White Paper - Benefits of Virtual Retailing 1�

Anirban Biswas�

Susanne L. Gauthier�

Nirmal Shah�Anand Manoharan�

Anirban Ghosh�Pradeep Kumar�

Rajat Kumar Naik�

2440 Camino Ramon�Suite 263�

San Ramon, CA 94583�www.tescra.com�

© 2011 Tescra Inc.�

"The future belongs to people who see possibilities�

before they become obvious."�

— Ted Levitt�

Benefits of Virtual Retailing�

White Paper - Benefits of Virtual Retailing 2�

INTRODUCTION�

The American retail industry has always been a shoppers’�Disneyland, a hub for manufacturers to unload production lots,�a dream job for the average American and a very lucrative�industry for certain investors to double their money invested for�a small period of time.�

This industry, which began as a brick and mortar set-up has�expanded into online retailing. Transformation has also�occurred over the years by replacing various manually�conducted and dependable operations with effective software�for easier and effective functioning.�

Being a very big consumer of major software solutions, the�retail industry is looking forward to smart solutions that can�overcome challenging issues to create a better performing and�higher profit generating sector.�

The retail industry as a whole has been expanding into other�channels of retailing, keeping in mind their expansion plans of�going into a multi-channel retailing strategy. Most retailers�have successfully adopted an online strategy for reaching more�customers, the effect of in store retailing and all the strategies�however could not be integrated into the online retailing�strategy.�

There are various strategies that retailers have developed over�the years to optimize their merchandising strategy, the shelf�space, the floor area, complementary product pairing, free�product offers, and bundling products, which were not�effectively achieved.�

Even further, the strategy of floor design used by retailers by�placing products on the floor in such a way to induce�customers towards impulse buying, as well as, exposing these�customers walking in the door to the maximum number of�items on the floor, have not quite been included in the online�retailing strategy.�

Such strategies and even more concepts like up-selling and�cross selling, which was possibly achieved through the�presence of store attendants for walk-in customers, was not a�part of retailing through the online channel.�

Virtual retailing as discussed in this white paper offers solutions�to most of the above stated challenges, so that retailing�solutions can be strategically implemented online.�

What’s inside…�

P a g e 2 �Introduction�

P a g e 3 �

Challenge Statement�

Previous Options�

P a g e 4 �

Value Proposition & Benefits�

P a g e 5 �

Implementation�

P a g e 6 �

Summary�

White Paper - Benefits of Virtual Retailing 3�

CHALLENGE STATEMENT�In order to reach more customers through a different channel, the retail industry has focused on online retailing to�penetrate an untapped market. This has proven to be profitable because the high costs of setting up new stores to enter�new markets do not exist. The only setup up required was efficient delivery system that would deliver the goods ordered to�the delivery point at the most competitive prices.�

Though this was effectively implemented and most retail companies have developed an online presence, online retailing for�retailers was and still is a secondary platform for retailing, with in store retailing being the most important one.�

First, the challenges that are raised reaching new customers and having a better presence is still done through new store�setup, which means a heavy setup cost. This cost keeps on increasing due to staffing of employees, training, and other fixed�costs. For example, about 76% of the revenue goes into cost of sales and fixed costs for Walmart.�

The chart above refers to Walmart's comparative cost and revenue structure for the years 2010, 2009 and 2008�respectively. This has been taken from Walmart's 2010 annual report.�

Secondly, the online portals that are created for a better reach to customers have created more limitations than scopes. The�current interface of online websites and retailing portals do not allow customers to have a very good interaction with all the�products.�

The first thing that is lost is a complete scan of the store and all products, which the customer experiences walking into a�physical store. This leads to the lack of any cross selling. Customers do not get to experience products being displayed�attractively, like in a physical store and that does not motivate them to buy things that were not foremost in their mind when�they visited the store. This impulse in purchase decision does not happen at all.�

FISCAL YEARS�2010� 2009� 2008�

Net Sales� $ 405,046� $ 401,087� $ 373,821�Cost of Sales� $ 304,657� $ 304,056� $ 284,137�

PREVIOUS OPTIONS�The only option previously implemented by the industry was�to turn to online retailing, where web portals displayed a�category of item types and under each type would be the�list of items.�

For example, the categories might be electronic items,�groceries, or toiletries, and under electronic items there�may be television, radio, and/or microwave. Once a�customer clicks a link to enter any item type and their�respective items, he or she has just been diverted away�from the main web page which displays all the item�categories.�

Consequently, online retailing is not providing the customer�the physical feel of a retail store, where the customer would�be exposed to various products at the same time; the�experience one receives when they walk into a retail store.�

Retailers eventually developed online visual presentations�by adding the most attractive products and items on the�home page of the online store so that the customer is�exposed to the best products with each visit to the website.�

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As a Virtual Retail Specialist, we can make certain that online retailing is taken a step further, where customers get the�feel of entering a physical retail store; they have a more interactive platform to interact with products in the online�store, seeing the products closely, reading labels, and comparing alternative brands and products.�

We can ensure that the online platform provides an opportunity for a cross sell or an up sell by making the customer�experience more products in the store in a single visit, and create situations for impulse purchase options buy placing�products at locations where the customers are expected to visit the most.�We can also design product pairings where complimentary products are placed side by side or near each other within�the online retail environment, giving customers the feel of a physical retail store online.�

VALUE PROPOSIITON�

According to the 2010 Global Powers of�Retailing Report, published each year by�Deloitte Touche Tohmatsu and Stores�Magazine, nearly one-third of the 250�largest retail organizations in the world�are based in the United States.�

The average store size for the top five�retailers in the USA range from�approximately 70,000 square feet to�110,000 square feet per store. These�retail giants are generally departmental�stores, super markets and hypermarkets.�

Not only the floor area but the amount�of products stacked on the shelves and�the heavy inventory maintained for every�store adds up to considerable overhead�costs for the company. The major costs�come from store maintenance and�lighting.�

Additionally, there are heavy costs as�salary to employees. The USA retail�industry is a very large employer in the�USA market, and contributes�approximately 11% employment, as per�a survey conducted in 2009, by the U.S.�Bureau of Labor Statistics, Division of�Current Employment, for the year 2009.�

Through Virtual Retailing online, the�heavy overhead costs of a store can be�avoided, reducing a considerable�amount of costs.�

BENEFITS�

American retail giants face the burden of�setup costs to enter new markets and�untapped regions. These costs consist of;�training new employees, customer�service, store design, store setup,�inventory costs, carrying costs and real�estate costs.�

Retail giant, Kmart has been severely�affected by these ever increasing set up�costs. Like many others, Kmart had to�make difficult decisions to close many of�their stores in locations which were not�reaching breakeven revenues.�

Other stores in the planning stages are�experiencing issues with funds and legal�issues such as, area acquisition, power�lines setup and restriction in commercial�setup in residential areas for opening a�huge store.�

Again through Virtual Retailing such set-�up costs can be avoided, and still giving�the customer the same feel as being�inside a brick and mortar store.�

:�

Virtual Retailing is going to be the future�of retailing in times to come. This�provides a good platform where�customers are exposed to store items just�like in a physical store.�

Customers see the items, visit them, and�interact with them just like in a physical�retail store. Virtual retailing exposes�customers to many products at the same�time, just like in a physical retail store,�and customers can shop the different�shelves and interact with the items, such�as pick up products, see their tags,�manufacturer, date of manufacturing,�assortment on the shelf itself, shape and�much more.�

The customer has been placed in a 3D�retail store where he or she acts like as if�he or she is in a real physical retail store,�and therefore by interacting with more�items at the same time as compared to�web page retailing, he or she has a�chance to compare products and make�a better choice of what to buy.�

The customer feels more comfortable�buying, and ends up buying more, as he�or she is exposed to more products�through product pairing. Products like�chocolates and beer which can be�placed at high exposure locations within�a virtual retail store attract the attention�of the customer and will result in impulse�buying, which is otherwise lost in�webpage based retailing.�

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It begins with building a virtual retail store�online where customers all over the world can log in and�move around the store just like a physical store and visit�specific areas in the store and shelves and choose items�from those shelves and place an order for it. This would�give customers the same feeling as visiting a physical�store. Virtual retailing also gives retailers the opportunity�to customize their virtual stores at a very negligible cost�as compared to physical store customization through�floor planning and shelf management.�

