Retail Technology Investment Trends

By Glynn Davis | September 14, 2017

Retail is undergoing a revolution as organisations grapple with having to deal with multiple channels and servicing ever more demanding and impatient customers across these various touch-points. To deliver on this requires clear visibility of both inventory and customers across the channels and the only way for established retailers to realistically achieve this is to undergo a digital transformation.

Many of them are making this tough journey, which involves committing serious levels of investment to new technology. It is just as well, therefore, for retailers that there are myriad choices of IT in the market and an accelerating number of new digital solutions being released by technology vendors. The big questions for retailers are what areas should their money be going into and what exactly is out there for them in terms of cutting edge solutions?

Who’s doing what?

The recent release of the annual Retail Insider ‘Digital Retail Innovations Report 2017’ highlights the top 50 digitally-driven innovations in the UK (and top 15 overseas innovations) and points to some key themes taking place within the retail sector where great change is taking place including: delivery, robotics, Internet of Things (IoT), artificial intelligence (AI) and machine learning, augmented reality (AR), payments, and personalisation [1].

Featured at number one in the report for the second year running is Amazon’s Echo voice-driven device, which is followed by the cashier-free, and cash-less Amazon Go store, which is being trialled in Seattle, and in third place is Amazon Logistics, which encompasses robotics, drones and other wacky ideas that are being patented and tested as the online behemoth further improves its fulfilment capabilities.

This breadth of innovation shows that Amazon is able to commit serious amounts of funding to its research and development functions in order to keep ahead of the pack, and highlights just how tough it is for other retailers to compete with its resources in terms of both capex and in-house technological expertise.

This threat from the mighty Amazon comes at a time when as few as 34% of retailers believe their current IT infrastructure completely supports their efforts to deliver an end-to-end multi-channel experience [2].

Limited resources and prioritising

Making matters even tougher for most retailers, according to Fran Riseley, retail consultant at Martec International, is that they simply do not have much money to throw at myriad innovative technologies and then see what sticks.

For established retailers, with stores, their IT spending equates to merely 1% of their total sales and this has remained largely consistent for the past 15 years – with a peak of 1.4% briefly reached in 2004 [3].

They therefore have to focus on prioritising where their capital expenditure is best spent. Riseley says they are chiefly committing their limited resources to updating their existing in-store systems because within physical outlets is still where the vast majority of their sales are derived.

“When you think of Amazon, it is a question of how much [money] to chuck at it but for the majority of retailers there is only a small percentage of their budgets going on innovations. Getting the stores right is most important and retailers are simply spending where their sales are currently generated,” she explains [4].

Store systems receiving most attention

Around 29% of the UK’s leading retailers have active store replacement or upgrade plans in place as they increasingly recognise that the systems they have in place are largely unfit for multi-channel operations [3].

While there has in the past few years been a strong focus on e-commerce and mobile there has been a recent shift towards recognising the important role of the store as part of the multi-channel model.

Miya Knights, head of global retail technology practice at Planet Retail, says the operational and logistical infrastructure required to support such a scenario has risen up the agenda and put pressure on retailers to match physical store and supply chain investment levels with those devoted to their online sales channel. At the heart of these systems is the ability for retailers to gain a single view of stock across the channels [5].

In fact, as many as 65% of retailers believe that having a real-time view of, and control over, inventory throughout the supply chain is essential [6]. With such capabilities it then makes it possible for retailers to begin to investigate the types of innovations listed in the Retail Insider report, which encompass more efficient delivery solutions including click & collect-type services, better management of merchandising activities online and in-store, and improved demand forecasting.

Delivery battleground

The area that is arguably having the most disruptive impact on retail is delivery. Over the years e-commerce capabilities have been added to traditional retailers’ store models in order to accept orders, with the upshot that fulfilment has been increasingly under pressure as online sales volumes have increased.

Mercedes drones delivery vans that drive to the relevant area and then release a number of drones to fulfil the last mile, Amazon’s impressive logistics operations, and Starship Technologies that uses autonomous robots to deliver goods to people’s homes are featured in the Retail Insider report this year.

Daniel Lucht, director at Research Farm, says Just Eat and Tesco are trialling the Starship robots with the latter interested in the fact that they could have a real impact if recognised as being suitable for “the right retailer, with the right basket sizes, and maybe they are used for things like electrical goods and clothing rather than just for food” [7].

