U.S. consumer electronics retailers need to reinvent their corporate operating models and hone their competitive edge to profitably tap into the fast emerging future of the market.

1. • Cognizant Reports
Understanding U.S. Consumer
Electronics Retailing
Executive Summary consumer regardless of shopper location to
deliver the complete shopping experience.
The U.S. consumer electronics (CE) retail industry
has endured severely fluctuating fortunes in • Optimize retail floor space through increased
the last decade. A swiftly changing CE market “store inside of a store” concepts and reduction
landscape, continually reshaped by the forces of future store size footprints.
of continuous product innovation and change, is • Use in-store space for increased demonstra-
forcing the entire CE retail industry to confront tion of “connected shopper solutions,” showing
challenges across multiple fronts. These issues how all elements of a complete basket can
include the following: work together prior to a shopper exiting the
premises.
• The advent of the frugal and sophisticated U.S.
consumer, thanks to the “Great Recession.” • Save precious capital and reduce operational
costs by embracing emerging service delivery
• Debilitating price wars fought by three distinct
models to transition select commoditized
retail trade formats — discount vs. pure-play vs.
online retail. business processes to cloud computing-enabled
business process as a service (BPaaS).
• Significant competitive advantage enjoyed by
U.S. GDP Growth Rate (%)
online retailers due in part to lower overhead
and tax laws that have not caught up with the U.S. CE Industry Growth
new rules of the retail game. vs. GDP Growth
• Ever-changing and demanding “millennial”
Millions
consumer preferences.
$200,000 6%
These forces have left CE retailers scrambling for 4%
$175,000
cover under their onslaught. In the recent past, we 2%
have witnessed the bankruptcy of a large player, $150,000
0%
Circuit City, as well as the less-than-stellar growth -2%
of other key players. It is clear that CE retailers or $125,000 -4%
CE retail divisions of organizations such as Best -6%
Buy, Target, Walmart, RadioShack, etc. will need $100,000 -8%
2006 2007 2008 2009 2010 2011
(estimated) (projected)
to re-evaluate and re-align their strategies to face
U.S. CE Industry Growth Rate
the new realities of the marketplace.
U.S. GDP Growth Rate (%)
In our view, winning CE retailers must: Source: CEA 2011; U.S. Bureau of Economic Analysis;
Goldman Sachs Estimates 2011
• Create integrated channels — a “store without
Figure 1
boundaries” — that offer all capabilities to the
cognizant reports | december 2011

2. The Current State of U.S. Electronics Retailing
Key Key Product Key
Characteristics
Categories Categories Retailers
Video Products Best Buy • TV market growth has diminished on category maturation,
(Television, navigation Walmart lack of catalyst from 3D/connected TVs.
products, digital cameras and Costco • TVs greater than 46’’ average size are expected to garner
accessories, digital camcorders Sears 55% of total sales in FY 2012.
and accessories, e-Readers, hhgregg • TV barely re-emerges when penetration hits ~30%, as sales tend to flatten.
DVD and Blu-ray players, etc.) Amazon • An estimated addressable market of 17M annual transactions/connections.
Consumer • Largest percentage of all photos will be taken through digital still cameras,
at 51% in 2010, followed by mobile phone, at 42%.
Electronics
Audio Products Best Buy • Stand-alone MP3 players have seen a significant dent in sales due to the
(MP3 players and accessories, Walmart adoption of phones as a personal music device. The dominant market
home theater audio systems Costco leader Apple has seen iPod sales decline 6% year-over-year and account
and components, musical Sears for less than 8% of Apple’s revenue.
instruments and mobile hhgregg
electronics, etc.) Amazon
PC/Notebook/Netbook Best Buy • Continuing margin erosion due to commoditization of category
(Related subscription service Apple (except Apple products) because of product proliferation and
commissions, hard drives, Dell product cycle time compression.
networking equipment and Walmart
related accessories such Staples
as printers.) Officemax
OfficeDepot
Amazon
Tablets Apple • Tablet market opportunity: FY12E $12B U.S. market (+50%).
Home Office Best Buy • Apple remains the leader in the tablet PC market with a 54% share.
Amazon • RadioShack is expected to be the net winner due to its sharp over-index in
RadioShack tablets vs. other more PC-centric competitors.
