Project-Capex in Retail
INVERTO Managing Director Kiran Mazumdar on the role of procurement in retail
What basic recommendations would you make to companies when it comes to procurement of store layout requirements?
I would generally advise retail companies to make the procurement process for store layout and visual merchandising as efficient as possible, using all the necessary freedom of creativity and design they have. Above all, that means reducing complexity and increasing standardization.
Is store layout particularly complex?
Yes, because in this sector, there is usually a lot of stakeholders with specific requirements and interests: designers, the store building department, and also often corporate management, because store layout is a senior management issue. Procurement is then frequently the last link in the process chain.
And how could this predicament be resolved?
The real challenge is to coordinate CAPEX requirements. This means creating a central coordination point, requiring interdisciplinary teamwork in all the relevant business units.
Does that not usually happen anyway?
No, it is more the exception rather than the rule. Individual departments often cooperate very little, or even not at all. This must be reconciled in order to effectively leverage the opportunities for synergy.
Can you explain this using a real-life example?
Yes, there was a large food company with several independent subsidiaries setting out to equip its stores with 36 different shopping carts, because each subsidiary buys them independently. Significant savings were made by standardizing three different types and creating bundled procurement for all stores. This applied across the whole group, but everything was coordinated through a purchasing unit such as central procurement. Of course, every subsidiary still has control over its own designs and can add its own branding to its shopping carts.
How skilled would procurement be in terms of design?
Procurement does not, of course, deal with technical questions autonomously, because ultimately it is, and remains, merely an executive body of consumers, equipped with commercial expertise. It should, however, be closely involved in the design process to ensure that designs are realistic and achievable, and that the budget is not exceeded. The keywords here are “commercial knowledge”. Procurement can pre-qualify suppliers in the early design phases and perform practical design tests.
Will CAPEX not lose importance in the wake of continued growth in online trade?
No, quite the opposite. In relative terms, this shift will even cause CAPEX to rise in the future, although traditional bricks-and-mortar retailers will tend to stagnate or decline. But, when it comes to the shopping experience itself, customer expectations of those retailers are increasing. To meet this demand, retailers need to become more innovative in equipping their stores, meaning the costs will rise.