No reminders are needed that 2023 and 2024 are going to continue to be tough for retailers. And this will have an impact on tech budgets. We’ve already seen a cooling in spend in 2022 as retailers renegotiate things like support contracts, delay projects or narrow their scope as they look to navigate economic headwinds.
And yet, they will also continue to spend between 1.2% and 3% of turnover on technology, rising in some sectors. Business of Fashion and McKinsey said in a recent report that it expects fashion companies to ramp up their investments in technology, from between 1.6 and 1.8% of sales in 2021 to between 3 and 3.5% by 2030.
While as much as 80% of tech budget is already committed for 2023, the doors will not shut on innovation or the roadmap for 2024 onwards, so any tech vendor wanting to play will need to work hard on both sales and marketing. In fact, Digital Commerce 360’s research among retailers reveals that 39% of online retailers predict they will spend 10.1% to 15% more on technology in 2023.
Cost of tech will be an issue. As always
At the same time, others are suggesting that ecommerce investment will be reduced in favour of in-store technology, so you need to make your own mind up on that one, failing authoritative figures. We suspect that the truth is investment will rise in both areas, but that suppliers will get beaten up on price and ROI. La plus ca change!
A report from Zebra and Retail Week points to the answer, which is that the retailers it spoke to said 49% of their business would be online within three years, up from 46% now. Store sales in the same period are expected to fall from 38% to 35%.
The same research also suggests that 70% plan to outsource technology rather than build in-house, which actually is a common reaction when retailers are cash-starved.
Looking across the market, these are the top 21 areas where retailers will be looking to invest next year:
- Channel integration. Harvard Business Review says 73% of shoppers switch from channel to channel when shopping. Many will use 5 or more channels to make a single purchase. Tech is fundamental to removing the barriers between channels and the gaps in the customer’s journey on their path to purchase. Investment into integration will rise as will spend on apps that enable staff (online and in store) to see the journey and react accordingly.
- Automation. Now that the rateable value of warehouses is rising to account for the growing proportion of retailers’ turnover coming from online, the focus on automation to boost productivity will intensify. And that means robots as well as more hand-held tech, or wearables, for workers, powered by data and apps that direct tasks with predicted outcomes and more efficient processes.
- Artificial Intelligence. Figures for investment in AI are hard to find but it is generally predicted that it will rise to reflect retailers’ need to cut the cost and inefficiency of manual processes, stop referencing multiple unintegrated data sources and improve visibility into problems areas, such as on shelf availability and waste. It is worth adding that a lot of the investment into managing and exploiting data will be conventional as so many retailers are some years away from being able to use AI to its full potential.
- Personalisation. On the back of the imminent death of cookies, retailers are taking control of customer relationships through a whole bunch of loyalty schemes and subscription services. It will also place an emphasis on how retailers own, optimise and use 1st party data in the engagement, nurturing and retention of its customers, as 3rd party customer acquisition platforms become increasing expensive and ineffective as the cookie cull is rolled out by the likes of Google.
- Visibility. Investment in technologies that help retailers get a single view of the truth across a trifector of stock, customer and product information data will hold up well, and we may start to see holistic rather than atomistic solutions, reflecting the need to bring multiple data, systems and processes together to gain real insight. This is as much about working with internal departments as external partners and suppliers, particularly for product lifecycle management for visibility to support ESG. McKinsey reports that more than 50% of fashion decision makers say traceability will be a top-five enabler to reduce emissions in their supply chains. Traceability will in turn build in resilience to supply chain where disruption becomes business as usual.
- Environmental Social & Governance. Putting a price on what retailers will invest in sustainability is as yet not possible, but clearly retailers have already been focusing on their ESG programmes and understand the sustainability imperative. From a technology point of view, this will be all about visibility in their supply chains and product life cycles, with the watchword being on transparency when it comes to ESG initiatives. This need will also trigger further investment in RFID. Commercially, investment in sustainability will pay off if the research is true – First Insight suggests that two-thirds of consumers being happy to pay more for sustainable products.
- A silver lining in the cloud? The shift to cloud will continue and weigh heavily on costs for retailers that still have a long way to go. According to peasoup, while close to 62% of investment is on public cloud and 17% is private cloud, only 9% goes to the hybrid cloud with the rest being divided between other services. 2023 will see the hybrid cloud share record the highest growth where the service will increase by 14.3%. And almost all the newer software solutions on offer either are in the cloud or do not work unless they are in the cloud, as instant processing of data is essential to their response.
- Electronic shelf labels (ESLs). In-store, ESLs continue to encroach and while there is never quite a watershed moment for the technology in the UK, they are an essential platform for most of the work retailers need to do around price management, availability, waste management and promotions and assortment optimisation. And they are the foundation for managing real-time pricing, promotions and rapid in-store picking for on line orders.
- Energy management. With Waitrose talking about installing heat pumps in its stores, we are likely to see others follow suit as energy costs continue to rise. Device monitoring technology will be a part of that investment as retailers look to streamline their facilities management costs. Some retailers will look at the cost of running some existing infrastructure and will be shocked at what they discover.
- Priority ecommerce investments. These will be dominated by cross-channel integration, composable commerce (headless) and content management as it relates to both customer experience (CX) and product experience (PX). We also expect ecommerce investments to be built out with a MACH architecture in mind as retailers look to plug in and test solution capabilities before committing.