Mobile Phones and Communications • FY12E $34B U.S. market (+6%)
Connections service providers • Estimated channel mix: 65% of total points of purchase
Best Buy (77,000 in 2010) are direct channels.
Amazon • Among indirect channels, retailers constitute 56% of the share.
RadioShack • For the first time, a majority (54%) of all new mobile phone handsets
purchased by U.S. consumers are smartphones.
Appliances and Sears • $14B appliances industry.
Small Electronics Lowe’s
Appliances The Home Depot
Best Buy
hhgregg
Gaming Hardware Game Stop • FY12E $23.5B U.S. market (-2%).
and Software Walmart • $15B gaming software value chain.
(DVDs, Blu-rays, CDs, digital Best Buy • 15M trade-in units across industry.
Entertainment
downloads and computer Amazon • $2B console-based market opportunity
software.) (console subscription points card + downloadable content).
Source: Cognizant Research Center analysis
Figure 2
The Market Landscape encing market share gains following Circuit City’s
demise, the major players have essentially seen
The U.S. retail electronics market tallied revenues
flat growth a year after the fact, indicating that
of $180 billion in 2010 across five key categories:
revenue increases in 2009 for some major players
consumer electronics (video and audio products);
were purely a result of the redistribution of Circuit
home office (PCs, notebooks, netbooks, tablets,
City sales rather than incremental business gains
mobile phones, etc.); appliances; entertainment
(see Figure 4, next page).
hardware and software (see Figures 1 and 2); and
services. Reality struck in 2010 and continued in 2011, with
revenues of major players growing only by 4.5%;
Total sales of the Top 10 electronics retailers
marginal revenue growth was driven primarily by
are expected to grow by 6% in 2011 to reach
new product introductions, such as tablets and
$110 billion (see Figure 3). Absent Apple’s stellar
netbooks, and not from existing product lines, as
performance, the previous two business cycles
well as from an increase in store fronts and retail
(2008-2010) have been characterized by anemic
floor space. It is clear that shifting consump-
revenue growth, the demise of Circuit City and
tion patterns and product distribution models,
flatlining in the key category of TVs. After experi-
cognizant reports 2

3. Top 10 Players: Store-Based CE Retailing by Domestic Revenues
$40
Billions $30
$20
$10
$0
Best Buy Walmart Apple Staples Game Stop Target Costco Sam's Club RadioShack OfficeMax
� 2008 � 2009 � 2010
Source: Dealerscope’s Top 101 CE Retailers, March 2011
Figure 3
especially from physical to online sales, have had in providing differentiated customer advice.
a major, across-the-board impact on the electron- Furthermore, consumer reliance on third-party
ics retailing space. intermediaries for offers and pricing information
threatens to convert retail stores into little more
Market Forces than physical showrooms for online merchants.
We see four distinct forces that will cause further
upheaval in the industry landscape over the next Additionally, U.S. consumers continue to reel
few years. The ability of current players to respond from a depressed job market and rising prices,
nimbly to these challenges and seize opportuni- especially in key consumption items such as
ties arising from rapid change will be the key to fuel. Conspicuous consumption is on the decline;
long-term competitive advantage. These forces premium brand substitution with cheaper variants
include: Consumer sophistication and frugality, and even postponement of consumption are the
increased regulatory scrutiny, cut-throat com- order of the day. According to the Consumer Elec-
petition and millennial consumer behavior (see tronics Association, spending on CE products by
Figure 5). the average U.S. consumer household fell 14.5%
between 2009 and 2010, or $1,380 per household
Consumer Sophistication and Frugality in 2009 vs. $1,179 in 2010.1 Falling consumer
The shift of retailer-oriented product categories demand is also indicated by the recent uptick
from “highly considered” to near commodity in the U.S. savings rate, which has tradition-
status (the result of increasing shopper sophis- ally trended downward during the last few years
tication) reduces the advantage of sales staff (see Figure 6, page 5).
