TECH TRENDS STUDY - RIS News

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TECH TRENDS STUDY - RIS News

SMB

A SUPPLEMENT TO RIS NEWS AUGUST 2006

TECH TRENDS STUDY

BENCHMARKING IT PRIORITIES, CHALLENGES

AND STRATEGIES FOR MID-SIZED RETAILERS

Presented By


2006

SMB TECH TRENDS STUDY

SMB

TECH TRENDS STUDY

BENCHMARKING IT PRIORITIES, CHALLENGES AND STRATEGIES FOR MID-SIZED RETAILERS

BY JOE SKORUPA, GROUP EDITOR-IN-CHIEF ■ ADAM BLAIR, SPECIAL PROJECTS EDITOR

The rich are different than you and me, said

F. Scott Fitzgerald in the last century. Yes, they

have more money, Ernest Hemingway famously

responded. Differences among retailers by revenue

category can inspire a similar dialogue.

Gartner, our research partner in the 2006 RIS Retail

Technology Study, views Tier 1 retailers as having revenue

greater than $1 billion. This makes them rich in revenue compared

to small-to-midsized (SMB) retailers, which have revenue

between $50 million and $1 billion.

Agreeing with Fitzgerald, we can say Tier 1 retailers possess

advantages beyond simple revenue, such as economies of

scale and deep resources. And they can use these advantages

to dominate competitors and invest in advanced technologies

that keep them well ahead of the curve. Large retailers lead the

market by aggressively pursuing a well crafted business plan

and forcing smaller competitors to follow.

But mid-sized retailers follow market leaders at their own

peril. Breakthrough retailers must be innovators, not followers.

They must work hard at delivering unique shopping

experiences and outstanding value propositions that others

can’t match.

Still, with a nod to Hemingway, all retailers, whether large

or small, face the same fiercely competitive market forces,

including but not limited to thinning margins, rising customer

expectations, high staff turnover, new sales channels, globalization,

and many others.

So, who is right, Fitzgerald or Hemingway This study

explores what it means to be a mid-sized retailer competing

against giants on one end of the spectrum and the

mom-and-pops on the other. Size matters, but how much

and in what ways

WHAT CUSTOMER-FOCUSED TOOLS AND

STRATEGIES ARE KEY ACTION POINTS FOR YOUR

ORGANIZATION OVER THE NEXT 18 MONTHS

Best pricing

Multi-channel

consistency

Convenience

Advanced

loyalty programs

In-store

tracking analysis

Customer

intelligence analysis

Targeted promotions

Speed through checkout

Providing associates

with better tools

0 10 20 30 40 50 60

All Retailers

20%

18%

20%

25%

23%

25%

31%

29%

26%

34%

37%

35%

SMB

39%

41%

43%

46%

43%

54%

Group Editor-in-Chief

Joe Skorupa

Creative Director

Colette Magliaro

Publisher

Catherine J. Marder

Sales Associate

Scott valenz

Special Projects Editor

Adam Blair

Chief Analyst

Jeff Roster, Gartner

Associate Publisher

Marc Millstein

Production Director

Patricia Wisser

Managing Editor

Debbie Hauss

Senior Editor

Carly Lombardo-Bohach

Contributing Analysts

Hung LeHong, Gartner

Andrew White, Gartner

Account Manager

Sal LoSauro

Production Manager

Maggie Hall

2 AUGUST 2006


2006

SMB TECH TRENDS STUDY

LOOKING OUT OVER THE NEXT THREE YEARS,

WHAT ARE YOUR TOP CONCERNS/CHALLENGES

Real time visibility

throughout the

organization

High staff turnover

Capital constraints

Store level

IT investment

Meeting high

customer expectations

All Retailers

30%

34%

32%

SMB

40%

39%

45%

43%

46%

0 10 20 30 40 50 60

TACTICS TRUMP STRATEGY ACTION ITEMS

55%

60%

The scope of the 16 th Annual Retail Technology Study, which

was published by RIS in June, is an overview of the entire

retail industry, examining the business drivers and IT investment

plans of CIOs. To get this overview, 155 retailers were

surveyed across all revenue categories and market segments.

The following datapoints are the result of a cross-tab

analysis of this broad and deep data pool focusing on the 30%

of respondents with revenue between $50 million and $1 billion.

By looking at the SMB slice, we can see how differences

and similarities play out in specific strategies, tactics, investment

plans and technologies.