The reality for retailers is that they are under great pressure to provide exemplary service to their customers when ordering online and receiving deliveries at home or choosing a click & collect type option. As many as 78% of UK shoppers would likely switch to an alternative retailer when next shopping for products online if they have a poor experience and rather worryingly 56% of people have had a problem over the past 12 months – up from 53% in 2016 [8].

Jason Shorrock, vice president of retail strategy EMEA at JDA, says: “Fulfilment and ‘last mile’ issues continue to hinder retailers’ efforts at a time when consumers are becoming increasingly intolerant of poor service. Today’s shoppers expect retailers to offer a high-level of service across all channels – those retailers that fail to keep up with demand put themselves in serious danger of being left behind.”

Payments come to the fore and disappear

Taking the actual payment is undoubtedly the most critical element of customer engagement for retailers but the investments they are making in payment innovations is to make this part of the transaction disappear.

They want it to move into the background so the customer does not notice it at all. The ideal scenario today is for frictionless payments, as pioneered by providers such as Uber, whereby the ordering of the product or service and the payment are a single process for the customer.

The Retail Insider report includes no less than five payment related innovations. Starbucks Mobile Order & Pay is again featured – for the third year running – alongside a similar proposition from McDonald’s. Also featured are the Jaguar in-car payments system that enables payments to be made from the touch-screen in the car, Mastercard selfie payment verification uses biometric identification rather than passwords, and Facebook Messenger Payments recognises when users are talking about payments in Messenger on Facebook and it can then undertake the necessary transfer.

Artificial Intelligence becomes a reality for retailers

Facebook Messenger Payments uses AI technology to recognise when users are conversing about payments and then steps in with the necessary assistance if required. In a similar way, the Messenger function can also make other suggestions based on online discussions such as ordering a taxi, or starting an opinion poll when any indecision is spotted between friends.

This is just one of many solutions in the Retail Insider report that utilises the powers of AI. They include Amazon Echo, Otto with Blue Yonder, Staples ‘Easy Button’ that has been developed with IBM Watson, and chatbots from both Shop Direct and Pizza Hut that enable customers to communicate with these retailers via robots in a conversational manner.

Spending on such AI solutions is expected to increase significantly – by 53% between now and 2020 – compared to the previous three-year period. Likewise there is predicted to be a continued increase in the amount of IT budget committed to the cloud – up 24% over the next three years [9].

Saviour in the cloud

The increased use of the cloud – whereby processing, storage, and software solutions are held outside an organisation’s own IT infrastructure – is proving something of a saviour for retailers. One of its major benefits is that it enables the trial of new technology to be undertaken for minimal cost.

Riseley says: “Retailers can do so much more with the same amount of money than before – through the [improved] capabilities of IT and cloud-based solutions that allow companies to dabble and then give up if it is not working.”

Proof of the increased adoption of cloud is the finding that as many as 80% of retailers have some of their IT running in the cloud and 5% have all their infrastructure operating in this way [3].

Insight and opportunities

Such experimentation and investments will ultimately have to be made by established retailers because they will otherwise lose ground to their rivals that have emerged with online-only models or who operate with only a small footprint of physical space.

These newer rivals spend significantly more on IT – typically 3.4% of sales in 2016/17 – than established retailers with their 1%. This is itself up from the 2.7% of last year and the much lesser 1.9% across 2014/15, which suggests that these pure-plays recognise the importance of continuing to invest in technology and to even accelerate their commitments to putting budget into new solutions [3].

The way to stay ahead in the increasingly competitive retail sector is to ensure sufficient budget is allocated to IT – because there is no doubt that its role has never been more crucial to future success – but equally important is for retailers to prioritise their investments to ensure that as much of their budget hits the mark and ultimately delivers extra profitability.

Glynn Davis, editor, Retail Insider

Sources:

[1] Retail Insider ‘Digital Retail Innovations Report 2017’

http://www.retailinsider.com/wp-content/uploads/2014/07/Digital-Retail-Innovations-2017.pdf

[2] Zynstra research by Censuswide

http://blog.zynstra.com/the-challenges-in-turning-retail-branch-it-into-a-strategic-asset

[3] Martec International ‘IT in Retail 2016-17 Report’

[4] Interview with the author

[5] Interview with the author

[6] Planet Retail ‘Harnessing the Power of Digital Transformation – The Ultimate Retail IT

Therapy’ (published March 2017)

[7] Interview with the author