Key operational challenges for CE retailers
include:
Market Share Gains:
The Circuit City Impact • Margins: Prices of key product categories like
TVs and PCs (notebook, netbook and desktop)
Retailer Dollar Share Increases by Category have consistently declined or remained at
(March – December 2009) bargain basement levels over the last few
Best Buy Walmart years, creating pressure on margins for retail-
ers.2 Sales of these products are essentially
Flat-Panel TVs 5.2% 3.2%
replacement or extension sales, as these are
Notebook PCs 5.5% 2.3% mature and near-ubiquitous categories. These
Desktop PCs 4.7% 0.3% product categories typically have the highest
rate of high-margin warranty and services
Digital Cameras 5.5% 2.7%
attachments, which are also declining due to
Source: NPD Estimates flat sales, creating additional challenges for
Figure 4 retailers.
cognizant reports 3

4. Forces Shaping the U.S. CE Retail Industry
Forces Drivers Changes Impact
• Consumer frugality: Consum- • Anemic growth in the sector • Change in revenue mix from lower margin notebook PCs, TVs,
ers trading down (moving with negative comp sales. etc. to higher margin products like smartphones, tablets.
away from premium brands), • Fall in operating margins • Selling these from small-format stores, which cuts down selling
opting for lower priced across some key categories. costs and paves the way for greater attachment of services to the
alternatives, deferring • SG&A cost escalation due sale, leading to higher margins.
Consumer discretionary spend. to higher store expenses, • Importance of the online channel for store-based retailers with
• Deleveraging: Declining promotional offer lead by price an expanded assortment, giving them pricing power.
sophistication consumer debt levels, competition. • Customers using offline retail establishments as storefronts for
and frugality higher savings rates, lower • Multi-channel strategy: Re- online sellers.
consumption. duce selling cost, compete on
• Availability of shopping price and maintain margins.
technologies for instant price
discrimination, product infor-
mation and comparison.
• E-Fairness momentum. • Five states have enacted laws • Level playing field for brick-and-mortar and online retailers.
• State budget deficit and in recent years (NY, RI, NC, OK, • Online-only assortment by store-based retailers.
uncollected sales tax. CO); four states passed laws in • Online-only assortment also disaffects offline shoppers because
Regulations 2011 in the first two quarters of the presence of different pricing strategies.
(IL, SD, CA, AR); and 20 states
have legislation or similar
discussions underway.
• Price differentiation across • Pricing pressure. • Online retailers have been able to take advantage of the con-
categories between • Margin reduction. sumer frugality phenomenon in a big way by competing on price.
online and store-based retail • Focus on supply chain and • Large discounters like Walmart have taken full advantage of
models. right assortment. failure of Circuit City by garnering market share in key categories.
Competition • Walmart has a strong advan- • Relationship with Apple for iPad and iPhone sales will drive the
tage based on its size, giving ecosystem.
(Online vs. it massive economies of scale • Reducing product cycle lead times to increase pressure on
store-based in procurement and, hence, accurate demand forecasting to get in and out of products before
retailers, mak- the ability to pass on price margins are completely eradicated. The proliferation of new
ing margin a benefits to the consumer. products necessitates buyers to increase their market awareness
bigger risk and research in order to identify where to place their bets.
Working capital must be released sooner for non-working capital
than market by exploring non-traditional methods to move product through
share.) third-party providers or intermediaries.
• Pricing pressure makes it increasingly difficult to wring savings
out of the value chain at the same speed at which retailers are
experiencing pricing pressure, thereby enhancing margin erosion
trends.
• Emergence of Gen X and Compared with baby boomers, Retailers need to:
millennials as core franchise. Gen X and Gen Y are: • Invest in client-friendly IT platforms.
Shifting client • Multi-channel strategy for • More tech/finance savvy. • Offer a solid online transactional platform.
consistent customer exeri- • More autonomous in their • Build a mobile strategy.
preference ence acoss channels. purchasing decisions. • Create a “social purchasing experience.”
and changing • E-commerce: Reduce selling • Demand greater transparency.
product cycle cost, compete on price and • Demand tailored service offer-
maintain margins. ings; desire a seamless/social
purchasing experience.
