India, Philip, Clarke, Director, sourcing

India Bound: Times of India Interview with Mr Philip Clarke, Tesco Director

10 Mar 2005 | (Interview)

The UK-based, £34-billion Tesco Plc is amongst the leading global retailers who are beginning to see India as a potentially big sourcing base for varied products. The company, which operates over 2,300 stores across 13 countries, has also set up a large facility in Bangalore for IT applications development and for handling back office processing services. Tesco director (International & IT) Philip A. Clarke talks to Sujit John about the Indian sourcing advantage and technology in retail.

Q - Tesco is sharply increasing its product sourcing from India. What’s driving this?

The non-food business in developed markets is growing very rapidly. In the UK, our non-food volumes are growing three times faster than the food volumes. If consumers can get good prices on these products, they are more likely to buy from us. If they don’t, they go back to the high streets. So sourcing these products from the lowest cost locations globally is becoming very important. Wal-Mart, Target etc are all direct sourcing. It also eliminates middlemen, and therefore reduces costs. Four years ago, we hardly bought anything from India. In 2004, we bought £43 million worth of goods. This year it will increase 44% to £62 million.

Q - Are you looking primarily at low value goods from India?

Our products are categorized into ‘value’, ‘standard’ and ‘finest’. The sourcing from India is largely of products of ‘standard’ and ‘finest’ categories. You have high fashion here, high quality of embroidery you see more creativity here than in many other markets. Our finest towels come from India.

Q - Are you looking at sourcing items other than textiles and apparel from India?

Currently, textiles and clothing constitute 90% of our sourcing from India. The fastest growing items are household textiles like bedding and towels. But we are widening the range of products we buy from here. We are particularly looking at footwear and other leather products 1ike belts and handbags, stainless steel items, metal work, wood work, kitchenware items and pottery products. India has very fine products in these areas.

Q - You have set up a large IT applications development centre in Bangalore. Is technology becoming very important in retail?

Advancements in technology are becoming critical to retain and attract customers. Some customers are very loyal to one store or the other. But there are many who shop in more than one store. Retailers are attempting to attract particularly this latter set and we are trying to use technology in this effort.

Q - In what areas have technology helped?

The scanning checkout so ubiquitous now is six times faster than a manual one. We are working towards greater automation in the store, so that it frees up time for us to serve the customer better. We have introduced wireless technologies in our stores. We have handheld computers that tell a store employee everything related to the store, including stock levels of each item. We have computers in our stores which tell a customer which aisle a particular product is in, how many units of that product are on the shelf, how much is in stock. Technology is also being used to improve customer relationships. We have introduced electronic loyalty cards that have all relevant information about customers, their preferences... We can look at all of that and decide, for instance, what to stock in which shop.

Q - Are you tapping the advantages of RFID?

Radio frequency identification (RFID) or radio barcodes is becoming a major phenomenon. When you have to move 30 million items a week, as we do, RFID can be a huge benefit. We can track every item and ensure they are moving to the right places. Unlike the current barcode system, RFID does not require line-of-sight to read and write tag data because this data is transmitted and received by radio frequency. RFID systems can also simultaneously capture data from many tags and can read very rapidly. We have begun RFID deployment in the UK. The focus initially is on things where pilfering levels are high, items like razor blades, condoms, DVDs and high value goods

Q - Are you looking at India to start a retail venture?

We don’t franchise. And India’s foreign investment rules don’t permit us to invest directly. We are watching India, but we are not actively looking for something to do. Besides, in the last 18 months, we have entered three countries — Turkey, Japan and China. And we are quite busy with that.

Q - Do you feel foreign retailers can add significant value in the Indian retail sector?

Indian retailers are doing a good job, trying to mix western and Indian concepts. But foreign investment cart create new standards. We have great processes and systems. We have knowledge about how to deliver a great shopping experience. Our economic model, our processes and systems help to bring down prices. Foreign investment can also make a big social contribution, applying international standards to how stores deal with employees and suppliers.
There’s a fear that foreign investment will adversely impact small retailers.
It is inevitable that the number of small retailers will come down. That happens even when local retailers organize and big players enter. But good small retailers will survive and thrive. But foreign retailers create a lot of employment for locals. In our Taiwan operations, for instance, we have just four British nationals. Locals are very important because they know what local tastes are, what consumers want.

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