Innovative Retail Technologies

MAR-APR 2017

Innovative Retail Technologies (formerly Integrated Solutions For Retailers) is the premier source for innovative yet pragmatic technology solutions in the retail industry.

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17 Mar-Apr 2017 across all channels" as their top opportunity, followed by "allowing the customer to purchase, take delivery, or return a product through the channels of their choice." These two opportunities are the operational embodiment of omni-channel and are fundamentally about process and organizational alignment to the new selling environment. However, technology can either help synchronization or get in the way, as we'll see in just a moment. But we also know from earlier in this report that winners have the strongest understanding of the notion that multichannel customers are more profitable than single-channel ones. So perhaps it shouldn't be a surprise that winners are far more concerned than others that inefficiencies in the current operational model are preventing them from turning better top-line sales driven by consumer digital behavior into better bottom-line profits (Figure 6). Average and underperformers know they're not leveraging their assets effectively enough across all the selling channels, but that doesn't translate into more specific operational concerns for the majority of them. That isn't to say that nonwinners shouldn't be concerned — they just don't seem to have gotten there yet. The reasons for that come into sharp focus when we asked about the state of omni-channel process integration across the selling channels. The differences between overperformers and everyone else couldn't be clearer: For every process we asked about, at least 50% of winners indicated that full synchronization has either been achieved or is in progress. But for average and underperformers, in only one instance did 50% of those respondents report that they had or would soon achieve full synchronization across all the selling channels. So while nonwinners might say they are focused on the competition (rather than creating a seamless shopping experience for shoppers), it certainly hasn't translated into process improvement or organizational realignment for the majority of them. Old Ways O f Doing Business, Old Technology So what's going on? When we asked retailers to identify the top inhibitors to progress, one rings out more clearly than all the others — and it's all about legacy processes and the technology that supports them. Most prominently, inventory and order management not being integrated across all the channels is the top inhibitor to progress, just as has been the case for the last five years. Everything else, although important, falls into the shadow of that problem. What's even more interesting is that 62% of winners, compared to 47% of all others, cite this as their top inhibitor. And looking at it for different verticals and different-sized companies, we see that the bigger the retailer, the more that inventory and order management not being integrated across all of their channels is a barrier. Sixty- seven percent of retailers with greater than $5 billion in top-line sales cite this as their top inhibitor, and for retailers in the $1 to $5 billion sales category, that number is almost identical — 66%. But for the $250 million to $1 billion group, the number citing it as the top challenge plummets to 35%. Fast-moving consumer goods and general merchandise retailers (who tend to be the larger operators based on the size of their inventories and top-line sales) are far more likely to indicate that inventory and order management have not been integrated across all channels than are apparel and boutique retailers (58% compared to 41%). Clearly, those retailers who have the most finely tuned processes and systems for store-centric sales are now having the greatest trouble transitioning to omni-channel sales environments. Moreover, while inventory and order management not being integrated across all channels has consistently been the top inhibitor to progress since 2012, it has actually grown as a concern. Undoubtedly, that growing concern is directly related to the growing importance of not only digital channel sales, but digital channels' influence on store sales. But it's not necessarily the case that retailers haven't been working on the dual issues of inventory visibility across all channels and omni-channel order management. We know that they have. For example, RSR's July 2016 study entitled Profitable Customer Engagement: The Unmet Promise provided us with the insight that just over half of retailers have "fully implemented" internal inventory visibility across all channels, and a similar number have made it possible for online customers to see store inventory levels. Obviously then, with over half of retailers in this study indicating that inventory and order management are still not integrated across all channels, some underlying and fundamental issues must remain. Getting Past Inhibitors What those fundamental issues are comes into focus when we asked retailers to identify ways to overcome inhibitors. Very often in RSR's various studies, retailers look for more budget or more executive guidance, or perhaps more availability of IT resources. But that's not the case here. In fact, for winners, the answer couldn't be more clear: They need to replace legacy store systems. Every retailer knows that even a relatively inexpensive in- store technology — when multiplied by the number of times it is repeated throughout the chain — quickly becomes a huge expense. Replacing a legacy POS is likely to be the single largest technology project a retailer can undertake, and that's especially true for the very large ones — the same retailers that now complain that the lack of inventory visibility across all channels and omni-channel order management are top inhibitors to success in omni-channel. But expensive or not, old in-store systems are full of leaks that can result in the perpetual inventory getting out of balance; just ask any inventory manager what they think of the N4 key still found on most store registers! Not to mention: They were never intended to be integrated in real time to upstream merchandise management systems. Essentially, this is a "garbage in/garbage out" problem; the source

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