A 21st century retail perspective

Throwing money on massive IT transformation projects might not be the best way forward for the retail sector, and the way forward will need some strategic thinking about what’s important and what’s not.

For a casual observer it may seem as if computer technologies are advancing at an exponential pace, amidst a growing concern that businesses are being left behind.  Retailers in particular are quite concerned, looking for ways to combat the general decline in consumer demand and worried that unless they urgently embrace all new technologies, things will get even worse.

In reality, what we are observing is a synergetic effect of three technological streams:

  • Moore’s Law still rules, meaning that processors and data storage devices are getting cheaper, more powerful, and smaller
  • Wireless technologies are progressing nicely, with 4G network coverage growing fast
  • All the component technologies continue to be fused, with the outcome being the ever more powerful, truly mobile computers in the hands of practically everyone.

This technological convergence is the key technology that will impact retail over the next five years: the consumers now carry with them what used to be their home computers

In addition, there is a parallel trend – the proliferation of processors and data storage devices in practically all elements of our environment, including our cars, greeting cards, water tap valves, electricity meters, and so on. This is augmented by the quiet spread of increasingly more capable and ever smaller sensors. The day is approaching when after a visit to a home toilet, you will get an SMS with the analysis of your urine if the computer decides that a doctor visit is required.

The trends that matter 

Media commentators seem to pay little attention to the above trends, more focused on the debate about the importance of cloud computing and social media. Yet, this is not where the main battle will be fought.

Cloud computing is chiefly a marketing gimmick, as the underlying technology trends are driving us in the opposite direction: processing power and data storage are being increasingly installed where the action is. The maturing data networks will provide rapid connectivity, but there is no need to run your pacemaker’s software on a server in India. It needs to run within your chest.  However, a link to a monitoring centre with alerts being sent to your doctor when something goes wrong – yes, this will be of value.

Social media, or the electronic rumour mill, is undergoing massive shifts and its role will remain chaotic for the next few years. However, social media users are realising that while the information available on the internet is fascinating, it is usually unreliable. Within just one year between 2011 and 2012 the percentage of people who trust blogs and other networking sites has shrunk from 30 to 12 per cent. People have started to realise that manufacturers and suppliers can be trusted, as what they say is subject to commercial law. Families and close friends may not have the best information, but at least they mean well and they too are trusted.  It is everybody else whose opinions are being increasingly as irrelevant, as they are usually driven by personal self-interest or emotional aggravation. 

A 21st century retail perspective

So, what does this all mean for a retailer who runs a chain of stores?  What should be done? What should be avoided? Where to spend the (always) limited cash?

The single, most important advice that should be given to every retailer is this: do not ever run large IT projects. Any project which will take longer than 12 months will fail – either completely or in important parts. Any project, which costs more than $1 to $2 million will include wasteful expenditure, which will permanently damage your bottom line. The single, most damaging business mistake a retailer can make is to violate these principles. The two largest department stores in Australia have both done this and at least a part of their present woes is due to the overspending (at least ten-fold) on their systems.

If you manage to avoid the trap described above, you can ask the first core question in relation to IT within your retail enterprise: do you have a solid, retail specific, fully integrated at the database level, transactional system?  If you don’t, everything else you do in the IT space will be clunky. So, make sure that your underlying transactional system is robust before you start thinking about taking advantage of technology in your business.

Once you core engine is in good nick, start exploiting the synergies it can bring. A good system will provide a full transparency and fusion across channels. The customer must have a uniform experience, irrespective of the method they chose to interact with the retailer. If they make a purchase online, they must be able to return it to the nearest store, where their details and the transaction in question will be visible.  You would be surprised how many retailers cannot do that, expecting customers to sign up in a store to join a loyalty program, and then asking them to sign up again to make an online purchase. Similarly, if they buy a gift card in a store, the customers do expect that it can be redeemed in the retailer’s web store. 

The modern customer can connect to your (and your competitor’s) website even when they are in your shop, talking to a sales assistant. They are now equipped with powerful mobile computers (‘smart phones’). The consequence for the retailer is that their staff must be equally equipped; hence it is increasingly necessary to extend your POS via wireless to the shop floor. Store staff must see the same information (and more) than the customer can see if they are to have even chances.

Finally, make sure that your systems are fit for the modern times. They must be completely integrated, immune to network and central server quirks, and intuitive. If you run a chain with 200 stores, settle to have two IT people, not 30 like some Australian retailers still do. Give the money saved to the shareholders or invest it into other parts of the business. With the right systems it is not only possible; it is actually quite easy.

Andrew Gorecki is the managing director of Retail Directions.