The rules of retail are being re-written. If eCommerce was the first wave revolution in retail, a second wave revolution is now being driven by the technology-driven convergence of physical and digital and the explosion of information via social and mobile. Venture capital and private equity firms, as well as technology companies, are spotting the potential and have been quick to invest in start-ups and early-stage retail technology companies.
Customers have it easy – their buying power and ability to tap into a wealth of product and service data is constantly growing. For retailers, the challenge is far greater in choosing which technologies and which innovations to back and when.
Retailers continue to invest heavily in technology, with UK CEO's surveyed by Kurt Salmon claiming their omnichannel investment priorities for 2015 to be as follows:
- Investment in mobile (67%)
- Single view of customer (63%)
- Better leveraging of big data (54%).
Yet inside the four walls of retail head offices, little has changed in many cases since Selfridges, the first modern store, was launched; with Monday trading meetings dominated by reams of paper showing lists of best-sellers, poor sellers and stock without sales.
Outside in the high-tech space, there is a plethora of companies springing up, focusing on specific needs and targets within the retail space. Kurt Salmon looks at some examples and asks what are the hot tech trends which retail tech start-ups are capitalising on, and what retailers should do about them.
Trend 1: Using data to predict trends
In the fashion world, it has always been a challenge to know what colours and styles will sell, and which stock lines should be marked down. One fashion analytics company, Editd, founded in 2009, aggregates sales information and trends from a variety of sources including retail sites, designer runway reports, blogs and social media, and provides that to retail customers. The benefit for customers – which include ASOS, Gap and Debenhams – is in enabling retail buyers to make data-driven decisions. With ASOS claiming the software contributed to its 37% revenue increase in 2013 Q4, the business clearly has some strong credibility in the space.
Another start-up, Dressipi, aims to collate individual customer’s fashion preferences – which they call a "fashion fingerprint" - and then suggest products which are likely to suit that customer’s unique needs and preferences. While Dressipi offers a free styling service to customers on its B2B site, retailers such as Marks & Spencer, Boden and eBay have engaged Dressipi to create a white label version on their own websites. The benefits for the retailer lie in driving revenue (helping the customer to find the right products faster) and reducing returns due to the product being a better fit with customer preferences.
Trend 2: Leveraging web analytics to understand demand
The market for "big data" globally is estimated at £27bn in 2014 and is forecast to grow at 16% per annum to 2018. There is a huge amount of data "out there" on the web which could help retailers plan their ranging and merchandising. Leveraging this data for commercial gain was the premise behind Rangespan, a London-based start-up founded in 2011 by former Amazon executives. Rangespan has helped clients such as Tesco and Asda use real-time sales data (from Google, Amazon and other sources) to better predict which products will be popular with customers and to better manage supply chains. Rangespan would have been an excellent tool for retailers selling (or looking to sell) "long tail" product, but was snapped up by Google, who bought it last year for an undisclosed sum.
Trend 3: Better decisions from social data
The US’s Crimson Hexagon offers detailed analysis of a brand’s digital footprint by trawling various social media sites (including Instagram) using technology which the founder originally developed at Harvard. Brandwatch is a UK- based social media analytics company with a similar offer. Founded in 2005, it claims to mine data from 80 million different online sources and provides rich data to retailers including Argos, who used Brandwatch to gauge customer reaction to its digital stores, segmenting feedback by male versus female customers and by geographic location. Customer reviews on G2 Crowd, a software review platform, give Brandwatch a slight edge over Crimson Hexagon.
Trend 4: Physical meets digital
Customers who are so accustomed to personalised service online often have high expectations when they shop in a physical retail store. There is a whole ecosystem of companies creating solutions which help retailers provide a customised experience in-store. One example, Hoxton Analytics, at an early start-up stage, takes the traditional traffic camera used by many retailers and has adapted it to recognise customer profiles without compromising customer identity. The software works by analysing the shoes and ankles of customers in order to get an indication of their age, style preferences and demographic.
Trend 5: Changing the store
Retailers have the technology to personalise every customer’s journey, yet the in-store shopping experience has hardly changed in a century. Despite advances in technology to value the consumer and personalise the customer experience, the traditional in-store interaction remains largely detached and unchanged.
In response to this widening gap between what consumers expect and the store experience the retail and consumer goods industry provides, Kurt Salmon has spearheaded the founding of an innovation accelerator known as XRC. A joint venture with the Parsons School of Design and with the support of Harvard's iLab, it is a first of its kind; providing a design-centric innovation ecosystem for the retail and consumer goods industries. The accelerator conducts two ten-week sessions per year, uniting entrepreneurs and investors in exploring innovations to solve the biggest challenges facing the retail industry including loyalty, customer experience, personalisation and consumer insights.
So how should retailers leverage the unprecedented level of innovation coming from the tech start-up community? One interesting point is that IT spend is becoming less and less the domain of the CIO, with eCommerce and marketing taking some of the spending power from the IT function. Retailers are now spending the equivalent of 3% of their annual turnover on omnichannel alone, while IT spend remains below 1% of revenues. It's important for retailers to allow and encourage this change, in order to be able to benefit from the fast-changing tech landscape.
Retailers need to stay tuned to the start-up world and to recruit tech-savvy people who are open to change. Larger retailers may wish to become part of the ecosystem – for example by supporting innovation hubs (which John Lewis has done with JLAB, an accelerator programme bringing innovators together with the retailer).
The Kurt Salmon team writes a regular column on technology in retail for Essential Retail.
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