Most of this growth is attributed to the resurgence of the global economy after a couple of years of economic meltdown and instability in various regions across the world. However, the factors that stand out in their potential to revive and revamp the Retailing industry are emerging technologies like social media, mobility, e-commerce, big data and analytics, and cloud computing. From small startups making headlines globally to the larger retailers of the world, emerging technologies are going to drive retail in 2014.
For traditional brick-and-mortar stores, retailers are moving away from saturated markets like the U.S. or U.K. to developing regions that hold good promise. The BRIC countries are on the top of the list, however the unstable political situation in Russia (the Ukraine crisis) and government policies in India (where there is a longstanding debate about allowing foreign direct investment in retail) and have somewhat dampened the hopes for these markets. China manages to remain on top of the agenda with many international retailers after Walmart, Tesco, GAP, H&M and Zara increased their investments in the region in 2013. The FIFA World Cup in 2014 and the Summer Olympic Games in 2016 are opening the markets for increased investments in travel retail in Brazil.
Other emerging markets, as projected by AT Kearney’s Global Retail Development Index, are Chile and Uruguay, which along with Brazil take the top three spots in the Index. They are followed by Latin American countries like Peru, Colombia, Panama, and Mexico.
In more developed markets like the U.S., the impending growth in retail is going to be restrained by a string of new regulations. As U.S. employers are still grappling with the workforce challenges associated with the implementation of the Affordable Care Act, a U.S. appeals court upheld the Federal Reserve's controversial rules for debit card interchange fees. These fees are applied by the credit/debit card companies every time a customer swipes a card at a point-of-sale, and U.S.
retailers were protesting that they were too high. There have also been renewed calls to establish a federal minimum wage that would be at a level above most state minimum requirements. The U.K. government will put the Consumer Rights Directive into effect on June 13, 2014, which will affect retailers in different ways, mostly dependent on how the retailer contacts the consumers (in the store, by telephone, online, or at the consumer’s home).
In China, the government started implementing new e-commerce regulations in March 2014. The various laws are intended to increase transparency between retailers and consumers and to provide more consumer protections (for example, in return/exchange policies).
Most of these changes will affect retailers one way or another, either by causing a negative impact on their bottom lines or by complicating their business operations, governance and tax structures. But regulation won’t stop innovation, which retailers depend on to compete, and they will leverage technology to make customer interaction nonintrusive.
Source: NRF– Holiday Sales Forecast, Holiday Sales as % of Annual Sales; Historical Trends: US Census Bureau
http://research.nrffoundation.com/Default.aspx?pg=55#.VG393ofDETJ
https://nrf.com/media/press-releases/optimism-shines-national-retail-federation-forecasts-holiday-sales-increase-41
Washington, October 7, 2014 – After a turbulent start to 2014, the National Retail Federation announced today it expects sales in November and December (excluding autos, gas and restaurant sales) to increase a healthy 4.1 percent to $616.9 billion, higher than 2013’s actual 3.1 percent increase during that same time frame.
Holiday sales on average have grown 2.9 percent over the past 10 years, including 2014’s estimates, and are expected to represent approximately 19.2 percent of the retail industry’s annual sales of $3.2 trillion. This would mark the first time since 2011 that holiday sales would increase more than 4 percent.
“Retailers could see a welcome boost in holiday shopping, giving some companies the shot in the arm they need after a volatile first half of the year and an uneventful summer,” said NRF President and CEO Matthew Shay. “While expectations for sales growth are upbeat, it goes without saying there still remains some uneasiness and anxiety among consumers when it comes to their purchase decisions. The lagging economic recovery, though improving, is still top of mind for many Americans.
“Recognizing the need to keep household budgets in line, we expect shoppers will be extremely price sensitive as they have been for quite some time. Retailers will respond by differentiating themselves and touting price, value and exclusivity,” continued Shay.
Source: Gartner IT Key Metrics Data (December 2013)
Many retailers are focusing heavily on finding the right balance between their physical and online channels. They seek the right product assortments and marketing mix to reach their target customers. This focus has put the retailing industry at the forefront of online and mobile marketing, which places pressure on retailers large and small to develop and execute digital strategies. Retailing is a leading industry for social, mobile, and analytics adoption, but it will still welcome innovations proposed by service providers.
Retailing clients generally want to minimize dependence on labor and drive as much cost as possible out of operations. Retailers demand a high degree of automation in outsourced service solutions. Service providers need to offer solutions for implementing changes or system enhancements quickly and with no disruption to online operations. The solutions need to provide a strong release management procedure, robust change management policies and procedures, a strong test environment, and solid testing and implementation plans.
ISG advises service providers targeting the Retailing vertical to customize solutions to customer opportunities; develop strong analytics competency; incorporate elements of analytics, mobility and social media into solutions; and be able to demonstrate leadership and value in those areas.