A good example can be found in the chart that answers

the question: What customer-focused technologies are key

action items over the next 18 months Mid-sized retailers

chose Providing Associates with Better Tools as their top

priority, which is the same as the overall industry. Observes

Jeff Roster, Gartner research vice president and this study’s

chief analyst, “This is what you would expect to see if retailers

are serious about implementing tactical tools to execute

customer-centricity plans.”

But priorities diverge sharply in several areas on the list

beginning with the second ranked item — Speed Through

Checkout. Since POS hardware and software are essentially a

subset of Providing Associates with Better Tools, increased

speed at checkout makes sense as a complementary tactic.

Therefore, it is not surprising that this action item is near the

top of the list. For the overall industry, however, Speed

Through Checkout only made it to the number four slot,

probably because the rampant POS refresh, which enables

increased checkout speed, began with larger merchants first

and then spread to other segments. Upgrading POS is a huge

expense, and mid-sized retailers will get to it when time and

budget allow.

Most priorities on this chart are similar for all revenue categories,

which means that items like Targeted Promotions

(third on the list) and Customer Intelligence Analysis (fourth)

demonstrate that mid-sized retailers are ready to build on

“earlier investments in data warehouses and customer intelligence

analysis to achieve new strategic benefits,” says Roster.

Overall, mid-sized retailers are actively investing in both

the strategic and operational tools to improve the shopping

experience, and, in many cases, they are able to produce specific

outcomes based on earlier investments.

CHALLENGES AND BUDGETS

An examination of challenges and budget projections in the

mid-sized segment parallels findings in the overall study —

with one exception, which we will go into later. Let’s tackle

parallels first and differences second.

The upward trend in IT spending continues in retailing,

for both the overall industry and mid-sized retailers.

According to the data, the breakdown of mid-sized budget

plans for IT in the coming year is nearly a mirror image of

the industry as a whole. This is an important finding that

COMPARING 2006 BUDGET TO 2005

>10% decrease

5 to 9.9% decrease

1 to 4.9% decrease

Flat

1 to 4.9% increase

5 to 9.9% increase

>10% increase

6%

3%

3%

0%

5%

6%

11%

11%

11%

14%

0 10 20 30 40 50

All Retailers

23%

26%

SMB

41%

40%

AUGUST 2006 3


2006

SMB TECH TRENDS STUDY

Frequent shopper/

loyalty program 18%

Customer data

access for associates

Multi-channel

integration to the store

In-store pick-up

STORE-LEVEL CRM

9%

26%

24%

15%

9% 9%

15%

9% 9% 12%

3% 15%

30%

0 10 20 30 40 50 60 70 80

Up-to-date technology in place

18%

Started but not finished major technology upgrade

Will start major tech upgrade this year

Will start major tech upgrade within 2 years

confirms how firmly IT is embedded in the corporate fabric of

retail. It also confirms that retailers are in the midst of a multiyear

growth cycle, and when revenue rises so do line items

pegged to a percentage of revenue.

For these reasons, only 9% of mid-sized respondents

report a decrease in future IT spending. For the overall industry,

this figure is higher at 14%, so it can be said that within the

mid-sized category retailers on an individual basis are actually

spending more than the industry as a whole. This can be

accounted for by the fact that many mid-sized retailers, who

are not typically first responders to new technologies, are in

the process of catching up.

The big exception, which was alluded to above, occurs in

the chart Top Challenges Over the Next Three Years. Here,

mid-sized retailers and the industry as a whole chose Meeting

High Customer Expectations as the top-ranked challenge.

Since achieving high customer expectations is the Holy Grail

of retailing, this finding isn’t much of a surprise.

The surprise comes with the number two challenge on the

chart. For the overall industry it is Real-Time Visibility

Throughout the Organization, which rose dramatically from

2005 to 2006. But for mid-sized retailers, this concern is much

farther down the list at number five. Why the discrepancy

For starters, real-time visibility isn’t a technology. It’s a

transformation. It requires a tremendous commitment by

retailers to change important aspects of the company across

multiple departments and processes. “When fully executed it

will most likely touch every corner of the organization,” says

Roster. “Many mid-sized retailers are more focused on tactics

and point solutions than large, strategic transformations.”

Also, real-time visibility requires upgrading infrastructure

6%

and legacy systems, which means these areas must be taken

care of first before layering on more advanced systems.

Many mid-sized retailers aren’t yet ready for Real-Time

Visibility Throughout the Organization and instead are

focusing on Store-Level IT Investment, which came in second

on the challenges list. It’s also worth noting that Capital

Constraints scored much higher among mid-sized retailers

than for the industry as a whole, which is another reason

why a complex system like real-time visibility appears

lower on the list.

