Magazine Article | October 21, 2015

Retail Tech Spending 2016

By Matt Pillar, chief editor

November 2015 Innovative Retail Technologies

As the groundwork for enterprisewide data visibility falls into place, a game of connect-the-data dots is playing out in stores.

Every third quarter since 2005, we’ve launched a survey asking our subscribers for insight into their tech spending plans for the following year. The survey results always tell us a story, and this year’s story is about omni-channel innovation. More specifically, it’s about omni-channel innovation in the store.

With few exceptions, we’ve historically told the story of our survey in rote fashion, with a report that follows the mechanics of the survey itself. That effort typically resulted in an account that outlined retailers’ spending priorities across the five distinct categories we asked them about: in-store hardware, in-store software, marketing and operations solutions, supply chain systems and hardware, and loss prevention/asset protection solutions.

Among the leading retail executives we surveyed, tech spending decisions are no longer being made in discipline-specific silos. Instead, they’re being made by cross-disciplinary teams with a holistic understanding of their enterprise and omni-channel goals.

We’re going about it altogether differently this year, and the new approach is less about choice than it is about necessity. The story in this year’s survey simply can’t be told categorically, because to do so would miss the point that’s jumping right off the survey’s results pages: Among the leading retail executives we surveyed, tech spending decisions are no longer being made in discipline-specific silos. Instead, they’re being made by cross-disciplinary teams with a holistic understanding of their enterprise and omni-channel goals.

Put simply, we can’t report that mobile POS will lead the industry’s in-store hardware spending priorities in 2016 without an immediate discussion about wireless networking being the top in-store software priority. Further, neither of those statistics is meaningful without providing the context that customer experience management leads retailers’ planned marketing and operations spending, that payment security is their top LP/AP priority, and that inventory visibility investment is their number one supply chain concern.

In silos, these findings are interesting. Collectively, they tell a story about a digital transformation that’s happening in the name of omni-channel connectivity. That’s just one of the interconnected storylines uncovered by this year’s Tech Spending survey.

Retail executives at these and hundreds of other brands have told us their plans, and those plans point to an all-out race to connect data from any and all channels to better serve the customer — and the business — wherever both are found.

The Birth Of The Store As An Omni-Channel Outlet
Our story begins where modern retail began, in the store. Omni-channel is the story’s protagonist. Its antagonists are legacy systems. Its heroes are inventory visibility, order management, cloud, and store-level digital transformation. And according to our survey, the plot to this choose-your-own adventure novel is quickly building.

Chapter One: Inventory Visibility. Consider that just one year ago, when we asked our survey participants if their companies had inventory visibility across all channels, fewer than 50 percent said yes. When we asked that question this year, the figure leapt to nearly 62 percent.

That momentum continues and evolves. Inventory visibility is the precursor to order management, and those are retailers’ top-two supply chain spending initiatives for 2016. More than 34 percent of retailers intend to spend on solutions that improve inventory management through better visibility, and more than a third will invest in order management/fulfillment solutions. It’s a five-year trend (see figure 1).

Figure 1: Inventory Visibility Is The Cornerstone Of Omni-channel

Chapter Two: The Cloud. When we asked retailers if they were actively moving apps to the cloud last year, fewer than 37 percent said yes. Today, that figure approaches 52 percent (see figure 2). What’s more, when we asked the openended question, “What was the best systems or operations decision your company made this year?”, transitioning applications to the cloud led the response count, followed closely by inventory visibility and fulfillment initiatives and mobile device deployment.

Figure 2: Retail Continues To Lead Other Industries On Cloud Adoption

Inventory visibility is the precursor to order management, and those are retailers’ top-two supply chain spending initiatives for 2016.

The aversion to cloud is clearly dissipating, in no small part because cloud application delivery is increasingly being realized as the conduit to realtime enterprisewide data access. That’s a necessity of inventory visibility and an enabler of order management. But there is still some aversion to overcome, and it’s decidedly security-related. Among the nearly 17 percent of respondents who disagreed with the statement, “My company is actively moving applications to the cloud,” nearly 68 percent cited security concerns.

Chapter Three: The Store. Merchants are extending digital channels to the store at a feverish pace. Mobile POS hardware is the top storelevel hardware-spending priority for 2016, with 35 percent indicating investments there in 2016. That was the case heading into 2013, 2014, and 2015 as well (see figure 3).

Figure 3: Mobile POS Leads In-Store Tech Spending 4 Years Running

With all this mobile device proliferation going on in stores, it was no surprise that mobile device management took the top slot for store software spending last year. In 2016, however, that changes significantly. Store-level software spending will focus on wireless networking in 2016 as a third of retailers invest in their store networks. The fact that wireless networking and Wi-Fi (more than 31 percent) are the top software priorities for stores heading into the new year is a product of the digital transformation happening there (see figure 4).

Figure 4: In-Store Software Spending Priorities Are Evidence Of The Digital Transformation

The fact that wireless networking and Wi-Fi are the top software priorities for stores heading into the new year is a product of the digital transformation happening there.