This virtual retailing gives customers a more realistic feel�of retailing in comparison to webpage retailing that is�currently prevalent for many present retail companies.�

Virtual retailing has the opportunity to create up-selling�and cross-selling through better product customer�interaction and product visibility. Customers will indulge�in impulse purchasing just like in a physical retail store.�This maximizes the returns from every individual�customer.�

Implemented after phase 1 proves to be�profitable for any retailer. This phase is focused on�creating customer loyalty resulting in customer�repurchase and increase in revenue.�

This phase takes retailing outdoor from online, but not�in-store. Kiosks are used to provide a platform for�customers to have an easy reach to retailing.�

Such kiosks can be placed at locations where target�customer frequency is high. Such strategic locations can�prove to be a common ordering point for customers,�therefore providing a better customer reach for retailers�without having further setup costs of opening new stores.�

In order to use these kiosks, customers would be issued�unique customer purchasing cards which may contain�personal details about the customer, such as, address,�credit limit, age, sex, and occupation.�

This not only helps to track the customer by retailer it�also gains customer loyalty as the customer will be using�this unique customer purchasing card to buy goods from�a specific retailer.�

IMPLEMENTATION� Implementable only after phases1 & 2 have�

been implemented. This phase is used to integrate the�different order points, that is, the virtual retail store online�and the various kiosk points, with the delivery points that�are either the main retail store in the town or inventory�storage points from where dispatch can be made�according to the orders.�

This gives the retailer easy access to customers within�their demography and even beyond without having to�expand through store setup. In this case the retailer can�have one physical store in a location they want to have a�presence in and can then expand through inventory�storage points for delivery to customers.�

The result is sales without setup costs. This phase includes�further development of the virtual retail interface. It can�be further modified to make it more interactive by having�customer accounts and giving such customer account a�physical identity inside the virtual store which customers�can modify according to their preferences.�

When a customer is logged onto the virtual store he or�she will see the virtual image of other customers in the�store. Interaction is possible inside the virtual store with�each other on a personal level, as well as, with the�products.�

The virtual store is not limited to only shopping giving a�much more realistic feel, it can also be used for social�networking. This will increase customer presence in the�virtual store, creating a real shopping mall experience.�

This environment increases traffic to the virtual store�because customers are drawn to the store for different�reasons and are subsequently being exposed to store�items. This leads to the opportunity to up-sell, cross-sell�and even impulse buying by the customer.�

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Founded in 2002, TESCRA is headquartered in San Ramon, California, USA. Tescra has been identified as a Top 100 Minority owned�business, recognized as one of America's Top 500 diversity-owned businesses and recently added to the Inc 5000 list as one of the fastest�growing companies in the USA. Our experience and commitment to excellence is reflected in our customers' successes in attaining their�business objectives.�

One of our core values at TESCRA is that "Performance Drives Our Success". TESCRA's objective is to craft the best possible blend of�Business and Technology Solutions for our customers' business events, achieve performance excellence and maintain lowest cost in the�supply chain.�

Our ability to retain Customers and gain repeat business is a testament to our dedication to quality, business understanding, technical�abilities, project management skills, and cost-effectiveness. Customer satisfaction and long-term relationships are the best measures of�our quality and performance. We have a history of 100% successful completion of projects.�

It is important to adapt to our changing times, the economy and the climatic conditions.�Behavioral studies conducted by private and government agencies regarding the change in�consumer spending show that consumers all over the globe and especially in the USA are�shifting towards online purchases.�

Consumers are spending a significant amount of time online, whether from the office or�home and even from their phones. Targeting a customer beyond the walls of a physical�store is slowly becoming a necessity and a trend. There are various reasons why consumers�feel online shopping is better, for several reasons; it is more cost effective, there is a�greater variety of choices, a better comparability among products, and young people find�it more convenient to shop online.�

Creating an environment for off-store retailing definitely gives retailers an opportunity to�reduce costs in areas where they have been incurring heavy costs such as; assets, setup�costs, inventory storage, maintenance, floor lighting, making retailing more profitable for�the future.�

This white paper does not promise to increase the revenues beyond expected levels�magically, but rather this paper recommends a solution to reduce costs, increase revenue�and mitigate risks.�

SUMMARY