Source: Cognizant Research Center Analysis
Figure 5
Large CE retailers are, therefore, moving their and store-within-a-store), increased promo-
revenue mix from lower-margin items such tional spend and the need to hire knowledge-
as notebook PCs and TVs, to higher-margin able workers who can engage customers in a
products like smartphones and tablets. They sales and advisory relationship rather than a
are also selling these devices from small-format strict sales interaction.
stores, which reduces selling costs and paves Additionally, customers are increasingly using
the way for greater attachment of services to a mix of offline and digital channels for trans-
the sale, leading to higher margins. actions, which requires retailers to offer more
• Distribution: Consumer electronics retailers options, increasing the importance of an
face rising expenses primarily due to expansion effective online channel for brick-and-mortar-
into different retail formats (stand-alone store based retailers.
cognizant reports 4

5. U.S. Personal Savings Rate Competing for Hearts and Pocketbooks
CE retailing has always been fraught with difficult
% issues, but the challenges are even greater
15 today. For example, CE retailers face increasing
competition from discounters (e.g., Walmart)
12.5 that can leverage massive economies of scale,
both on the purchase side (by striking deals on
10 bulk purchases) and on the consumer side, by
realigning floor space dedicated to electronics
7.5 according to demand (typically during the holiday
shopping season).
5
A new and interesting dynamic is also at play:
The increasing inability to distinguish competitor
2.5
from supplier. Apple is a case in point; it designs
and manufactures some of the most in-demand
0
1950 1960 1970 1980 1990 2000 2010 2020 consumer electronics products in the U.S. and
Year sells them through its chain of speciality stores
U.S. Recessions and online. Apple’s policy of limited distribution,
especially in the new and highly lucrative tablet
Source: U.S. Department of Commerce, Bureau of
market, effectively penalizes other retailers
Economic Analysis
Figure 6 outside the Apple ecosystem.
Since their introduction in 2010, tablets have
Essentially, the quest for consistently improving proved to be a disruptive force in the computing
financial performance compels single-channel segment; market researchers predict that tablet
retailers to move to a multi-channel strategy. In shipments will outstrip PC shipments by 2011 and
spite of real-world concerns — such as negative result in the reduction of notebook PC sales by
spill-over and cannibalization, the advantage of 30% to 35% in 2011 and 2012, successively (see
low-cost access to new consumer segments and Figure 7). Retailers with significant PC revenue
potential increases in customer retention and streams will be negatively impacted by this
loyalty — a multichannel strategy makes sense momentum switch (see Figure 8).3
from the vantage point of a retail CFO.
Global Unit Shipments of Desktop PCs and Notebooks
vs. Smartphone and Tablets
800,000 Q4 2010 Inflection Point
Smartphones + Tablets > Total PCs 2013
Global Unit Shipments (B)
600,000
400,000
200,000
0
2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
� Desktop PCs � Notebook PCs � Smartphones � Tablets
Note: Notebook PCs include Netbooks
Source: Katy Huberty, Ehud Gelblum, Morgan Stanley Research
Data and Estimates as of 2/11
Figure 7
cognizant reports 5

6. Impact of Tablet Sales on
CE Retailers Apple’s Stranglehold
% Apple has created a storm in the CE market
5 and bounced back from a 5.3% decline in
4.3%
revenue growth from CE sales in 2009 to
4
a 51.5% spike in 2010. How did Apple pull
3 it off? The answer: The Apple ecosystem.
2 For instance:
Apple’s deep and intricate supply chain
0.4%
1
0.3%
0.3%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0%
0%
relationship. In the case of the iPad, this
0
- 0.1%
- 0.2%
results in a $50 to $60 advantage in
-1 input costs for the memory and display
Best Buy Office Depot OfficeMax Radio Staples
Shack components of the iPad 2 over competing
� 2010 � 2011E � 2012E tablet products.
Source: Company data, IDC, Goldman Sachs Equity A limited distribution policy of products
Research, 2011
to retailers, especially at launch, when
Figure 8
the hype cycle for the product is typically
at its highest. This creates a shortfall of
Online retailers have been in play for some time
in-demand stock at other retail establish-
now. However, it is only in the last few years that
ments.
they have emerged as viable challengers to brick-
and-mortar behemoths. Online retailers have been The carefully-crafted Apple Store pur-
able to take advantage of the consumer frugality chase experience, with its focus on
phenomenon in a significant manner by competing maximizing customer convenience, from
primarily on price (see Figure 9, page 7). Sales of feature education, to purchase, to product
CE products online grew by 17% in 2010, to $13.6 activation.
billion (see Figure 10). This represents only 14%
These factors make it exceedingly chal-
of the total market for CE products, suggesting
lenging for other retailers to grab a slice
significant room for growth.
of Apple’s share of the pie, especially in
Impending Regulatory Changes the tablet market.
