Retail Tech Spending 2017: A Quest For The Complete Customer Experience

By Matt Pillar, chief editor

November 2016 Innovative Retail Technologies

Our annual, wide-ranging subscriber survey reveals the technologies that will drive retail in 2017, and customer experience is king.

Another installment of the Innovative Retail Technologies’ Tech Spending Report is in the books. This year, we’re seeing both the continuation of some of the trends we’ve been charting for the past few years and strong opinions about some of the progressive moves merchants are making. Investments in mobile, for both POS and to aid retail associates with task management, customer relationship management, and inventory visibility, will continue at a healthy pace next year. Not surprisingly, we’ll see the continuation of heavy investment in back office omni-channel initiatives that drive enterprise inventory transparency. We’ll cover some of that here and some of it in our accompanying State Of E-Commerce Report on page 12.

This year’s survey was completed by a host of leading retailers representing a wide range of segments, from specialty apparel to grocery to big-box brands. A sampling of those merchants includes Cavender’s, Kroger, Foot Locker, The Limited, London Drugs, Target, Walgreens, and Walmart.

Steady, Tepid Confidence In Tech Portfolios
When we asked merchants whether they agree or not with the statement, “My company’s technology portfolio is well-rounded; we’re not overly deficient in any single area” this year, just half agreed. That figure holds steady with 2015 findings.

Similarly, there’s steady year-over-year agreement with the statement, “My company has invested in technologies that will help our stores succeed.” Nearly three quarters of merchants agreed this year. We’ve been conducting this survey for a long time, and these confidence indicators are the best we’ve seen to date. Consider that when asked that same question in 2009 — on the heels of the Great Recession — just half of merchants expressed confidence in their technology investments.

Beyond merely asking merchants if they’re confident in their tech portfolios, however, our survey explored the specific tech picks that have been working well for them. As such, we’ve uncovered some strong opinions on the healthy adoption of the more progressive trends and technologies coming to market. Of those, migration to the SaaS model is perhaps the most prevalent.

Kudos To Cloud
More merchants are falling in love with the cloud. We asked survey respondents whether they agreed with the statement, “my company is actively moving applications to the cloud.” Half of our survey sample, which spanned merchants from all sizes and segments, said yes. Fewer than 20 percent said they’re not, with the rest unsure. That so many of the execs we surveyed are unsure about whether the software they’re using is hosted or on-premises comes as no surprise; in fact, it only affirms the maturation of cloud applications and their delivery.

Many of the professionals we survey are discipline-specific managers in merchandising, marketing, loss prevention, and e-commerce. They’re not intimately familiar with the software procurement or delivery process. In the early days of SaaS, it might have been obvious to them when they accessed a remotely hosted application. App performance might have been telling. Perhaps a clunky user interface was a dead giveaway. Today, network, security, and user experience improvements on the part of cloud-based application vendors have spanned those chasms.

When we asked our survey audience to share the best technology decision their company made in 2015-2016, cloud adoption was the far-and-away leader. They cited lower cost and technology barriers and real-time access to a host of decision-making data. When we asked which of these good decisions had the most positive impact on their bottom lines, cloud was again among the top two responses.

Inventory Visibility To Drive Omni-Channel Investment
Since our 2014 tech spending survey effort, we’ve been asking our survey sample whether they agreed with the statement, “My company has inventory visibility across all channels.” Progress here has been slow, but that appears poised for significant change. Back in 2014, half of our survey sample agreed with the statement, just 17 percent of them strongly. This year, the overall figure increased to 55 percent agreement, and the 26 percent that strongly agreed tells us that confidence appears to be growing among them.

We found more evidence in the importance of inventory visibility when we asked our sample about their top priorities for supply chain/logistics spending in 2017. Inventory management/ visibility was the far-and-away leader of the category at 37 percent, followed by warehouse/DC management and price management at 25 percent and 26 percent, respectively.

These three leading priorities are evidence of the digital influence on modern retail. To meet customer experience expectations, retailers must be able to locate inventory anywhere in the supply chain — be it on a store shelf, in a warehouse, or on a delivery truck. To quickly and flexibly fulfill the order of that merchandise, warehouse and DC automation tools are in high demand. And to win orders in the first place, merchants are investing in price management tools to help them navigate the complex and highly competitive downward price pressure that’s arisen largely from the success of pure-play e-commerce competition.

A full 55 percent of retailers agreed with the statement, “My company is actively investing in omni-channel systems and technologies,” and nearly a quarter of them strongly agreed. If their supply chain spending plans for 2017 are any indication, we expect that figure to climb considerably in the coming year.

Coming Soon To A Store Near You
For the second year in a row, wireless networking (40 percent) and Wi-Fi (30 percent) lead retailers’ in-store software infrastructure priorities. That’s a direct reflection of the continued effort to create closer connections with consumers’ digital (mobile and e-commerce) personas. It also sets the stage for the extension of enterprise inventory data into the hands of store-level associates.

The in-store mobile hardware investment has been on the upswing for the past several years, and now merchants are building out the communications infrastructures required to put that mobile device investment to good use.

