IT challenges grow for established retailers

Life is not getting any easier for store-based retailers as the online specialists continue to outspend them with their larger IT budgets, which will likely put greater power in the hands of these smaller operators as they continue to commit more capital to new technologies.


According to the new Martec International report (IT in Retail 2016-17) that surveys the leading 150 retailers in the UK the average spend on systems is 1% of sales, which although this is up on 0.9% of 2015 the spend by the home shopping retailers is on average a significantly higher 3.4%.

Fran Riseley, retail consultant at Martec International, says this could mean the store-based retailers lose out in the battle online as the pure-plays invest with greater intent on new technologies such as virtual reality, augmented reality and personsalisation.

Not only do the established players spend less on IT but their money will be predominantly focused on their store systems. As much as 80% of their IT budgets could end up funding in-store initiatives.

“This could be tablets and tills, which could just mean simply have cleverer tills than the previous ones. The cost of one store might only be hundreds of pounds to upgrade but when you multiply it out it adds up,” she explains.

Despite this big chunk of capital going into store systems the survey again found the top priority for IT departments is e-commerce – with 24% putting this highest on the agenda. This is followed by store systems (16%) and then ERP systems (8%) and integration projects (7%). Since much of the latter two are focused around delivering a single view of customers and of inventory they could effectively be bundled together and rival store systems as the second highest priority.

This drive towards having a single view is again something that is not of concern to the online retailers as they have not built their systems in silos and operating across channels is not an issue because stores play very little, if any, part in their business models at present.

Although many pure-plays are experimenting with physical space this will simply be incorporated into their businesses as fully integrated components. Helping such firms navigate constant change in the market is their use of cloud computing. But this year the report shows that it is being increasingly used by retailers of all sizes and persuasions, not just the start-ups.

“It has really jumped up this year. Suddenly 80% of retailers are using some form of cloud computing – up from 51% last year. And in 2015 it was mainly non-risk HR department type activity. Now retailers are running their ERP systems in the cloud. Microsoft Dynamics 365 is only sold in the cloud,” she says.


In order to maximise their agility more retailers are looking to run solutions out-of-the-box and not to undertake any customisation: “Retailers are looking at changing their processes rather than change the technology solutions. There is a battle going on with implementations to not do the bespoke thing. This is the big debate right now in retail.”

The other challenge for established retailers is the finding by Martec that when a physical store is closed the level of online sales within the catchment area of the unit can drop 2-3% and there have been examples in the US where online revenues have dropped as much as 20%. This phenomenon matches up with the finding by N Brown and John Lewis that a new store opening will prompt a rise in online sales in the catchment area of the outlet.

Despite the issues traditional retailers face in delivering IT to operate in a multi-channel world, things are going to remain tough because while the average level of online sales among the 150 retailers surveyed currently stands at 8.5% of total sales these merchants predict the level will likely top out at 20-29%. There are clearly a lot more challenges ahead for the UK’s larger operators whose models are fundamentally based on stores.

Glynn Davis, editor of Retail Insider