Online sellers enjoy the twin advantages of lower
overhead and tax laws that have not caught up
with the new rules of the retail game. Most states
in the U.S. do not have a sales tax regime in place
to extract revenue from online sales. This has product lifecycles, with time-to-market for product
created an unequal playing field between offline releases compressed to levels unforeseen just a
and online players. few years ago. This has also created demand for
a slew of allied services, ranging from connectiv-
As Best Buy CEO Brian J. Dunn said in a recent
ity solutions and service plans, to accessories.
investor presentation, “Taxing all online sites
The millennial pattern of media consumption — on
equally would be a major, but not complete,
multiple connected devices — has also required
closure in the pricing difference. It will also signif-
pure-play retailers to get into the content delivery
icantly hurt small, online retailers that compete
business. Millennials are now armed with instant
completely on price.”4
access to pricing information across channels and
Moves are afoot to address this gap, with five also rely on online reviews much more than tra-
states passing “E-Fairness” laws in recent years, ditional consumers for their purchase decisions.
four states doing the same in 2011 and another 20 This leads to a lower reliance on store employees
states holding discussions on similar legislation as a preferred source of product information.
(see Figure 11, page 8). The “social purchasing” experience, with the
ability to engage in instant feedback and rapid
Millennial Consumer Behavior price-comparison, will be a significant factor in
The always-on, always-connected lifestyle of the market dynamic for CE products, especially
millennial consumers is driving frenetic change in among millennials.
cognizant reports 6

7. Average Price Differential vs. Amazon
Average price difference above Amazon*
30%
28%
19%
Walmart Target Specialty
Retailers
* Assumes no sales tax on Amazon purchases and free shipping;
An Amazon fulfillment center Source: Wells Fargo. Photo: Getty Images.
Sources: Faber Novel, “The Hidden Empire” 2011
Figure 9
Winning Strategies extensively use shopping technology, whether
PCs for detailed research or smartphones for
To succeed, CE retailers must consider the
rapid, on-the-go comparison (see Figure 12).
following plans of attack:
Price, convenience and selection are the most
• Engage profitably with millennial consumers: important factors for millennials to arrive
The defining characteristic of millennials is at an optimal purchase decision. This demo-
that as digital natives, they adapt to computer graphic does not distinguish between channels
and Internet technologies very swiftly. They but expects an interactive, consistent and
are demanding and technologically savvy, seamless experience across channels.
craving instant access to product informa-
CE retailers will need to embrace unified
tion and reviews from third-party sources,
strategies across processes — such as supply
especially from their social networks. They
Online Commerce Gaining Share vs. Offline
%
7
e-Commerce penetration
e-Commerce as % of Total Retail Sales
6 4% in Q2, 2010
5
4
Mobile e-Commerce
3 penetration
2
1
0
Q3:00 Q3:01 Q3:02 Q3:03 Q3:04 Q3:05 Q3:06 Q3:07 Q3:08 Q3:09 Q3:10 Q3:11 Q3:12
e-Commerce penetration Linear trendline (y=0.094x + 0.9895, R 2=0.9599)
Note: Adjusted for eBay by adding back eBay U.S. gross merchandise volume.
Source: U.S. Department of Commerce (Q2-2010), Morgan Stanley Research
Figure 10
cognizant reports 7

8. E-Fairness Momentum: 2011 State Activity
$260B in online revenue and $26B in annual uncollected sales tax,
or 13% of states’ budget gap. Five states have enacted
laws in recent years
(NY, RI, NC, OK, CO)
Four states passed laws
in 2011 (IL, SD, AR, CA)
Twenty have legislation or
similar discussions underway
Laws already enacted
Legislation or other
activity underway
Law enacted 2011
No state sales tax
Amazon collects sales tax
Source: Best Buy Investor Presentation 2011; Wells Fargo Report on The State and Local Budget Squeeze, Feb 2011
Figure 11
Mobile Shopping Preferences chain, merchandising, pricing, inventory
management and customer service — to
ensure a “boundary-less store” experience
If a retailer offered the following services for across channels. The mobile store is one way
a mobile device, indicate how likely you would
of interacting with consumers to keep them
be to use them on a scale of 1 to 10.
engaged. It will play a significant part in the
4.6 future of CE retail, by ensuring uniformity of
Coupons 5.3
6.3 product information across all channels, be it
7.3 in-store, online or mobile.
