optimize your opportunity in retail with the cisco ... · $2.9 billion went to new structures or...

© 2006 Cisco Systems, Inc. All rights reserved. Cisco PublicCBSW Global TF

Optimize your Opportunity in Retail With the Cisco Intelligent Retail Network

Paul McDevitt

© 2006 Cisco Systems, Inc. All rights reserved. Cisco PublicPresentation_ID

AgendaImportance of Verticals

Retail Market Overview

Retail Careabouts

Retail Structure

Cisco Intelligent Retail Network

Programs for Retail

Partner Marketing Tools

Case Studies

Q & A


Importance of Verticals


Verticals = BDM RelevanceTalk with purpose to an industry BDMBe aware of industry trends and use to position our technology in a relevant manner to a BDMProvide material to ask intelligent questionsPosition case studies and testimonials with confidenceAnalyse prospective customers betterBring added value to our Partners

Increase their revenue and marginsReduce pressure for bigger discounts

Knowledge = Confidence


Retail in Canada


IT Spending by Private Sector: 2005 - 2010Vertical %IT Total C$ CAGR

Financial Services 18% 7.0B Banks 5.7%, Ins 2.9%, Other 5.7%

Manufacturers 12% 4.5B Process 1.6%, Discrete -0.2%

Business Services 13% 4.9B 4.7%

Retail 4% 1.6B 4.2%

Wholesale & Dist. 3% 1.1B 2.6%

Primary (incl. Mining, etc) 3% 1.1B 2.3%

Transportation 3% 1.3B 2.8%

Utilities 2% 0.9B 3.6%

Construction 1% 0.5B 4.5%

Canada Total 39.1B 3.9%

2006 2007 2008 2009 2010

C$39.1B C$40.8B C$42.4B C$43.8B C$45.3B

Packaged Appl S/W C$6.9B ~ 17.6% Hardware Sales C$14.8B ~ 37.9% Services C$17.4B ~ 45.5%

Note: Retail spend on technology is significantly higher than IT spend Source: IDC Canada, 2006


Retail – Quick FactsTotal retail sales in 2005 were $368 billion, up 6.1% from 2004.

Approx. $10,853 per man, woman and child inOntario and Quebec contributed the largest share of retail sales.Alberta experienced the largest increase with an annual increase of 12.1%.

The retail sector contributes $60 billion in value-added to the Canadian economyRetail accounted for 5.7% of the country’s real GDPRetail represents 9.54% of all businesses in Canada @ 227,222.The second-largest employer with two million or 11.9% of the total labour force

Source: Statistics Canada, Annual Retail

Trade Numbers


Small Stores Dominate

72%

23%

3% 1%1%

< 10'11-49'50-99'100-199'200+


What Constitutes Retail?


Investment in RetailIn 2003, retail sector invested $7.7 billion across the country.Spending on fixed structures, such as stores, totaled a little over $3.3 billion

$400 million was for repairs$2.9 billion went to new structures or expansions.

Capital spending on machinery and equipment reached $4.4 billion85% was for new equipment.

The retail industry accounted for 4.7% of total investment in the Canadian economy in 2003.CAGR is 4.2%The enormous value of capital spending by the retail industry makes it, in every sense, an annual mega-project.


Retail CareAbouts


Retail Profit Model

Food Non Food Gross MarginsSupermarkets 1.4% to 3%Specialty stores 5% to 10%Department stores 5% to 8%Mass merchants 2% to 4%

100 Sales

80 Cost of goods sold20 Gross margin17 Operating expenses3 Operating profit

InterestNet profit before tax

03

1005050419

72


1.8%0.5%IT12

6%3%Marketing (advertising)4

4%4%Distribution3

10%8%Occupancy cost2

14% Sales8% SalesStore labor1

High (High end dept

store)

Low (Discount Food)

