Article

Ten retail IT predictions for 2010

At the heart of the coming year is a focus on the "new shopper."

March 4, 2010

By Leslie Hand, research director, IDC Retail Insights

In last year's predictions, we discussed an industry that was bracing for a difficult year. We also posited that the economic difficulties would create an environment for fundamental change in the industry, forever changing how the industry approached their business, with a particular emphasis on winning the new retail reality through an improved, technology-enabled approach to customer experience. This is exactly what happened. Information technology really proved its value in the crisis, enabling informed responses to industry conditions, ushering in an industry reset for a new economic reality.

2009 will forever be remembered as the year consumers put their credit cards back in their wallets and altered buying habits seemingly in the blink of an eye, in the wake of bank failures, high unemployment and a housing market collapse. Retail market growth practically stalled after more than a dozen years of phenomenal growth. Retailers reacted, adjusted and recalibrated, relying on technology to shore up margins, reduce inventories and attract new customers. The more quickly retailers were able to respond with these actions, the better they held margins even as same store sales declined for many.

Our top 10 predictions for 2010 are centered on this new reality. At its heart is a new shopper, requiring a new level of competency in retail execution, with information technology as its core, to effectively serve this new shopper and be successful. IDC Retail Insights has identified four pillars of the new retail industry:

Informed consumers. Shell-shocked shoppers have permanently moved from impulse to information. Understanding how to provide customers with information — product recommendations, brand owner Web sites, price comparison services and social networks — will be key to understanding how to make the right offer for the right product at the right time and price.
Immersive experiences.We have written extensively this past year on precision retailing and adapting the retail brand to relevant experiences for the informed consumer. Understanding the omni-channel shopper and creating new levels of loyalty is another critical success factor.
Integrated merchandising. The value-buying habits of the informed consumer make store brands and private labels an important element of profitable assortments. Linking product specification to direct sourcing and then integrating that activity with the sourcing of branded products and a single demand intelligence platform is the foundation on which immersive experiences for informed consumers will be built.
Instrumented execution. What never changes in retail is the requirement that execution be consistent at the front lines — in the store, on the Web and within the call center. However, successful retailers will not simply hire new associates to assure this consistency. Rather, a more economical approach will be to continue to instrument processes for more dense and timely data acquisition. This instrumentation takes the form of sensors like item-level RFID tagging in apparel or temperature sensors on perishable food items. The instrumented processes will be complemented by more advanced mechanisms for assigning tasks to associates for performing the detailed tasks.

IDC Retail Insights 2010 Top 10 Predictions

Retailers will seek growth strategies based on "same shopper" sales and first-time buyers.
Retailers will launch aggressive technology investment programs to support new business models while reducing traditional IT costs.
Retailers will extract more value from their supply chains, responding adeptly to customer, supplier, and regulatory influences.
The devil is in the details — retailers will find heaven where information informs intelligent automation.
Retailers will focus on customer experience solutions convergence.
Retailers will drive mobile consumer interaction — entering the open shopping era.
Retailers will focus on building customer intimacy and loyalty while improving brand performance.
Retail investments in demand intelligence and BI are driven by a need to lower inventory costs and be more customer centric.
Retailers will build sustainable lean retail enterprises.
Traditional retailers are on the Titanic; the approaching iceberg is online social commerce.

Essential Guidance

We recommend that retailers synchronize their technology spending with the substantial business opportunity that is available to global retailers. The program should have four key tenets:

Reduce base IT spending by at least 20% in five years. Savings should come from infrastructure, back office, and internal support organizations. The savings generated should at least partially fund new initiatives to improve the customer experience.
Build an information foundation based on a retail demand intelligence platform. In the intelligent economy, all retail activities such as merchandising, pricing, promotions, and store layouts must be defined by a deep understanding of customer preferences and behaviors. Retailers should invest in a unified demand intelligence platform that will be the single source of truth for information-based decision making.
Aggressively increase investment in immersive consumer experiences to serve omni-channel shoppers. This includes applying in-store technologies, improved call center capabilities, richer Web content and greater reach through mobile commerce. The important thing to keep in mind, in addition to driving activity off of a single demand intelligence platform, is that a good portion of the customer base will not only use multiple channels but use multiple channels simultaneously. The experience must be immersive so that it fits a shopper's circumstances, rather than impulsive to fit a shopper's urges.
Integrate merchandising, sourcing, and logistics to enable flexible demand response and optimal cost structures. The immersive experience is lost if fundamentals of merchandising and fulfillment aren't world class. Invest in product management, sourcing, and logistics software (and make sure they are integrated with the commerce systems) to support higher consumer expectations particularly if you have considerable initiatives around private label and store brands.

With these four pillars in place, retail IT organizations can elevate technology from keeping score to driving profitable growth. A forever changed consumer in the intelligent economy will be best served by informed, intelligent retailers.