Analyst Corner

Surprising Technology Leading Transformation of Stores

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Smart retailers are re-investing in technology for their stores at a massive rate according to the latest research from IHL Group called “Rise of the Digital Store – How Digital Orders Are Transforming Store Operations” released today.  Leading the way is the adoption of Microservices Architecture design which is expected to grow in adoption by 750% over the next two years.

“Leading retailers understand that to properly compete with Amazon they must turn their stores into an advantage for fulfillment of online orders,” said Greg Buzek, President of retail analyst firm IHL Group.  “The speed that consumers have adopted digital orders that have a store component like Click and Collect, Ship from Store, and Return to Store for Online Orders is much greater than any retailer was truly prepared to do profitably. Much of the investment being made at the store level is related to recapturing the 3-8 points of operating margin they are losing over traditional walk-in sales due to inefficiency in technology and process around these orders.”

IHL surveyed over 300 major retail brands about their priorities for technology investment for 2020-2021.  Despite the many headlines on specific retailers closing their stores, the industry is projected to increase store counts by 4% in 2020 and store remodels are planned to be up 3.4% over 2019 levels.  Retailer leaders (10% or more sales growth) are growing technology spending over 300% faster (as a percentage of revenue) than average retailers.  There are “haves” and “have nots” in retail when it comes to technology those investments are translating into retail operational success.  Retail Leaders are not only racing ahead in technology, they are growing that lead with each year through further investment.

Key findings of the research include the following:

* While 2020 looks to be a strong year for POS and many traditional technologies, the greatest area of growth over the next two years is in specific emerging technologies such as Microservices Architecture (+750%), Edge Computing (+460%) and support for Conversational Commerce (+450%).
* Leaders have different priorities.  Where average retailers are still playing catch up on key priorities towards getting to a single view of the customer, single view of the inventory data and personalizing the customer journey, leaders (who have mostly completed these tasks) are focusing on the transformational technologies that allow for profitability on store fulfillment of online orders.  They are investing in new POS architecture (leveraging microservices and rethinking the POS Concept) at over 400% higher rates and updating store communications at a rate 128% higher.

* Artificial Intelligence and Machine Learning (AI/ML) is on the minds of all retailers, starting with general operational areas like forecasting where 52% expect to have AI/ML deployed in two years.  However, Leaders are employing the technology further in core Business Intelligence and Analytics that can be accessed at all levels of their organization.

Rise of the Digital Store tracks traditional purchase plans for store technologies, top strategic priorities, timing for deploying emerging technologies and the margin impact of digital shopping journeys and the benefits of optimization.  The research is available immediately.

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