Until a few years ago, e- commerce operated as if it were on the edges of the retail enterprise, somewhat similar to a surprisingly successful startup or large pilot program. The revenue generated by e-commerce in this view was thought of as addi- tive to the core business but not really part of the core itself. This mentality also extended to how e-commerce technology fit into the tech stack.
But those days are rapidly draw- ing to a close. A number of retailers recently reported 50% year-over- year increases in online revenue capping several years of double digit growth. When revenue figures travel an upward arc like this they begin to attract serious attention and so do the efforts to more closely integrate digital channels into the core business.
When we examine this trend over the last two years we see that sig- nificant progress has been made in e-commerce maturity and mobile channel development.
The U.S. Census has released official retail sales data for the year 2012, allowing us to see how big an impact e-commerce is having on different industries.
Media, sporting, and hobby goods is still the top e-commerce category. This category includes digital media, such as music, movies, and books that people download to their computers, e-readers, tablets, and phones.
More than 38% of all media, sporting, and hobby goods sales occurred online in 2012, compared to 33.7% in 2011.
Meanwhile, e-commerce penetration of the electronics and appliances industry is stalling. A 23.3% share of sales in this category occurred online in 2012, which is up just slightly from 22.5% in 2011.
We do believe that there is a ceiling to the percentage of sales in the electronics category that will occur online in the future. Appliances are expensive to ship because of their weight, and many consumers want to take pricey devices for a test run before making a purchase. This could be what's driving Apple, Samsung, and Google to expand their physical retail footprint.
Meanwhile, e-commerce continues to grow its share of sales in the furniture and fashion industries at a fairly steady rate, compared to years past. E-commerce accounted for 17.2% of total furniture sales in 2012, compared to 15.6% in 2011. E-commerce fashion sales rose to a 14.9% share in 2012, compared to 13.2% in 2011.
In the health and personal care category, online sales gained momentum. Between 2010 and 2011, e-commerce grew its share of the category by less than half a percentage point, to 4.3%. Between 2011 and 2012, that share grew by one full percentage point, to 5.3%.
Less than 1% of food and beverage sales occurred online in 2012, still the lowest of any industry. Consumers have proven fairly ambivalent toward buying food and beverages online, but that could begin to change thanks to convenient food delivery services such as Seamless.
The U.S. Census has released official retail sales data for the year 2012, allowing us to see how big an impact e-commerce is having on different industries.
Media, sporting, and hobby goods is still the top e-commerce category. This category includes digital media, such as music, movies, and books that people download to their computers, e-readers, tablets, and phones.
More than 38% of all media, sporting, and hobby goods sales occurred online in 2012, compared to 33.7% in 2011.
Meanwhile, e-commerce penetration of the electronics and appliances industry is stalling. A 23.3% share of sales in this category occurred online in 2012, which is up just slightly from 22.5% in 2011.
We do believe that there is a ceiling to the percentage of sales in the electronics category that will occur online in the future. Appliances are expensive to ship because of their weight, and many consumers want to take pricey devices for a test run before making a purchase. This could be what's driving Apple, Samsung, and Google to expand their physical retail footprint.
Meanwhile, e-commerce continues to grow its share of sales in the furniture and fashion industries at a fairly steady rate, compared to years past. E-commerce accounted for 17.2% of total furniture sales in 2012, compared to 15.6% in 2011. E-commerce fashion sales rose to a 14.9% share in 2012, compared to 13.2% in 2011.
In the health and personal care category, online sales gained momentum. Between 2010 and 2011, e-commerce grew its share of the category by less than half a percentage point, to 4.3%. Between 2011 and 2012, that share grew by one full percentage point, to 5.3%.
Less than 1% of food and beverage sales occurred online in 2012, still the lowest of any industry. Consumers have proven fairly ambivalent toward buying food and beverages online, but that could begin to change thanks to convenient food delivery services such as Seamless.
Let’s be clear about this. In my opinion retailers have always been extremely innovative. That’s the main reason the industry has so many home-grown systems. Retail- ers historically were not satisfied with the functionality of packaged applications and chose to develop their own software. This was abso- lutely the right decision at the time.
The challenge now is that when former cutting-edge functionality gets old it can be a roadblock inhibit- ing the ability to develop cross-chan- nel capability. This roadblock leads to a search for solutions and into the mix of options retailers discover the transformative power of the Cloud.
With Cloud capabilities, formerly conservative adopters of technol- ogy have the ability to jump forward and end up with a 21st century infra- structure, which is both more nimble and more cross-channel enabled. And this is possible to achieve at a lower cost to operate.
This possibility suddenly opens up new options and also raises ad- ditional questions, such as: Do Cloud investments come first or should
Mobile be first? How do we harvest real insights out of the Information we’ve warehoused for so many years? And where does Social fit into the puzzle?
