Retail IT is being transformed. CIOs are shifting from proprietary systems to package solutions and from an emphasis on cost reduction to a solid bump in IT capital spending. A strong customer focus means CIOs are fixing their attention on channel integration and analytics that will help them spot and anticipate shopper preferences more quickly.
Are they rushing headlong toward the latest shiny new technologies? Not necessarily. Still, 2013 is shaping up to be a transformative year for a majority of retailers steadfast in the mission to “get their foundational house in order.”
Focusing on foundation
Omni-channel has evolved from buzzword to business strategy and CIOs are focused on executing against the omni-channel value proposition,” says Isaac Krakovsky, partner at Kurt Salmon. “The first thing most have to do is to fix the foundation, and it’s a complex undertaking. ... a retailer can’t expect to meet or exceed customer expectations — which cross store, web and mobile channels — if they don’t have an accurate inventory picture.”
Krakovsky points out that after essentially a multi-year budget shutdown, there’s now considerable pent-up demand. Companies need to fix the imbalance between e-commerce and bricks-and-mortar, he says. “Talk revolves around sharing inventory across channels, reducing the overall size of the buy and thus optimizing this inventory investment, which can lead to higher rates of full-price selling.”
Mike Webster, senior vice president and general manager of Oracle Retail, also expects to see robust IT investments over the next 12 to 18 months. “The conversations we’re having with retail CIOs revolve around how technology can help them gain a better understanding of what moves the customer — what they think and what they want,” he says. “They need to connect interactions across their business and they need greater agility. In order to achieve that, they have to focus on the foundation. Inventory management, master data, pricing and promotion tools are critical pieces and they have to get them right.
“Talking about re-engineering the foundation of retail IT may not be the sexy side of technology, but it’s critical,” Webster says. “If a company jumps into mobile-assisted in-store selling ... but doesn’t have accurate visibility of inventory across the enterprise, what have they accomplished?”
That’s a point of view echoed by Gartner vice president of research Jeff Roster. “The big attack has to be on infrastructure,” he says. “There are still a whole lot of retail companies out there that need to retire legacy systems and get out of the proprietary code writing business. Once they move to packaged systems, the opportunity to decrease infrastructure costs and reshape the business around today’s customer can move forward at a quicker pace.”
Reducing proprietary footprints
Michael Rodgers, executive vice president and CIO of Saks Fifth Avenue, began overhauling the specialty store chain’s IT foundation in late 2011. The ongoing project has required “fork-lifting all the merchandising systems, planning, HR, assortment allocation, etc.,” Rodgers says. Noting that 60 percent of core systems will reside on Oracle technology in the future, he says, “You have to reduce your proprietary footprint to achieve omni-channel objectives and gain business agility.”
Rodgers is spearheading the development of a single view of the retail enterprise with the Oracle platform as the base, which it considered the Holy Grail of omni-channel retail. “We have already implemented a ‘single view of the customer’ and a ‘single view of the inventory’ which are critical for delivering on our omni-channel promise and allow us to interface with shoppers regardless of how they choose to shop,” he says.
While Saks is ahead of the curve, it’s frustrating for industry watchers to hear that most retail IT investments planned for the near term are concentrated around basic blocking and tackling.
Jill Puleri, global retail leader for IBM Business Services, expects retailers to spend money on core merchandising systems and fixing the online/store link. A recent IBM survey found that while more than 80 percent of shoppers reported making their last purchase in a store, a much smaller percentage anticipated returning to the store (56 percent).
“Organizations are still siloed,” she says. “Shoppers continue to receive e-mail messages that say ‘30 percent off your purchase online.’ ... Consumers don’t look at shopping as web vs. store, but retailers do and that’s a big disconnect.”
Puleri looks for retailers to do more with customer analytics. “There’s a lot of buzz around personalization. On one front, they’re looking to better target e-mails and promotions. Equally buzz-generating is dynamic pricing. Retailers need to get smart about pricing,” she says. “Prices are now widely exposed .... If [consumers] can find an item cheaper elsewhere, they will likely go for it.”
Closely tied to CIOs’ plans is the growing importance of the in-store experience. Hoping to capitalize on stores as more than just destinations, retailers are tapping into technology to synchronize channels and support “buy online/pick-up in-store” and “save-the-sale” capabilities.
