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The future of retail systems (IRM56)

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The future of retail systems (IRM56)
The future of retail systems (IRM56)
Fran Riseley, Deputy Managing Director, Martec International examines the impact of omnichannel on retail systems and predicts the changes ahead for retailers and vendors in 2016.

The past year has seen more systems replacement activity among our clients than at any point since Y2K; and the main reason is that their existing systems just aren’t able to support a true omnichannel customer experience. A mish-mash of “best of breed” and home grown systems amongst retailers means it is virtually impossible to run a single stock pool across all sales channels and so reduce stock holding. It also causes difficulties in achieving a single view of the customer and often a single view of the product range available to all channels, even though some products may not be stocked in every channel.

IT IN RETAIL

The use of in-house developed systems is still very high – 28% of all merchandise management systems are home grown, along with 18% of EPOS systems and 15% of ecommerce applications, according to the findings of the 2014-15 ‘IT in Retail’ report.

The average life expectancy of retail applications is very high at 10.1 years. Logistics systems are the longest lived at 14.5 years but even ecommerce systems, where the pace of change is very rapid, last on average 7.5 years.

What is changing is a dramatic increase in the reliance on cloud applications; 51% of retailers already use some cloud-based applications with a further 22% planning to do so. Mostly these are for minor, non business critical applications, but 15% of all ecommerce systems retailers use are cloud based and 2% of the top 150 retailers run all of their key applications on the cloud.

What’s fuelling omnichannel? Changes are being driven by the consumer and the prevalence of smartphones, tablets and instant connectivity of internet everywhere. The ‘New Customer Experience’ chart shows a complete omnichannel experience, or at least a dream world that most retailers are working towards to truly maximize their sales and margins.

The customer can research anywhere, buy anywhere and, if necessary, return anywhere. They achieve their objectives irrespective of where the stock is and where they are. Tools like outfit builder, menu builder, promotional incentives, gift card balances, loyalty credit and redemption are available wherever the customer chooses. This greatly improves service, convenience, loyalty and the brand experience.

FULFILMENT IS KEY

From the retailer’s perspective you achieve more sales from the same stock, even when it is not in the best place. Being able to take orders for goods which are still in transit, on the boat or plane, boosts full priced sales even further. You can strike the optimum balance between promotions, discounts and outstanding service, meaning that it’s not all about price. Many retailers recognise that true loyalty is built by outstanding customer service, rather than by loyalty programs.

Because inventory is sold where there is demand (irrespective of where the inventory is), clearance markdowns are reduced and achieved margins increased.

What this means in practice is that those retailers that really know how to do omnichannel and have the systems capability to support it, can take market share from those that don’t. Long term, they can optimize the number and location of stores they need since many retailers are finding that they don’t need as many stores as they did in the past.

When retailers started selling online there were largely only two fulfilment options, send online orders to the customer’s home or deliver to a store for collection. Now fulfilment is the new competitive area and you have to excel at this to be viable. Retailers who have well trained staff and efficient systems and processes are achieving at least a 5% increase in sales on click and collect orders and some achieve as much as a 20% sales increase.

The ‘Fulfilment’ chart shows how complex the choices have become and some retailers have almost all of them. In order to make all this work, it is now essential to have real-time visibility of inventory everywhere, and many retailers are upgrading or replacing their merchandise management or ERP systems.

When a consumer enters an order, you need to decide where to fulfil it from and this is now a complex decision. Hence you need a model to recommend how to fulfil each order based on the relevant costs and available inventory. You also need a sophisticated order management system. How well you do this will affect your clearance markdown costs.

The benefits of an integrated omnichannel systems strategy are really quite impressive. We have put together the results that some of our clients are achieving now, mostly with less than perfect systems.

■ Clientelling is no longer the preserve of luxury brands and can result in store sales increases of 7 to 14%;

■ Click and collect upselling results in 10-20% increases of the click and collect order value;

■ Internet ordering in store (through sales associate using tablets or the till) boosts store sales by 5 to 10%;

■ Outfit building applications lift store sales by 5 to 7%.

Retailers have held back on systems replacement over the last few, tough years but are starting to invest again. This is now a necessity since for those that limit their customers’ ability to research, buy and return across channels will lose market share to those retailers that can offer a better customer experience across all sales channels. There is also the risk of administration.

We predict that integrated ERP systems, rather than separate systems, will be preferred in 2016 because of the easier integration across sales channels. Cloud-based systems make it much easier to achieve real time or near real-time visibility of inventory across the business along with a complete view of the customer and the product range. In addition, cloud-based solutions can offer pricing models that avoid heavy Capex investments enabling retailers to pay a good share of the costs as they receive the benefits.

However, there will still be a lot of home-grown systems out there as some CIOs seek to keep their empire.

The vendor market will continue to concentrate with more mergers (there have been 12 in the POS market alone recently), but new start-ups and small vendors will continue to innovate and grow to compensate.

Going forward, retailers will still keep their systems for at least 8 years, a fact that few vendors ever acknowledge, but retailers with businesses to run and keep profitable understand only too well.




The following guest article has been written for InternetRetailing by Fran Riseley, Deputy Managing Director, Martec International. The article is based on the retail consultancy’s work in the sector and its ‘IT in Retail’ 2014-15 report for which it interviewed the CIOs of the leading 150 UK retailers. The company is in the process of researching the 2016 report. www.martec-international.com,  https://uk.linkedin.com/in/frances-riseley-38a122
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