How do we know this? Consider that:

• In 2016, mobile POS devices led in-store hardware investment priorities.
• In 2015, mobile device management was tops in the instore software spending category.
• For 2017, mobile devices for store associates — not POS — topped all other intended investments for in-store hardware spending in our survey, besting mobile POS hardware and printers.

Unsurprisingly, we’re also anticipating considerable continued investment in payment processing throughout 2017. The great EMV revolution has shaped up to look more like an evolution here in the U.S., and our annual benchmark survey supports that tale. Even as merchants faced the October 2015 liability shift, we didn’t see a concerted spike in payment terminal investments. Rather, spending there has been steady as merchants methodically face the inevitable switch to EMV — the category peaked at around 30 percent in 2015 and hovered at around 20 percent in the years prior and since. Payment processing software, however, is a top-three store-level software investment priority in 2017.

Printers, a perennial leader in hardware spending, will also be a hot commodity in 2017 as more retailers are drawn to the smaller, mobile, multipurpose, and intelligent printer offerings on the market.

These mobile-enablement trends dovetail with another interesting year-over-year observation. Customer experience management/loyalty has been the top marketing and operations priority for retailers for the past three years, and it was a top-three choice for the two years prior to that. By contrast, as recently as 2011, just 30 percent of retailers had planned customer experience management investments. Merchants realize that to execute on their customer experience differentiation initiatives, software, mobile devices, and wireless networks must work congruously.

Social media and e-commerce platforms rounded out the general marketing and operations category. For more detailed analysis of those priorities, see our report on the state of e-commerce on page 12 of this issue.

Of course, for all this customer-facing — and largely mobile — technology to work, store associates will play a leading role in its execution. On the whole, merchants are relatively satisfied with the staff they have in place, especially when compared to benchmark results collected just a few years ago. Nearly 60 percent of this year’s survey sample agreed with the statement “my company has maintained adequate staff levels.” That figure has climbed steadily since 2014.

Securing A Mobile Store Environment
While mobile, digital consumers are driving innovation on the customer-facing side of retail, they’re causing a bit of a conundrum on the store security side. Asked what LP and security investments they’ll prioritize in 2017, merchants indicated that video surveillance — which was for the first time in the history of our survey dethroned as the top spending priority cited by LP/ AP professionals for 2016 — has reclaimed the top spot in the category. For the second year in a row, however, payment and mobile security made the list of security professionals’ top three concerns. Mobile device security has, in fact, been a top-three concern of the LP department since 2014, a clear response to the glut of mobile devices — many of which are deployed to conduct mobile transactions — that have flooded the market in recent years. In addition to the protection of the device investment itself, LP departments are increasingly accepting the mantle of responsibility for payment security concerns that have only ratcheted up with the groundswell of mobile POS units.

Nearly three-quarters of our survey takers agreed with the statement, “My company places an emphasis on innovative technologies and processes to increase margins and improve the customer experience.” That stated agreement doesn’t come as a surprise, but the proof, as they say, is in the pudding. If the market’s stated technology investment intentions come to fruition, 2017 will be a very innovative year indeed, and consumers will be the year’s big winners as a result.

THE PAYMENT PREDICAMENT

When we asked our survey takers about the worst decisions made in 2016 — both internally and among their peers and competitors — we received an incredibly varied response. Merchants shared their opinions on everything from curbside pickup woes to buyer’s remorse about the form factor of the handheld devices they bought and deployed en masse. What rose above the din, however, was payments-related.

Even when payments-related responses were isolated, however, the contradictory opinions we fielded paint a picture of the segment-specific importance of strategic payments decisions. Surprisingly, most merchants cited lax approaches to payment security — not much-maligned EMV adoption, as some might have expected — as the leading bad decision of 2016. In fact, investment in obsolete payment technology was a common theme, though several smaller merchants complained that chip cards have increased their costs and caused confusion among consumers. Larger merchants cited PCI compliance, with several acknowledging it as a requirement but lamenting that it’s ridiculously expensive to maintain, while one went so far as to say “we live at the whimsy of the credit card companies.” Mobile payment woes were also oft-cited, with one midsize consumer electronics executive conveying that his company’s customers “thought they were being hacked” after the company rolled out NFC (near field communication).

The payments landscape is complex and dynamic, which translates to some merchants as painful and tumultuous. As payment processing investments build in 2017, we expect to see increased outreach and collaboration among payment providers and the merchants they serve.

DRONES BE DAMNED?

Perhaps our survey attracted the most pragmatic of retail technology realists, because it revealed that few merchants are convinced drone delivery will get off the ground. In addition to asking retail pros about their best bets in retail, we asked them to share the biggest investment mistakes they’re seeing — both within their own companies and within the greater retail industry. Their passion for cloud was only surpassed by their disdain for drones. Their product delivery potential makes for some fun and exciting press, says our audience, but their adoption for use as a fulfillment mechanism is hampered by regulatory, labor, insurance, and litigation costs. Until the benefits outweigh those costs, it’s tough to find the ROI in delivery drones, no matter how cool the idea.