“The future of store-based retail lies in integration,” insists Paula Rosenblum, managing partner at RSR Research. “The store has to be connected to online and mobile, and everyone needs to be working from the same playbook. ‘Retail Winners’ have their cross-channel house in order, and they understand the importance of focusing on customer service and experiences.
“Survival is dependent on empowered store associates who can provide a differentiated experience,” she says. “Retailers need an extensible infrastructure.”
Dave Bruno, director of marketing for JDA Software, also looks for investments that lift the store experience. “The pressure is on for stores to serve as a point of transaction, a point of pick-up and a point of knowledge,” he says. “Achieving that requires good data, good visibility and integration. Demand planning, allocation and distributed order management become essential in this context.”
Bruno maintains that empowered associates can thwart showrooming and lift store sales. “Give associates the apps they need to do inventory look-up and compare pricing, and all of a sudden you’re changing the in-store dynamic,” he says.
With greater attention focused on elevating the in-store experience through improved customer service, several industry experts expect an uptick in workforce and labor management investments. The days of trimming store staff to cut costs are done; retailers now recognize the need to have more associates on the floor engaging shoppers — often by using mobile technology.
Another segment expected to benefit is POS hardware and software. “The market continues to grow as POS technologies rapidly change in individual segments ... new store concepts and greater penetration of PC-based POS continue to offset [mobile and e-commerce] challenges as the point-of-sale remains the center of the customer interaction,” says Greg Buzek, president of IHL Group.
Despite pressure from mobile devices and the perception that mobile POS is poised to overtake the traditional point-of-sale terminal, IHL reported that overall penetration of POS devices rose 3.9 percent in North America last year.
Buzek expects mobile POS to continue gaining traction, yet expresses ongoing concerns about security and high-volume transactions. “Mobile POS hardware is currently additive,” he says. “The challenge is to be sure the systems in place can support it when a retailer is ready to add it to the mix.”
He sees mobile devices rolling out first to sales managers. “The technology has huge bang for the buck in terms of getting the sales manager out from behind a backroom desk,” he says. “And we know the value of putting a mobile phone or tablet in the hands of sales associates — immediately they have access to more information that can aid selling.”
Brendan O’Meara, managing director of the worldwide retail sector for Microsoft, ties increased mobile spending to retailers’ renewed emphasis on consumer engagement. “Retailers tell us that they want to deliver more personalized, relevant experiences as they interact with customers,” he says. “Being able to access customer and product data via mobile tablets allows them to be more dynamic.”
Puleri describes retailers’ mobile objective from a more nuanced point of view. “When mobile burst on the scene, retail CEOs wanted their brand to have an app,” she says. “Led by consumer behavior, they’ve now found that consumers don’t want to download an app. They want the retailers’ website to work from their mobile device.”
The C-suite connection
As digital business savvy becomes a retail imperative, industry experts expect the relationship between the CIO and the CMO to be nurtured. How this affects IT spending varies widely from company to company, yet the consensus is that CIOs and CMOs need to work better together.
“CMOs need more data and/or science to do their job,” says Tim Hood, vice president and chief solution architect for Retail SAP AG. “It’s through the power of leveraging Big Data that marketing has netted greater insight to what customers are buying and what they want to buy. We’ve seen marketing sidestep IT in the past, and it doesn’t always work. A strong partnership between IT and marketing is essential to connecting with today’s customers.”
Roster concurs, noting that revenue growth and mastering customer data are irrevocably linked. “Neither can deliver the digital promise of retail to consumers unless they work together,” he says.
Gartner predicts that by 2017, CMOs will spend more on technology than their counterpart CIOs. Whether or not that comes to pass, several industry watchers look for a sizable lift in tech spend.
While CIOs’ objectives for the next 12 to 18 months are largely tied to channel integration and merchandising systems, Lori Schafer, executive advisor for SAS Institute’s Retail Practice, reports that CEOs are likely to be pushing for more cutting-edge technologies. “The one topic that every CEO wants to talk about is mobile in the stores,” she says, and “They want it done yesterday because they know how pervasive mobile has become. They want the sales manager to use mobile, they want mobile devices in sales associates’ hands and they want mobile POS to be an option.”
Schafer says she also hears CEOs “talk more about making changes to the infrastructure to be sure the stores allow Wi-Fi. ... If a customer is able to log in while they’re shopping, retailers have a new means of connecting with them and pushing out relevant messaging.”
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