Why does IT spending in the retail industry matter?
The retail industry has changed.
The recent global pandemic has accelerated retail’s deep dive into digital transformation, forcing many retailers to upgrade and replace their outdated legacy systems and processes. The pressure for transformation is coming from all sides, as consumers expect a more streamlined shopping experience, workers expect flexibility and modernity, and competitors like Amazon win more market share using cutting-edge tech as their advantage.
Retailers are quickly learning that in order to be successful and profitable throughout these changes, they require the capabilities of cutting-edge retail technology (and the necessary IT to support it).
Unfortunately, it’s hard to pin down exactly where the IT budget should be spent, especially when “IT” often includes many confusing buzzwords like “cloud ready” or “machine learning.” Moreover, IT is such a general term, that it can be broken down into three major categories of spending (hardware, software, and services) — each of which can be broken down into dozens of sub-categories.
Retail IT hardware:
- Servers and infrastructure
- Employee devices (computers, laptops, phones, tablets)
- Store hardware (POS registers, scanners, printers, etc.)
- Digital signage (screens, streaming servers, etc.)
- Security (cameras, facility access)
Retail IT software:
- Server and infrastructure software (Apache, SQL, Linux, Windows, AWS, Azure, etc.)
- Productivity software (Word, Excel, Outlook, etc.)
- ERP software (MS Dynamics, Oracle,)
- Communications software (Slack, MS Teams, Zoom, etc.)
- POS/customer engagement software
- E-commerce platforms
- Data analytics and business intelligence software
- Order management software
Retail IT services:
- Tech support
- Field support
- Device management
- Software management
- Disaster recovery
- Software Integration
- Custom development
It’s not enough to say “Retailers should invest in IT”
This is why it’s crucial for retailers to understand their specific business goals and how investing in the right IT priorities can push them miles ahead of their competition (especially those who haven’t invested).
What is the average IT spending in the retail industry?
Global retail spending on technology will reach $218.5 Billion in 2021 according to Gartner.
This number has been consistently growing over the past decade.
In fact, this number is projected to grow another 3% by 2022.
So, this begs the question, why are retailers investing so much into IT and, more importantly, what sphere of retail IT are they choosing to invest in?
Reasons for increased IT spending
Digital transformation has changed the way consumers shop and how retailers operate.
Of course, the current global pandemic accelerated the adoption of digital transformation within the retail industry and forced retailers to pivot or be left behind.
In fact, a survey found that 70% of retailers either had a digital strategy in place or were in the process of developing one. Unfortunately, the remaining 30% were left scrambling to build a functional digital presence and those who didn’t were forced to close their doors for good.
In addition, retail giants like Amazon have conditioned today’s consumers to want simple and efficient order fulfillment options, fast delivery and a wide range of product options.
In turn, consumers now expect these same options to be available across all retail locations (both online and in-store).
To meet consumer expectations and stay competitive omnichannel retailers are investing in retail IT that unifies their business operations. Allowing them greater visibility, which in turn results in;
- Better service
- Fewer lost sales
- Overall greater efficiency
And to even begin competing with modern giants like Amazon, many retailers are forced to upgrade decades-old infrastructure and systems.
What IT is the most successful retailer investing in?
While most retailers are investing at least some portion of their budgets into IT out of sheer necessity (updating old infrastructure, outsourcing tech support to deal with an influx of employee tickets, etc.), not all IT investments bring equal ROI.
In fact, recent research from McKinsey & Co. found that there are a few key areas of IT investments that have allowed some retailers to outperform their competitors by a whopping 68% in returns.
Advanced analytics:
Advanced retail analytics software examines numerous factors specific to the retailer to accurately forecast demand and proactively provides suggestions that enable the retailer to make informed business decisions.
Why invest in advanced analytics?
- Advanced analytics has the ability to unify the business across all channels. This creates visibility throughout the entire product life cycle ensuring retailers can maximize GMROI across their entire inventory.
- Advanced analytics technology can create accurate demand forecasts that lead to better retail planning. As a result, retailers are able to have better control and even avoid out-of-stock and overstock.
- Advanced analytics tools can pinpoint demand for a specific SKU at a specific location or channel. As a result, retailers are able to optimize their inventory across all channels and locations to avoid potential lost sales and unnecessary markdowns.
Order Fulfilment Options and Implementation:
Advanced order fulfilment solutions use inventory data in real-time across all business channels to complete an order.
Owing to the massive expansion of the e-commerce industry and consumer expectations, it’s no surprise retailers are investing in order fulfillment IT.
Why invest in fulfillment technology?
- Order fulfilment options have expanded. Ship-to-home, store-to-store, pick-up at the warehouse, and BOPIS are just a few popular options. As a result, retailers are faced with increased fulfillment complexity that only technology can handle accurately and at capacity.
- Consumer expectations have changed. Shoppers have grown accustomed to speed and convenience when getting their orders.
- Associates need unified visibility. When serving a customer, associates need to know how much product is available, where it is, and what the optimal shipping location is.
Optimized pricing and promotions:
Optimized pricing solutions allow retailers to maximize GMROI by setting optimal initial prices, in-season prices, as well as, promotions and markdowns.
Why invest in pricing and promotions?
- Pricing and promotions technology has the capacity to account for multiple factors including seasonality, competition, price elasticity, and of course demand.
- Pricing and promotions technology can optimize product pricing by integrating analytics-driven pricing software with planning and inventory solutions.
- Pricing and promotions technology can configure pricing software to work with business-specific limitations, goals, and sales history to minimize costs and maximize profits.
Consumer Experience:
In-store and online shopping aids, such as intuitive shopping platforms, shelf tags, touchless shopping, and shopping assistant tools gain insight into customer shopping habits.
This data is used to create a customer-centric shopping experience.
Why invest in consumer experience technology?
- Over 80% of consumers are interested in retail technology that simplifies or enhances their shopping experience.
- Consumer-centric retail increases customer loyalty by satisfying their needs and wants.
- Data-driven, customer-specific recommendations increase the success rate of upselling, simultaneously while decreasing returns.
Retail IT Investment is a Smart Move
It is clear that one of the most impactful ways to spend retail IT budgets is on AI-powered analytics and the necessary infrastructure changes.
This cutting-edge technology enables retailers to optimize operations from planning to fulfillment. Leading adopters of retail AI technology are cutting down on wasted time and cost.
Investment in consumer and business-specific technology serves to increase GMROI.
A tangible divide can be seen throughout the industry, retailers who choose to spend on retail analytics IT are scooping up market share, while others struggle to keep their doors open.
