimating them about new offers and sales, sharing data on the availability of new products or offering discounts with loyalty programs. In order to compete with omnichannel or e-commerce retailers, offline merchants can adopt services that are primarily available and offered by online merchants7 such as innovative logistics solutions like home delivery and installation support. They could also offer loyalty programs or flexible payment modes like EMI options on POS terminals.
While customer satisfaction could be achieved by making visible changes that are meaningful to the shoppers, customer engagement happens a bit more behind the scenes. Using tools such as CRM (Customer Relationship Manager) retailers can create, store and analyse customer data which in turn generate insights on what to sell.
The first step in successful marketing is visibility. While there is a burgeoning demand for brick-and-mortar in the long tail, online platforms provide retailers with enormous visibility and reach. Retailers who aspire to go digital need to be able to translate the attributes of each of their commodities into information that the e-commerce tools can read and index. In order to increase the likelihood of making a sale, retailers need to provide detailed information about each of their products, such as the features, dimensions, price, availability, colour, and even customer reviews.
To improve the visibility of their physical store, they could leverage free online tools such as Google Business listing or promote their space on Google ads.
They can also leverage the power of social media and communication platforms like WhatsApp to build personal relationships with their customers for free.
In this data-driven economy, it is imperative for insights to be created, analysed and distributed seamlessly among the various stakeholders. Smaller retailers rely on their intuition backed by experience8, to make business decisions. This information held by them is sort of encrypted, entangled in their personal experience and relationship with the customer. Such siloed data analysis is at the mercy of the individual interpretation of the retailer and is not reliable. Digital tools that have onboarded multiple retailers from similar segments can analyse the data and share the insights back with the retailers in the form of simple tips, nudges or even new business ideas.
The easiest way to digitise Indian Retailers
Now that we have an understanding of the entire landscape with the available tools, we can see how the digitisation of micro and small merchants can help them in the long run. Below we outline why cloud-based digital Tools, SaaS or other free platforms, outperform the standalone and hybrid retail software and why it is imperative for tool makers to consider expanding their user base to include micro and small businesses.
In our next blog, we will take a closer look at how some of the tools used by smaller retailers in their day-to-day business, the challenges they face and their barriers in adopting technology.
All artworks are designed by Himanshi Parmar and Rajashree Gopalakrishnan.
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Phygital (physical + digital) is a marketing term that describes blending digital experiences with physical ones. It is sometimes also mentioned as Omnichannel retail.
A list of Retail software solutions available in India found here at: https://www.techjockey.com/industry/retail
Functional abstraction is a reverse engineering methodology that employs first-principle thinking. We have used it to refer to a product/ software by what it does (function) rather than its name. Say for example, the first function of a chair would be something to sit on and its second level of function would be something that doubles up as a ladder and so on., This helps us look at the product as a tailored solution offering a function rather than trying to find ways to fit an existing solution.