On trend

January sales are now out of the way and retail technology initiatives will soon begin to once more gather pace. But what are the trends that will impact investment in technology this year and which of these will be felt most keenly by UK retailers?

In mid-January, technology analyst IDC released its Global Retail Insights top 10 forecast for retail technology in 2008. Far from the usual general predictions that are bandied about at this time of year, IDC has stuck its neck on the line by providing some detailed expectations for what lies ahead this year.

IDC’s Global Retail Insights vice-president of research Scott Langdoc says that the likelihood of these forecasts holding true will in part be dependent on several macroeconomic trends. He cites declining consumer confidence on a global scale, changing demographics and additional regulatory and social responsibility issues as putting pressure on all areas of retail.

The analyst’s figures show that retail is one of only two key vertical sectors that will spend less than average on IT in 2008 – the other being banking. However, there will still be budget for some projects out there, with retail’s average spend estimated to rise by 5.3 per cent, compared with an all-sector average of 5.5 per cent; or USStory text7.58 billion (8.93 billion) to be spent on retail software in 2008.
Today, Retail Week looks at the 10 findings and examines how they will affect UK retail.

Continuing investment in demand intelligence

IDC says: Until now, demand intelligence modules have often been bought and implemented in disconnected ways, with different software running for functions such as buying and allocation. In 2008, however, retailers will demand more centralised systems, giving a common platform for demand intelligence that other applications can feed from.

Retail Week says:With many retailers experiencing declining demand, there is no doubt that demand data and analysis is important to UK retailers. However, they must commit firmly to a change in their IT architecture before a move to a centralised system feeding other multiple applications is possible and this will surely prove a step too far for many in the next 12 months.

Cross-channel transparency will become a retailer requirement

IDC says: Retailers will be forced to invest to allow a single cross-channel view of customers, orders, inventory and promotions. Langdoc says that consumers will no longer accept and stay loyal to retailers that operate with Chinese walls between their channels.

Retail Week says:Seven of the 10 most popular retail web sites are now run by retailers with stores, according to Nielsen. Argos, Tesco, Marks & Spencer and John Lewis stand out for encouraging customers to shop across their channels and are investing in services to allow them to do this. Other retailers will have to follow suit. Meanwhile, Comet’s multichannel Click & Collect service was voted the most popular service it offers by customers in a pre-Christmas poll.

Global retail expansion in India will triple

IDC says: 20 of the top 100 global retailers will position India ahead of China as a priority expansion market.
Suitable retail and supply chain applications will need to be deployed for the Indian market. Those vendors that have chosen global systems that are easily adaptable for new markets will have the advantage.

Retail Week says:Retail Answers commercial director Rachel Maclean works with retailers that are expanding into the region. She says that they are prioritising India slightly over China. However, western retailers are partnering with local companies to enter the Indian market and they often already have systems in place. While a standard solution is an ideal, Maclean warns that it can be hard to create a system for the first emerging market you enter that can be replicated in other countries easily.

Social responsibility and green retailing

IDC says: Product quality and safety issues are putting pressure on retailers to invest in responsible sourcing systems and supplier compliance platforms.

Green initiatives will be concerned with energy and power consumption. Retailers are increasingly asking for guidance on power requirements for hardware.

Retail Week says:Both these issues are beginning to gain traction in the UK. Going green with technology, in particular, allows retailers to cut costs. For instance, creating virtualised infrastructures – such as John Lewis has done – means data centres can operate with far fewer machines, with no staff and with the lights out. Investments in systems to monitor overseas suppliers are also beginning – Tesco has rolled out a CSR module to accompany its sourcing system and other retailers have similar plans.

Self-service technology will finally take hold in EMEA

IDC says: Self-service will go beyond self-checkouts and interactive kiosks to include many more consumer touch points, such as mobile systems, digital signage and e-commerce.

IDC recommends that retailers develop a single platform to underpin their self-service deployments across all channels. This will create an opportunity to improve marketing return on investment because there will be a shift towards more personalised retail services.

Retail Week says:Retec Digital creative and technical director Nick Hughes agrees that UK retailers are starting to come round to the benefits of integrating a self-service platform, which can then be used for different types of self-service solutions in stores. While the initial integration with other core retail systems such as EPoS and customer relationship management takes the same time whether you deploy a point solution or reusable platform, the benefits are felt quickly if you can then use the same platform as a foundation for multiple applications.

Retailers to expand advanced payment technology tests

IDC says: PCI DSS-directed improvements in payment security technology and underlying infrastructure are now largely in place among the biggest retailers. Langdoc now expects to see trials of advanced payment capabilities, including contactless payment, phone-enabled contactless payment and phone-enabled promotional offers.

IDC also expects significant turf battles between card issuers, phone network operators, retailers and payment solution providers such as PayPal for consumer loyalty to their schemes.

Retail Week says:There are trials of advanced payment methods in the UK, such as the O2 Wallet. Visa, Barclaycard and O2 have joined forces on this project, but it is unclear whether this partnership will stay exclusive and whether consumers could be convinced to switch mobile operator or credit card brand to participate. In addition, many retailers are trying to promote their own payment card brands, so it is easy to envisage the fierce competition that IDC forecasts.

Tesco’s US success will provoke a radical response from local grocers

IDC says: Early results from Tesco’s Fresh & Easy brand are very positive. As a result, it expects significant priority changes in terms of technology among competing US grocers. Two mentioned were systems to support the sale of fresh and prepared food and self-checkout.

Retail Week says:Since IDC’s forecasts were announced, Wal-Mart has said that it will take on Fresh & Easy, piloting a smaller format store under the banner Marketside. While such developments in the US market do not directly affect UK retailers, increased demand for technology such as shelf-checkouts should help reduce the price for everyone in the longer term.

Traditional retailers to expand their use of social networking technology

IDC says: While retailers are concerned about protecting their brand image, they will have to make more use of community web technologies.

Retail Week says:This is a trend that is being seen in the UK with retailers from Waitrose to Figleaves investing in online facilities to allow their customers to communicate with each other. Others, such as Topshop and Fat Face, have even set up on Facebook in an effort to ride the wave of social networking.

Central and Eastern Europe become latest retail battle ground

IDC says: 2008 will be the year that mid-sized retailers from Western Europe head East, particularly with e-commerce ventures allowing them to set up shop without huge entry costs. Partly because of this, IT spending in Central and Eastern Europe will grow at two times the rate of Western Europe in the next five years.

Critical IT requirements will be focused on integration platforms and IT infrastructure, rather than point solutions, so that technology can be replicated across more than one new country in the longer term.

Retail Week says:Central and Eastern Europe will need to see significant additional broadband penetration before e-commerce enjoys the growth rates achieved in the UK. According to the OECD’s latest figures, in June 2007 the Czech Republic had the best broadband penetration in the region, with 12.2 per cent of the population subscribing compared with 23.7 per cent in the UK. Hungary had 11.6 per cent penetration and Poland just 8 per cent.