TRANSLATING CUSTOMER DATA

INTO STORE-LEVEL OFFERINGS

Retailers of all sizes recognize that maintaining a laser-sharp

focus on their customers is crucial to continued success, if not

to actual survival. No retailer can afford to take customers for

granted, and among mid-sized retailers, inspiring — and

maintaining — customer loyalty is an even more important

survival strategy than it is among the entire retail market.

In many respects, the tools that mid-sized retailers use to

increase their customer-centricity focus are similar to those

used throughout the retail landscape. Topping the list of storelevel

CRM initiatives are Frequent Shopper/Loyalty

Programs, with study datapoints indicating steady ongoing

adoption and investment — what one would expect for a

mature technology.

Mid-sized retailers are also focusing on their ability to take

customer data and turn it into information that associates can

use, with 26% of respondents indicating they have up-to-date

technology in place for providing Customer Data Access for

Associates. These retailers are also recognizing the impor-

Spreadsheet

Legacy database

reporting tool

WHAT TOOLS DOES YOUR COMPANY

USE FOR ANALYTICS

Internally built

BI workbench

Packaged BI

workbench

17%

40%

57%

9%

11% 9% 17%

20% 17% 3% 9%

0 10 20 30 40 50 60 70 80

Up-to-date technology in place

17%

11% 6%

Started but not finished major technology upgrade

Will start major tech upgrade this year

Will start major tech upgrade within 2 years

6%

4 AUGUST 2006


2006

SMB TECH TRENDS STUDY

tance of providing customers with one of the basics of multichannel

retailing — the ability to pick up items in the store

that were purchased online or through a catalog. This seemingly

simple process actually requires fairly complex interactions

among a range of both store- and enterprise-level systems,

so it’s impressive that 24% of mid-sized retailers

already have up-to-date technology in place to support this

customer service.

When it comes to more extensive levels of multi-channel

integration, mid-sized retailers recognize its importance, but

their corporate strategies have pushed investment further into

the future than the retail market as a whole. In the area of

Multi-Channel Integration to the Store, only 18% of mid-sized

retailers have up-to-date technology in place or have started a

major tech upgrade this year — but a full 39% plan to upgrade

in this area within the next two years.

CUSTOMER ANALYTICS MAKE SLOW

BUT STEADY PROGRESS

A key element in customer-centricity lies in a retailer’s ability

to not only gather crucial data but to apply sophisticated analytical

tools to it — in other words, to turn data into business

intelligence. Mid-sized retailers are relying on a mix of traditional

and newer tools to raise their BI profiles.

As with the retail market as a whole, the venerable

Spreadsheet is well-supported in the mid-sized area, with 57%

claiming up-to-date technology in this area — not surprising,

since spreadsheet software comes loaded on just about every

business-grade PC. What’s impossible to determine is how

these spreadsheet applications are being used and how heavily

they are being relied on as reporting tools. In any case, the

future doesn’t seem bright for the spreadsheet’s role as an

enterprise reporting tool: only 6% of mid-sized respondents

indicate they will start a major upgrade of this technology this

year, and none have plans for two years out.

Mid-sized retailers indicate a stronger reliance on Legacy

Database Reporting Tools than the retail market as a whole,

with a full 40% indicating up-to-date technology in this area

(compared to 28% among the full market). With 20% reporting

up-to-date technology in place for Packaged BI Workbenches,

mid-sized retailers also lead the industry as a whole (16%).

Still, as Hung LeHong, Gartner research vice president

notes, “Retailers still need to figure out how to leverage customer

data in the store and for merchandising. Although

strengthening, it is fair to ask of all segments in retailing, if

technology is not helping turn data into information, then

what is this data for”

STICKING TO BASICS WITH POS

As with the entire retail marketplace, the mid-sized segment

continues to show strong current investment in both POS

hardware and software, with 29% (POS hardware) and 24%

(POS software) of mid-sized respondents having already

AT WHAT STAGE IS YOUR COMPANY’S POS

POS hardware

POS software

Wireless POS terminals

Self-checkout terminals

26%

26% 24% 9% 26%

9% 12% 6% 12%

6% 9%

6%

6%

29%

0 20 40 60 80 100

Up-to-date technology in place

21%

Started but not finished major technology upgrade

Will start major tech upgrade this year

Will start major tech upgrade within 2 years

started a major tech upgrade in these areas.