CostRank

Operating Expenses


Shrinkage by Retail Sector

Shrinkage 2003

Shrinkage 2004

Change

Food

Supermarkets &Hypermarkets

- Food Specialists

1.04%

0.91%

1.53%

1.02%

0.86%

1.51%0.77%1.49%1.70%1.08%1.53%0.59%2.20%1.34%

-1.7%

-5.5%

-1.3%General/discount Stores 0.75% 2.7%Department Stores 1.53% -2.6%Clothing & Textiles 1.72% -1.2%Electrical/video/music 1.10% -1.8%Hardware/DIY/furniture 1.56% -1.9%Shoes & leather 0.60% -1.7%Other non-food 1.99% 10.6%Overall 1.37% -2.2%

Source: European Retail Theft Barometer, Centre for Retail Research

Shrinkage is expressed as a % of sales.


Key Performance Indicators

Sales

• Sales vs Last Year

• Sales vs Plan/Budget

• Comparabl e Store Sales(Same Store Sal es)

• Sales per Square Foot

• Sales per Linear Foot

W idely Used Through the Business

Margins

• Gross Margin %

• Markdown %

Sales

• Sell Through %

Inventory

• GMROI

• Fresh Stock %

• Average Stock

• Weeks of Suppl y

Margins

• Markup %

• GMROF

Sales

• Average Sale (Money)

• Average Sale (I tems)

• Conversion Rate

• Transacti on Count

Inventory

• Shrinkage

Margins

• Local markdown %

Labor

• Labor % Sales

• Sales per FTE

• Sales per Labor Hour

• GMROL

• Return on CapitalEmployed

• Return on Net Assets

• Interest Cover

• Expense Lines %Sales

• Market Share

• Shar e of thePurse/Wallet

Corporate & Shareholders

Human Resources

• Shar e Price

• Earnings per Share

• Employee/Associate Turnover

• Training Cost perAssociate

• Absentee %

Buying & Merchandising

Store Operations Finance Marketing

Inventory

• Inventor y Turn

• Availability/In-stock %

Profit

• Pre-Tax Profit %

KPI Summary Table


Retail Structure


Retail Organization Structure

Board of Directors

Chairman

CEO/President/MD

Buying &Merchandise

Warehouse& Distribution

Store Operations

Finance& Control Marketing IT HR

1 24 43 5 5/6


CXO Pains

CEO/President

Buying &Merchandise

Store Operations

Finance& Control

Marketing

Missing sales plan

Store expenses too high

Staff turnover too high

Shrinkage is too high

Customer service deteriorating

Housekeeping standards poor

Declining profitability

Costs increasing

Poor quality management information

Declining return on assets

Asset productivity too low (inventory, space, labour)

Cash flow worse than plan or declining

Losing market share

Increased advertising expenses

Declining advertising response rates

Reduced basket size

Losing touch with the customer

Competitive positioning declining

Not achieving sales and margin

Inventory investment too high

Increased shrinkage

Poor in-stock performance

Slow reaction to comp

Poor vendor performance

Stock turn worse

Inefficient supply chain


CXO Pains ContinuedCEO/President

Warehousing& Distribution

Human Resources IT

Staff turnover too high (range from 80-150%)

Recruiting expensive, labor intensive, time consuming

Compensation for store positions is low

Competing for quality employees

HR is a cost center, not a profit center, hence understaffed to handle the # of employees

Training budgets inadequate

Time stressed store management short cut HR practices resulting in operating weaknesses and poor service

Escalating healthcare costs (in the US)

Coping with minimum wage increases

IT costs escalating

Projects taking longer than plan/exceeding budget

Poor return on IT investments

Architecture/Infrastructure inhibits progress

Users don’t understand what they need

Implementations fail

Labour hours and transport costs over budget

Can’t receive merchandise receipts when required

Receiving problems incur demurrage cost

Can’t pick and assemble everything to meet the dispatch schedule

Damage rates and error rates too high

Shrink too high

Incur excessive costs to cope with seasonal peaks

Short delivery claims from stores too high

Stores can’t take the goods when required

Warehouses get overfull and impede operating efficiency


Retail Trends


Pricing and Commoditization Lead List of Retailers’ ConcernsIssues identified as high or very high risks by retail executives:

% of respondents

1 Pricing Pressures

2 Decreased customer loyalty

3 Low-price competition

4 Recession/economic downturn

5 Commoditization

72%

64%

55%

51%

50%

Source: Foresight 2020, Economist Intelligence Unit, March 2006, taken from a survey of CPG and retail respondents


Companies Rarely Offer Compelling Customer ExperiencesThere is a wide gap between what companies think they are delivering and what customers think they are getting

0%

20%

40%

60%

80%

100%

Companies whose customers agree

Companies that believethey are providing superior customer experience

72% Gap

Source: James Allen, Bain & Company, October 2005


Multiple Proprietary Networks managed in isolation

Back office Servers & LAN

Back office Servers & LAN Mobile LAN Voice PBX Back Office

controller

MobileCustomer Devices

ATMs & Third party devices connecting to private networks

ATMs & Third party devices connecting to private networks

CallCenter

Satellite Dish

SecuritySecurity

Information islands within each function and application

POS

Kiosks

Video Advertising

BuildingAutomation

MobileEmployee Devices

90% of retailers will implement a new POS

system by 2008

60% of top 100 retailers are piloting RFID

23% of retailers installing kiosks in next 2 years

65% of retailers will invest in store wireless

in next 18 months

22% of retailers deploying wireless

POS

11% investing in biometrics in next

2 years

Market Trends

PCI StandardMandatory Compliance

Move towards Broadband to support new store

technologies


Cisco Intelligent Retail Network


The Money is in the Store

Connected Store

Instore Media

Store Mobility

Unified Communications for Retail

Secure StorePCIVideo Surveillance


Store ConnectivityBroadband connectivity enhancing business process and maximizing access to information

Examples: Costco: Customers can download images over the internet for in-store developmentCompUSA: Software-To-Go Kiosks enable local pressing of large product library

http://www.compusa.com/default.asp


In-Store MediaDelivering media in store to educate, reinforce the brand and generate revenue

Examples: • Wal-Mart: Audio clips and In-

store ads• Bloomingdales: Target

marketing of product (sales up 48% first day)

• Eddie Bauer: Time of day specific ads on flat panels


Examples: • Food Lion: Wireless personal

scanners accelerate checkout• Metro: Performs wireless

inventory management on VoIP enabled multifunction phones

• Location technologies built on Wi-Fi for tracking pallets and work in process

Mission-critical MobilityWireless Infrastructure with the flexibility and security to manage multiple Applications: RFID, Voice, PSA, Mobile POS, Location based technologies


Integrated Communication enables consistent customer interactions and higher productivity

Collaborative Communications

Examples: • Grainger: Intelligent Call routing

and IP Telephony allows seamless interaction across channels

• REI: Integrated CRM tool allows customer data to be updated across channels

• Metro: Applications (SAP) integrated into IP Telephony system

http://creative.gettyimages.com/source/Search/28','1','

http://www.rei.com/index.jsp

http://www.metrogroup.de/servlet/PB/menu/-1_l2/index.html

http://www.grainger.com/Grainger/wwg/start.shtml


The PCI Data Security Standard

PCI Data Security Standard

January 2005

Published January 2005Impacts all who:

ProcessTransmitStore cardholder data

Developed by MasterCard and Visa, endorsed by the other payment brandsPertinent for all industries and company size

SMB to large enterprise and service providersGlobal in nature

Merchants are tiered based on transaction volume and each level has different requirements

Penalties associated with the levelsUp to $500,000 and/or increase in transaction fees

PCI covers systems, policies, and procedures


Retail Challenges for Video SurveillanceUnrealized Potential – Limited Accessibility and Availability

Primary Focus on ShrinkageThieves stole over $5.8 billion from 24 surveyed retailers in 2005

Shrinkage accounts for 2–3% of revenues; only 2–3% of this stolen merchandise is recovered today

Loss Prevention Efficacy and Productivity Human error - missing ~80% events after 20 minutes (source US army study)

Faster response to real-time events

Limited Accessibility to video outside of security operations; on the floor and on a remote basis

Why is Video Surveillance is only used for Loss Prevention?

