As inflation bites, tech needs to prove that it can cut retailers’ operational costs

London was packed on Saturday and Sunday Jan 30-31. This will be taken as a positive sign by retail optimists that the sector in in further recovery. Except it depends on your definition of the word recovery. Sales volumes fell 3.7% in December, after a modest 1.4% rise in November and a miserable 0.8% in October. And all this in the most important quarter of the year. Total sales for 2021 were up 9.9%, better than 2020 but the Christmas figures are not the best foundation for a better 2022.

Inflation is officially 5.4%, although in reality it is almost certainly higher, and sits on top of big rises in petrol and energy costs. These are set to soar once the price cap comes off, the Government doubles down on raising national insurance and retailers are forced to pass on rising costs.

The obvious result is, people will have less money to give to retailers because more of it will be eaten up in energy bills, 54% of total income for some households.

Tech needs a stronger ROI

This reality contrasts starkly with the breezy, optimistic statements made by some in the tech industry. They tend to talk about a revolution in the way we shop as more and more direct channels mature, and retailers make it easier for consumers to shop across those channels.

What this optimism disguises is retailers’ rising operational costs, exacerbated by higher wages, greater regulation that in some cases will be more draconian than that enforced by the EU. Add to this, the cost of managing legacy systems, processes and cultures no longer fit for purpose, and a stretching of budgets to cover these newer channels, not least TikTok and Instagram. Result? It is not officially more expensive to trade on line than through a store., although this does not yet seem to have set off a rush to open new stores.

The point I want to make is, any new tech chosen by retailers must be able to demonstrate a much higher ROI in terms of operational efficiencies, and thus lower costs. There is too much tech that has only works on one level, better customer service for instance, but unless this can be proven to increase basket size and frequency of spend, it should not be high on the retailer’s priority list, even if it is shiny.

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