While the respondents to the full study indicated what

appear to be diminishing levels of interest in the years ahead,

the mid-market respondents have strong future investment

plans in these areas. This can be considered a confirming data

point that indicates the mid-sized segment follows (rather

than leads) the industry as a whole. Essentially, mid-sized

retailers need to make future plans to match POS upgrade

plans already under way or completed by other segments in

retailing, especially among larger merchants.

Mid-market respondents planning to start a major tech

upgrade within two years in POS hardware (21%) and POS

software (26%) outpace the full retail market, which had 11%

and 15% of respondents respectively in this time frame,

because they need to play catch-up.

LEVERAGING STORE-LEVEL INVESTMENTS

In line with the overall retail market’s interest in increasingly

sophisticated store-level supply chain improvements, midsized

retailers indicate both a current embrace and future

investment plans for all store operations tools on our list.

Direct Store Delivery has been a part of the in-store supply

chain for many years, and some retailers have achieved significant

benefits by fine-tuning this system. According to the survey,

up-to-date technology in place in the mid-sized segment

(29%) virtually matches that of the industry as a whole (30%),

although plans two years out are nearly double for the midsized

segment.

Store Manager Workbenches are another tool that offers

the promise of bottom-line improvements. If retailers can provide

store managers with critical information quickly, and

9%

AUGUST 2006 5


2006

SMB TECH TRENDS STUDY

Computer

assisted ordering

Perpetual

store inventory

Direct store delivery

WHAT IS THE STATUS OF YOUR

STORE OPERATIONS SYSTEMS

Store manager

workbench

30%

36%

29%

21%

15%

18%

15%

18%

6%

6% 12%

15% 15% 15%

0 10 20 30 40 50 60 70 80

Up-to-date technology in place

6%

18%

Started but not finished major technology upgrade

Will start major tech upgrade this year

Will start major tech upgrade within 2 years

are a variety of technologies supporting the range of activities

involved in this complex process. For mid-sized retailers, Item

Management and Inventory Management top the list of up-todate

technologies in place, at 35% and 32% respectively.

Despite this high level, future investment plans are also

stronger than the industry as a whole, especially in inventory

management. This indicates that mid-sized retailers are focusing

on their largest capital expense — inventory — as a pathway

to improve their businesses.

Plans for Allocation and Category Management pretty

much mirror the industry as a whole, except for future plans

where mid-sized retailers blow away the rest of the industry

in levels of future interest, especially for allocation, one of the

pillars of successful merchandising.

Price/Revenue Optimization, which has appeared on the

retailer radar screen in recent years as an emerging technology,

is making inroads into the mid-sized segment at the same

pace as the industry as a whole. Although still a young technology,

price optimization has quickly proven its worth and is

rapidly spreading through retail.

Overall, mid-sized retailers’ future investment plans outstrip

those of the overall retail market in nearly every mer-

present it in an easy-to-understand format, managers will be

able to make better decisions — and to make them faster — in

order to address critical problems or take advantage of fastmoving

opportunities. In this area, mid-sized retailers are virtually

in line with the industry as a whole in all investment

planning timeframes.

There are also significant levels of interest in such sophisticated

technologies as Perpetual Store Inventory and

Computer Assisted Ordering, which would allow mid-sized

retailers to take advantage of previous investments in network

infrastructure and supply chain management. In these

areas, mid-sized retailers lead the industry as a whole in

both up-to-date technology in place and in future investment

plans. No doubt they recognize the need to focus on

store-level systems to maintain high in-stock levels and

improve ordering efficiency to both increase sales and keep

the customer experience positive.

“As retailers increasingly focus on the customer experience

and maximizing investments at the store level,” says Roster,

“these technologies will continue to show significant levels of

investment.”

Inventory

management

Forecasting

Category

management

Price/revenue

optimization

Item

management

Allocation

Assortment

planning

Shelf &

space planning

WHAT IS THE STATUS OF YOUR

MERCHANDISING SYSTEMS

12%

32%

18% 15% 26%

15% 21%

33%

24% 18%

15%

18% 12% 18% 21%

26%

35%

9% 12%

18%

12%

12%

11%

12%

12%

17%

12%

36%

18%

15%

15%

26%

MERCHANDISING: FUTURE INVESTMENT

FOR A CRUCIAL CATEGORY

There’s no doubt merchandising is a defining — possibly the

defining — business process for retailers. Finding the product

mix that is right for a retailer’s store, Web site or catalog, and

then making sure it’s presented in a way that will appeal to the

customer, is the foundation of retailing.