3.7
Product and 4.7
price lookup 5.9 CE retailers will need to invest significantly in
7.0 equipping their sales forces with the latest and
Ability to instantly 4.3
use loyalty program 4.9 greatest sales tools and technologies, as tradi-
5.7
awards/offers 6.4 tional hard sales pitches do not cut it with mil-
3.9 lennials, who in many cases have access to as
Product comparisons 4.7
5.7 much information as sales staff do. Enabling
6.7
3.9 sales staff with technology will deliver an
Store locator 4.6 even more meaningful in-store interaction, as
5.8
6.7 evidenced by recent research:5
4.2
Ability to place
an order
4.7
5.5 > 57% of shoppers want improved interac-
6.1 tions with store associates.
View your status/ 3.8
points in the store 4.4
5.5
> 58% of shoppers want engagement with
loyalty program 6.2 store associates in the aisle, with mobile
3.6 check-out capabilities.
Ability to receive location, 4.2
personalization or
time-based product offers
5.1
6.0 > 64% of shoppers want store associates with
mobile technology to provide improved in-
0 2 4 6 8 store customer service.
Very unlikely to use Very likely to use
• Adapt to emerging distribution formats:
Emerging Elders Baby Boomers Gen X Gen Y Research indicates that U.S. online retail sales
will directly account for 8% of total retail sales
and, more importantly, will influence 53% of
Source: Retail Info Systems/Cognizant Technology all retail sales by 2014 (see Figure 13). Mobile
Solutions 2011 Shopper Experience Study
commerce is likely to deliver $17 billion in sales
Figure 12
by that time (see Figure 14).
cognizant reports 8

9. U.S. Consumer Shopping Online U.S. Mobile Commerce Growth
Two research firms project rapid growth in
The number of consumers researching or mobile commerce revenue from 2009 to 2015.
shopping online is steadily growing and
Billions
will surpass 200 million by 2015, eMarketer
says. But the research firm says most of the $25
$23.8
projected sales growth will come from
veteran Web shoppers. $20
$17.5
201.1M
195.4M
184.3M
189.6M $15
178.5M $11.7
172.3M
163.1M $10 $7.4
$10.7
90.1% $4.4 $8.0
89.4% $5 $2.4
88.7% $1.2 $5.8
88.1% $3.9
87.5% $1.2 $2.1 $3.2
87.1% $0
2009 2010 2011 2012 2013 2014 2015
85.0%
Coda Research Consultancy ABI Research
Source: Coda Research Consultancy & ABI Reasearch.
2009 2010 2011 2012 2013 2014 2015
Figure 14
Percentage of shoppers expected to be
veteran Web shoppers
Best Buy Store Strategy:
Source: eMarketer, March 2011 The Move to Small Box
Figure 13
$910
It is, therefore, imperative for CE retailers to not 50 910
only embrace but also get full leverage from 40.5 39.7 39 38.6
40 38.7
emerging mobile and maturing e-commerce
32.5 32.7
895
31.6 31.3
channels. Online and mobile channels will allow
30 $888 27.6
retailers that rely primarily on their physical 880
$878
presence to remain visible across the spectrum, 20
push promotions, provide detailed product infor-
865
mation and be visible to consumers when they 10
engage in price comparison. Online channels $856 $851
also enable retailers to play the price game 0 850
with pure-play e-tailers by stocking online-only � Average store size ('000 sq ft)
product assortments and one-upping them with � New store average size ('000 sq ft)
“buy online and pick up in-store” options, an — Sales per sq ft (in $)
advantage that appeals to impulse buyers who
crave instant gratification. Source: Best Buy Company Report;
GS Equity Research 2011
The introduction and rapid growth of innovative Figure 15
products such as tablets, e-readers and next-gen-
eration smart devices needs to be addressed by Buy Mobile stand-alone stores, which is expected
retailers. They can accomplish this by appearing to increase the retail giant’s presence and allow
omnipresent across multiple sales channels, it to reduce its large-format store footprint
such as offering consumers allied content, (see Figure 15).