The answers to these questions will dictate retail success in 2013 and beyond. Welcome to the Nexus and good luck.
major action items
Mobility has moved to the main- stream or forefront of retail strategy, which is no surprise because it’s been buzzed about for several years. But this year’s data indicates we are now seeing real adoption. The hype is gone, the reality is here, and retail- ers are moving forward aggressively with mobility as a key strategy.
ocial media slipped down on the priority list of major action items this year from the top perch to fifth. But that’s not a bad thing. We are still quite early in the serious adop- tion phase and I expect it will rise higher as the Chief Marketing Offi- cer continues the digitization of re- tail marketing budgets.
The rise of the CMO is clearly evidenced in the 14% of the respon- dents who have made a top priority out of providing marketing depart- ments with advanced IT tools. Some retail IT departments could see this rise as a new competitor for scarce budget resources. That would be a mistake. I believe it’s critical for the CIO to lead the charge in empow- ering marketing with the tools for cross-channel success.
One way to track e-commerce ma- turity is to check the upgrade status of the e-commerce platform, the basic building block of online retailing. If re- tailers are steadily investing in e-com- merce capabilities we would expect to see signs of maturity emerge in upgrade status over time, and we do.
Last year, for example, 16.9% of retailers said they don’t have an e- commerce platform and this year the number drops to 14.2%. Even more
dramatic is the number of retailers who say they have replatformed with- in the last two years and therefore have up-to-date technology – 27.4% this year compared to 18.3% last year.
In the mobile channel we can see that progress is moving steadily for- ward, but not at a brisk pace. The reason for the measured pace is that current sales volumes in the mo-
bile channel are still low compared to overall sales. Where we see the most activity is the datapoint for pilots in progress – 28.3% this year compared to 24.1% in 2012.
Although many in retail have dubbed 2013 the year mobility be- comes a reality, it is also true that it will take several years before it fully enters the retail mainstream. •
Source: Gartner IT Key Metrics Data (December 2013)
Source: Gartner IT Key Metrics Data (December 2013)
Source: Gartner IT Key Metrics Data (December 2013)
Source: Gartner IT Key Metrics Data (December 2013)
Source: Gartner IT Key Metrics Data (December 2013)
Source: Gartner IT Key Metrics Data (December 2013)
Pivot Table: Worldwide Retail IT Spending Guide, Version 1, 2013, IDC, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/0F89352C028BE37B85257D8F0068650A
2014 IT Budget Dynamics in Western European Retail, IDC, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/BFBA66C4656EAA9985257CCB0062E93B
Best Practices: Retail 2013Investment Guide, IDC, 2013
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/4786792E1D94595C85257C0C0062E85F
IT Customer Strategy Consulting in the Retail Industry, Kennedy Information, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/33FD8F8077F71F6800257D5400539F53
Trends in Retail:
Retail & Wholesale - Market InBrief –US, PAC, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/EBBB0858B945E3CF85257C7E0046F80C
IDC FutureScape: Worldwide IDC Retail Insights 2015 Predictions It's All About Participation Now, IDC, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/EF877C80E899196D85257D8F006861D1
Worldwide Retail 2014 Top 10 Predictions: Retail Reinvents Itself for Relationship, Relevance, and Reciprocity, IDC, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/443D178C8B77EB5E85257C5A00686158
Global Trends and Forecasts 2014, Planet Retail, 2014
https://w3-03.sso.ibm.com/marketing/mi/mihome.nsf/ContentDocs/_BE6FE4FA69A5254900257C8D00799F09
The State Of Retailing Online: Key Metrics And Initiatives 2014, Forrester, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/C6EC4524E3D3FCFC00257D15002C81F0
2014 Top 10 Emerging Agenda Predictions for Retailers, IDC, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/FF907242FB9A522885257C5C00686429
CAMS in Retail:
Business Strategy: IDC Maturity Model Benchmark —Big Data and Analytics in Retail in North America, IDC, 2014
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/03DAC4CE6EAE225285257C7C00686791
Social Business and Western European Retailers: The Road to Revenue Generation, IDC, 2013
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/F6B07DC12E00F82D85257C480068672B
Methods and Practices: Cloud in Retail, IDC, 2013
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/6BCBEC0E8331B02C85257BFF0058AE26
Perspective: Social in Retail —Increasing Adoption for the Customer, IDC, 2013
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/7CB59BD6A0DE5B7D85257BFF0058A6F1
Business Strategy: Retail Mobile Enterprise Security —Striking a Balance between Usability and Risk in Retail, IDC, 2013
https://w3-03.sso.ibm.com/marketing/mi/compdlib.nsf/weball/9C89AA6AB94F832285257C2C0068654E
Big Data in Retail, Frost & Sullivan, 2014
