I was perhaps wrong a month ago to say that I thought retailers shouldn’t buy retail tech companies; that owning tech was a great way to stifle its innovation.
However, the industry is ignoring me and carrying on regardless. It is clear there is a retail tech trend here.
At a BRC event earlier this month, Ben Chamberlain, the chief data scientist at ASOS told me they would never work with a vendor on applications which they regard as core business. The online fashion retailer’s recommendation engine is absolutely core business and generates as much as £1bn of revenue. Far ahead of anything Amazon is doing, this engine is so important to ASOS that it will always work in private. “I don’t want to risk our IP leaking out into the market from a third party’s solution, which it inevitably would,” said Chamberlain.
Why these decisions matter
For retail tech applications that automate everyday tasks common to all retailers though, he does recommend working with third parties, because then, the IP brings no competitive advantage, the third party probably has the best solution available, and ASOS wouldn’t want to commit internal resources to something that is not core retail.
Hold that thought, and then consider just how much old-world technology the retail industry is working with, technology built for an industry focused entirely on supply rather than demand. Call it legacy if you will, but it’s worse than that. Legacy is not dead and continues to have a part to play. I’m talking about third party products that are simply not fit for purpose and yet tend to own the agenda on what is the best solution, simply because they are big, well-established brands.
Tech that shapes retail’s future
These companies have effectively managed retailers’ expectations down to the point where they assume that there is no better way available. Two positive trends have arisen from this; the retailers have started to build their own solutions and also acquire vendors. The proof is to be found in the number of data scientists now working for retailers. Meanwhile, some of the established players have repositioned to think like start-ups and inject real innovation into their solution sets by working themselves with partners, to develop new applications, and change their structures to enable these to be developed.
These trends in no way characterise the whole IT industry, but these are refreshing signs that both retailers and vendors are finding a better way to build retail tech solutions for how the sector is now and will be in the future.
The challenge for vendors is, how can I sell to retailers when they argue, I’m going to build this myself. In truth, most retailers will say they want to build in house, because it suits the decision maker’s ego to say so, but in truth, they rarely do. However, that is clearly changing and the challenge for the retailer then is, how do I work out what to own and what to outsource? Retailers need to focus a great deal more of their attention on their customers, so continuing to manage a vast empire of back end systems AND exploit the attendant data is simply not going to work. The answer as always is to balance the build and the buy but who will write the strategy? Answers on a postcard.