accessories and services in the most convenient
manner possible. Persistent connectedness to Technology and Global Sourcing
the customer is the cornerstone of this strategy The rapid growth of smartphone connections
— a CE retailer can conceivably even be agnostic (overall) and the high-percentage of influential
about store format, as long as the customer is millennials already riding the always-connect-
engaged across all fronts. Best Buy, for example, ed wave make it imperative for CE retailers to
is attempting to create traction for its smaller prepare for a time when a large proportion of
store formats, most notably by expanding its Best their customers will be digitally enabled. They will
cognizant reports 9

10. Key Third-Party Services
for U.S. Retailers The Future of Shopping
In the future, CE retail establishments
IT consulting 58.2% will eliminate all boundaries between
Web site development, maintanance or hosting 54.5% the retailer and the shopper. All capabili-
Custom application development 45.5% ties, (pricing, order management, fulfill-
Packaged app implementation or integration 37.3% ment, customer service, returns, etc.)
Mobility initiatives 36.4% will be available to consumers regardless
Social media initiatives 35.5% of location (aisle three, checkout, in the
Telecommunications or networking 30.0% home, jogging in Central Park).
Training 29.1%
Application maintenance 29.1% Consumer behavior purchase patterns
Data center operations 23.6% and offers will be integrated across
Business process outsourcing 12.7% channels. Mobile offers will be distributed
Entire IS organization 5.5% to shoppers in real-time based on time,
Energy reduction and/ or sustainability 4.6% location, customer segment and category
Currently not outsourcing 3.6% position. To get there, CE retailers must
consider the following:
Percent of respondents
Source: RIS Retail Tech Study, April 2011
• Cloud-enabled shopper interaction:
Retailers must integrate third-party
Figure 16
offers and services in order to reduce
shopper decision models and re-estab-
Key Retail Software Architectures lish their authority as a credible source
of information. These services can be
delivered through the cloud and linked
Best-of-breed software 57.7% to a shopper’s mobile device to deliver
Integrated solutions suites 52.3% a contextual shopping experience.
In-house IT resources to develop software
50.4% • Linking content across channels:
Third-party services to help
Products and promotions must be
develop software 44.1% consistent, leveraging emerging capa-
bilities in content and digital asset
On-demand or SaaS models 33.3%
management.
Cloud computing solutions 15.3%
• Adoption of mobile devices for
store associates to enable a richer
Percent of respondents shopper interaction: Equip store-
Source: RIS Retail Tech Study, April 2011 based employees with mobile devices
Figure 17 to improve in-aisle customer service
and check-out capabilities.
need to create services that allow such connected
customers to get a view of hitherto unseen store
processes, such as inventory status, deeper and
technology areas that CE retailers will need to
richer product information and, ultimately, even
implement to stay viable are:
self-checkout.
• Next-generation customer analytics that
Today, the top two categories of external sourcing incorporate data gathered from social media.
of technology for CE retailers are IT consulting and
Web site development/maintenance/hosting (see
• Predictive supply chain management
solutions.
Figure 16). Mobility services and social media inte-
gration, meanwhile, are rapidly gaining ground. • Customer management suites that enable
Deployment of these relatively new and quickly consistent customer recognition, tracking and
evolving technology domains requires expertise rewards across channels.
that is not available in-house. Other best-practice • Multi-channel fulfilment technologies.
cognizant reports 10

11. CE retailers must also find ways to manage costs, The Road Ahead
a difficult challenge given persistent low margins
CE retailers are uniquely positioned to capitalize
across key categories and the heavy investment
on emerging opportunities across the technology
needed in new technologies to keep pace with
and business spectrum to fortify their operating
their always-connected consumers. A key to
models, as well as profitably engage and stay
the cost management conundrum would be the
connected with consumers.
conversion of Cap-Ex to Op-Ex by using cloud
services for SaaS (software as a service) and Winning players will do the following:
BPaaS (business process as a service). Significant
1. Become “retail format agnostic” and use
cost reductions could also be gained by transi-
multiple channels to stay connected with their
tioning some commoditized business processes
customers, profitably.
to a BPaaS model (see Figure 17).