Transformation Happening There
Lest mobile devices get all the glory, it’s important to point out that this digital transformation reaches well beyond mobile POS. Digital signage slides in at a close second in the most sought-after instore hardware contest, with more than 31 percent of retailers planning to invest there this year (see figure 5).

In acts one and two, merchants are laying the groundwork for omni-channel interactivity in stores. They’re linking in the plumbing that enables any-channel inventory, product, and customer information to flow to the store level. In act three, they’re plugging that plumbing into the years-long store-level mobile device investment, and they’re making sure stores’ wireless network infrastructures are in place to support it.

Figure 5: Hardware Spending In Stores Extends Digital Transformation To Consumers

Meanwhile, the marketing and operations teams are pushing the same agenda — in 2016, customer experience management is job No. 1 for them, as more than 43 percent of their ranks will work to ensure the aforementioned plumbing is leaking no data when the omni-channel customer hits the store.

While the research conducted for this year’s report indicates plenty of effort to transform stores, it’s important to temper the enthusiasm with a bit of reality. This is hard and expensive work. There’s a long and arduous path between the realization that digital transformation is the future and the execution of that future vision. The path is challenging not because of a lack of technology to follow it, but because stores are their own worst enemy. It’s difficult for many retailers to rationalize a massive transformational investment in struggling stores, despite the fact that a digital infusion is just what they need.

Investment is more easily justified in e-commerce systems, which enable a data-rich and transparent customer experience by design. E-Commerce gives consumers deep product information, purchase histories and wish lists, and flexible fulfillment options (see our special report on e-commerce on page 12 of this issue). The big story coming out of this year’s retail tech spending report is the merchant’s effort — and challenge — to extend that experience to the store. The emphasis retailers are placing on any-channel inventory visibility, order fulfillment, application and data access, the in-store digital touch-point infrastructure, and customer experience management indicates the effort is fully, albeit slowly, under way. The digital transformation that must occur to enable these initiatives won’t happen overnight for any retailer — it requires an extended, yet cohesive plan. But it’s a crowded race, and in this sense, the innovator badges will be awarded to those who get there first.

LP/AP Priorities Follow Omni-Channel Initiatives
The customer-facing digital transformation of stores and store associates isn’t the only evidence of omni-channel growth that we’re seeing. For the first time in the history of our survey, video surveillance has been dethroned as the top spending priority cited by LP/AP professionals. In fact, payment security charged ahead of video surveillance, with more than 35 percent indicating it’s their top security priority for 2016. Further evidence can be found in the fact that online/card-not-present payment applications rounded out the top three initiatives of LP/AP departments (see figure 6).

Figure 6: LP/AP Turn Their Attention To Digital Commerce

This big shift in LP/AP priorities is a reflection of the October 2015 EMV liability shift, which fell directly on the heels of our survey period. That’s a continuing all-hands-on-deck effort, and it’s the catalyst of the focus on card-not-present fraud. While we’re late adopters of EMV, we’ve learned from the countries that have gone before us. We’re anticipating that steady adoption of chip cards and EMV terminals in 2016 will help safeguard the POS, but that the EMV initiative will push fraudulent activity to the card-not-present payment environment. That’s a new frontier for LP/AP.

There’s a long and arduous path between the realization that digital transformation is the future and the execution of that future vision.

Legacy Systems, Excessive Integration Remain The Bad And The Ugly
When we asked retail executives about the worst decisions they’ve seen made this year — by their own company or by another — legacy systems maintenance and either excessive integration or a lack of integration due to systems incompatibility were the prevailing themes. As the saying goes, with enough money and enough time, any two systems can be integrated, but retailers appear to be short on both. Several responses lamented increased complexity brought about by the integration of the very systems intended to drive improvements, and the ensuing customer experiences and business efficiency losses that resulted.

These leading challenges only support the argument for centralized, single-source enterprise data that can be accessed by multiple applications at any location and in any channel. Those merchants investing in omni-channel infrastructures that enable digital transformation at the mobile, application level — beyond the four walls of stores, distribution centers, and call centers — are mitigating customer experience issues and cutting business inefficiencies off at the pass. To consumers, it might not be happening fast enough, but it’s incumbent on retailers to balance consumer urgency with sound, methodical store-level investment.

Who Responded To The Survey?

Our survey sample of 500 retail executives was extracted from the 41,000-strong Innovative Retail Technologies email newsletter circulation. Respondents range from executives at the Top 100 international retail brands to the owners of small-town single-store establishments, from convenience and grocery stores to specialty and high-end apparel merchants. Here’s a sampling of participating brands:

  • 7-Eleven
  • Bloomingdale’s
  • Cavender’s
  • CVS
  • Dollar General
  • Estee Lauder
  • Hallmark
  • JCPenney
  • Kroger
  • Luxottica
  • MidwayUSA
  • Orvis
  • Panera
  • Plow & Hearth
  • Ross Stores
  • Sports Authority
  • Sprint
  • Victoria’s Secret
  • Wakefern
  • Walgreen’s
  • Walmart

Retail executives at these and hundreds of other brands have told us their plans, and those plans point to an all-out race to connect data from any and all channels to better serve the customer — and the business — wherever both are found.