Given merchandising’s importance, it’s no wonder there

Promotion

management

12% 12% 9% 27%

0 20 40 60 80 100

Up-to-date technology in place

Started but not finished major technology upgrade

Will start major tech upgrade this year

Will start major tech upgrade within 2 years

6 AUGUST 2006


2006

SMB TECH TRENDS STUDY

Order management

systems 24%

Warehouse

management systems

WHAT IS THE STATUS OF YOUR

SUPPLY CHAIN SYSTEMS

23%

21%

11% 6%

Transportation

management systems

Supply chain

inventory visibility

6% 12%

20%

21%

17% 3% 9%

Logistics

management systems

12% 6% 6% 18%

RFID 6% 6% 21%

3% 15%

20%

0 10 20 30 40 50 60 70 80

Up-to-date technology in place

Started but not finished major technology upgrade

Will start major tech upgrade this year

Will start major tech upgrade within 2 years

chandising technology category. These retailers realize the

importance of these technologies and the necessity of catching

up with larger retailers who have already achieved competitive

advantages in this area.

IMPROVING SUPPLY CHAIN VISIBILITY

REMAINS A KEY GOAL

Some people speak about the supply chain as if it were a single

entity or an uninterrupted train of processes, when in truth

it involves a large number of functions that overlap, intersect

and hopefully interact smoothly. Because of the supply chain’s

complexity, the goal of increasing Inventory Visibility is a

strong one among retail CIOs, and mid-sized retailers are no

exception. A full 20% of respondents say they have up-to-date

technology in place in this area, with another 17% saying they

have started a major tech upgrade.

Indications of future supply chain investment plans are

considerably stronger for the mid-sized group than they are

for the entire retail marketplace. This is especially true in the

areas of Warehouse Management, Logistics Management and

Order Management, which indicates a strong need to catch up

with the rest of the industry.

Interestingly, the survey indicates that RFID has yet to

catch on with mid-sized retailers, which is logical since it

has been the province of a small number of extremely large

retailers up to this point. In fact, no mid-sized retailer

reports having up-to-date technology in place. However,

future investment plans, especially in the two-year range,

run slightly ahead of the market as a whole (21% compared

to 19% for all respondents), and RFID’s place in the retail

landscape is fast emerging.

STANDARDS-BASED ARCHITECTURE

MAKES STRONG HEADWAY

One of the biggest questions facing retail CIOs is the basic

structure of the enterprise architecture — not only what it is

today, but what it will look like in five years. For most retailers,

IT architecture is a mix of home-grown legacy systems,

packaged applications and, increasingly, standards-based

platforms that can tie together new applications while also

providing a pathway for further growth and integration.

Overall, IT architecture is revenue agnostic and mid-sized

retailers pretty much mirror the industry as a whole. For

Standards Based Platforms, 26% of mid-sized respondents

have up-to-date technology in place and 29% have started a

major tech upgrade compared to 22% and 25% respectively

for the entire retail industry. And a similar pattern is found

with Open-Source Based Platforms.

However, Services-Oriented Architecture (SOA), which

showed impressive strength among all respondents, did not

score as well among mid-sized retailers. Only 9% of mid-sized

respondents have up-to-date SOA technology in place, with

20% having started a tech upgrade already and 23% planning

to get involved in the future. Of all the technologies polled in

the survey, SOA is the newest to the scene and the least established.

No doubt mid-sized retailers are taking their typical

wait-and-see approach before following the leaders and jumping

into the deep end of the pool.

“The hard work of real IT transformation has begun in

earnest in retailing,” says Roster. “As revealed in key findings

in this study, no segment of the industry is left out of this

rising tide. Mid-sized retailers, like the industry as a whole,

are becoming smarter about customers’ wants, needs and

interests, and are quickly moving to catch up and deliver the

ultimate shopping experience.” ■

Standards

based platform

Services-oriented

architecture

Open-source

based platform

WHAT IS THE STATUS OF YOUR

ENTERPRISE ARCHITECTURE

9%

26% 29% 11% 14%

20% 6% 17%

11% 3% 9% 14%

0 10 20 30 40 50 60 70 80

Up-to-date technology in place

Started but not finished major technology upgrade

Will start major tech upgrade this year

Will start major tech upgrade within 2 years

AUGUST 2006 7


SMB

A SUPPLEMENT TO RIS NEWS AUGUST 2006

TECH TRENDS STUDY

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