2. Focus on and fortify their unique strengths
We believe CE retailers will find these services (e.g., superior customer service, lowest price).
attractive, even indispensible, due to factors such
3. Partner and source talent and services globally
as on-demand delivery, compression of imple-
in a virtualized environment and rein in their
mentation time, withdrawal of supporting infra-
expenses.
structure, negation of application testing, reduced
training, reduction in ongoing business process 4. Save precious capital and variabalize their cost
change management and greater accounting base by actively adopting new cloud-enabled
transparency for such costs. service delivery models such as BPaaS.
Another important element of cloud-based In short, CE retailers need to reinvent their
services is the scalability factor, allowing retailers corporate operating models and dig deeper
to quickly extend solutions in new stores or competitive moats to profitably tap into the fast
channels, as well as rapidly withdraw from stores emerging future of the CE retail market.
or channels that are not performing at desired
levels. Another attraction is the utility concept
of pay-as-you-use, which enables adopters to
“variabalize” their cost base.
Footnotes
1
“American Households Spend More Than $1,100 Annually on Consumer Electronics,
CEA Study Finds,” Consumer Electronics Association, May 23, 2011.
http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=12100
2
In fact, gross margins for TVs have dropped from 27% in 2007 to 22% in 2009, while PC margins have
remained stagnant at around the 13% mark, according to Goldman Sachs Equity Research, April 2011.
3
According to Goldman Sachs research, RadioShack is expected to be the net winner among other sellers
from the proliferation of tablet technology, as the company derives significantly lower sales from PCs
and notebooks, which are being cannibalized by tablet sales. Analysts feel there will be a net neutral
effect for Best Buy in 2011, as its core PC business continues to suffer from tablet cannibalization, but its
competency in wireless and close relationship with Apple could help it absorb this disruption.
4
“Best Buy Investor Relations: Presentations,” Best Buy Analyst Day 2011.
http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=IROL-presentations
5
“2011 Shopper Experience Survey,” Retail Info Systems News/Cognizant Technology Solutions, June 2011.
cognizant reports 11

12. Resources
“Consumer Tech Revenues Will Reach Record High in 2011,” Consumer Electronics Association,
January 2011. http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=12047
“Best Buy and Walmart Capture Two-Thirds of Circuit City’s Total Dollar Share,” NPD, April 2010.
http://www.npd.com/press/releases/press_100412.html
“Forever Frugal? 2010 U.S. Consumer Survey Confirms Persistent Frugality,” Booz & Co., 2010.
http://www.booz.com/media/uploads/Forever_Frugal.pdf
“Inside the Apple Store,” Dealerscope, June 2011. http://www.dealerscope.com/article/
inside-applestore/1#utm_source=dealerscope.com&utm_medium=search_results_page&utm_
campaign=search_result
“U.S. Online Retail Forecast, 2009 To 2014: Online Retail Hangs Tough For 11% Growth in A Challenging
U.S. Economy,” Forrester Research, Inc., November 2010. http://www.internetretailer.com/2010/03/08/
e-retail-will-influence-53-of-purchases-by-2014-forrester-says
“The State and Local Budget Squeeze,” Wells Fargo Securities Research, February 2011.
https://www.wellsfargoresearch.com/disclosures/Documents/TRACS%20vol%205%20-%20RETAIL.pdf
“Best Buy: Framing the Issues: Newer Stores Smaller than the Average Box, Suggesting Need for
Downsizing,” GS Equity Research, April 2011.
“2011 Retail Technology Trends Study,” RIS News, April 2011.
http://risnews.edgl.com/retail-research/2011-Retail-Technology-Trends-Study71782
Author
Nitin Bajaj
Cognizant Research Center
Research Analyst
Durgesh Patel
Cognizant Research Center
Subject Matter Expert
Steven Skinner, Vice President, Cognizant Business Consulting, Retail and Consumer Goods Practice
About Cognizant
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