Cisco Retail Video Surveillance Overcomes Limitations

© 2006 Cisco Systems, Inc. All rights reserved. Cisco ConfidentialPresentation_ID


Challenge: Complex Traditional Store InfrastructuresMultiple proprietary networks managed in isolation


Back office Servers & LAN Mobile LAN Voice PBX

Back Office controller


CallCenter

Information islands within each function and application

POS

Kiosks

BuildingAutomation

VideoAdvertising

MobileEmployee Devices

Security

ATM & Third Party devices

SatelliteDish


Intelligent Retail Network Strategy

CallCenter

Single Network Centrally Managed And Secured

SecuritySecurity



Intelligent Retail NetworkIntelligent Retail NetworkStore

ConnectivityMission-Critical

MobilityCollaborative

CommunicationsIn-Store Media


KiosksKiosksPOS

Mobileemployee Devices

Mobileemployee Devices

BuildingAutomation

BuildingAutomation

ATM and ThirdParty

Devices

ATM and ThirdParty

Devices

VideoAdvertising

VideoAdvertising


Cisco Partner Strategies for Retail


Routes to Market for Retail Accounts

Significant opportunity for resellers to leverage the Ciscomarketing campaigns for retail

Direct

Tier I Cisco VAR/Technology CertifiedSP Managed ServiceSystems Integrator

Tier II – Pure ResaleCisco VAR/Technology Certified


Partner Resources: Intelligent Retail Network

Sales SupportProgram GuideBrochureCustomer Video

Additional ResourcesApplication

PartnersWhite Papers

Demand GenerationCustomer PresentationBusiness Decision MakersTechnical Decision Makers

SupportResell or Shared

http://www.cisco.com/web/strategy/retail/index.html


Postcard Campaign for Channel Partners


Intelligent Retail Network Tools and Training Offered by Cisco to its Channel Partners

• Cisco has developed “Best-in-Class” Intelligent Retail Network blueprints that meet customers’ demands now and in the future

• Programs and resources supporting Channel Partners specifically targeting Retail

• More than 3,000 partners support retail customers today

Education and Training Enable Channel Partners to Deliver Intelligent Retail Networks


Case Studies


Subway Sandwich Shop FranchiseeApproximately 25 Sandwich shops in Tucson, AZ and surrounding area. Privately held with nearly 400 employees

Standard QSR processes being utilized

Strong financial performance

Approached by IPCelerate for consulting on business processes and operations

Calence worked closely with IPCelerate and Cisco on Subway solution

Decisions on applications lead decision for equipment purchase:

HQ based WAN with Call Mgr., Store infrastructure,

Routers & Switches, 7970 phones


In-Store Media at Virgin Megastores

Goal of delivering media in store to

enhance customer experience, reinforce

the brand and generate revenue

Business Challenge• Enhance user shopping experience by allowing

customers to interact with music content• Provide a lower-cost and easier-to-manage voice

platform with additional services such as vmail• Enable remote monitoring and support of store

technologies

Solution• Cisco MPLS network supports IP telephony and in-

store kiosks• Cisco In-Store Media solution providing Application

and Content Systems to manage content for 150 Virgin Vault Kiosks

Business Value• Delivery of high-value content to drive sales• Estimated savings of $700k per year by using an IP-

based phone system• Centralized management of store devices

http://www.virgin.com/us/default.asp


Q and A

Paul McDevittDirector, Enterprise MarketingPrivate Sector Verticals416 306 [email protected]

optimize your opportunity in retail with the cisco ... · $2.9 billion went to new structures or...

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