- Cross-border commerce. Investment in tech to enable cross-border ecommerce is bound to rise as retailers see demand fall in their home markets and look to unlock latent demand in other locales. Market Data Forecast says that global cross-border e-commerce was valued at $1280 bn in 2020 and will grow to $4.820 bn by 2026. Brands will go with marketplaces as well as direct, but generally with partners that can help them manage customs, local tax regulations, payments and logistics. Crucially, this approach enables retails and brands to take more control of service and cost in the last mile as well as delivering the same brand-rich experiences across markets. Pattern points out in research thattwo-thirds of brands are planning to expand internationally through marketplaces over the next year. The risk is that this exposes them to price erosion, inefficient logistics, and bad data, which is why more brands are working with expert third parties that can already do the cross-border processing.
- Remote selling. Live streaming and social mediasales are predicted to reach $2.9 trillion by 2026, up from $992 billion in 2022. It’s all about eyeballs. Jungle Scout found that 48% of consumers would buy from TikTok. This is not about the Metaverse. Yet. Remote selling is sometimes called Instashopping, or ‘Discovery Commerce.’
- Retail Media Networks. A big feature at NRF 2023, Retail Media is disrupting the digital advertising industry and creating new high-margin revenue streams for retailers. The opportunity behind this fast-growing $40 billion US market is significant, with brands eager to capitalise on retailer first-party data to reach shoppers with relevant advertising experiences. And it’s still cheaper and more targeted than Google where ad costs keep on rising. Be sure not to miss NRF’s Feature Stage Session on this topic, where retail media leaders from Albertson and Nordstrom as well as experts from Insider Intelligence explore how retail media networks are evolving to meet consumers shopping behaviours wherever they are, whether that be in-store or online.
- While some forays into the Metaverse, predominantly by luxury brands have already started playing out, we’ve yet to see the mass migration towards Metaverse capabilities – but that is set to change. By 2027, Gartner estimates over 40% of large organisations worldwide will be using a combination of Web3, spatial computing and digital twins in Metaverse-based projects aimed at increasing revenue. Retailers will also be testing the channels capabilities to garner new audiences, especially among younger Gen Z and Generation Alpha shoppers. Technologies on the road to the metaverse, such as augmented reality, will continue apace. Research among shoppers by Akeneo in its 2022 B2C Survey: Product Experience Satisfaction Around the World’ report, found that 42% of UK consumers want to use AR and the metaverse to find product information in their buying journeys.
- Labour. Finding staff will continue to be a problem and all retailers report that the ones they find often do not hang around, or even turn up on day one, so automation using apps and devices for service, channel integration and fulfilment, will necessarily be a focus – how can retailers get more out of fewer staff, whilst still making the job stimulating, even fun, and definitely not tedious. And this isn’t just about store staff – across the board, retailers we speak to are finding the recruitment and retention of talent – from CTO and CIOs through to Ecommerce leaders – a challenge, and one that’s set to persist into 2023.
- Integration. This is essentially all about integrating multiple tasks into single platforms to deliver better outcomes. Hyper-integration platform is a new tech idea that is likely to be taken up by retailers that cannot afford third parties to build it for them or are fed up with those third parties being unable to deliver.
- Logistics. It is always assumed that retailers only want invest in logistics in order to provide a more joined-up service to customers with lots of choice and of course that’s true, but of equal – and perhaps in 2023 of greater – importance will be cost. This is mainly about having workflows that prevent mistakes (and having to avoid the cost of correction), and working with third parties that can manage international postal services, in turn working with microfulfilment resources.
- Niche marketplaces. The marketplace mastodons can be a pretty soul-destroying place to shop unless you are only interested in price, so it is predicted that we will see more and more niche marketplaces built around customer cohorts and data with identifiable interests that have commercial potential. Which is not to say that the main marketplaces are not developing as well, as they can already allow retailers to target specific customer bases. The predictable trend here is that brands will sell on more marketplaces than ever in their pursuit of customers. Their challenge will be to ensure consistency across all these in terms of product descriptors, images, prices, services and fulfilment.
- Payments consolidation. This may not happen, but offering customers 15 or more payment options is hardly a recipe for convenience, so retailers may start to reduce the number whilst trying to keep choice. Retailers with a conscience may start to stop offering Buy Now Pay Later, or consumer credit as it used to be called.
- Resale and circular economy. With Selfridges just the latest retailer saying it wants to move half its customers to resale, repair, rental or refill by 2030, the circular economy will only grow in 2023 as more retailers look towards resale models to deliver against sustainability efforts as well as meeting cost-conscious demand from cost-of-living impacted consumers. We also anticipate the rise and rise of collaborations with rental platforms, such as HireStreet, as the ambition to roll out new ‘non-ownership’ offers continue at pace.
- Bursting the returns bubble. Whilst not a new issue, the thorny problem of returns persists. Tech that helps retailers tackle returns, whether that’s size and fit personalisation or improved, more accurate product information management, will become more attractive as retailers look to protect margin, sell more at full price and reduce unnecessary and inefficient reverse logistics that put an extra cost-base burden on an already squeezed market.
Ranking these trends in order of importance is of course impossible. Some have tried and simply shown that they either don’t understand how retail really works, or they have a commercial interest in retailers picking their tech. And there is always the problem that tech trends analysis is never accountable; by the time we are all reviewing 2023, we will have forgotten what we said in December 2022. So, trends analysis can be a distraction if it is used in the wrong way. Our best advice is that you try to invest as much time as possible talking to retailers to find out what is really bugging them at the moment.
Shortage of labour, retaining staff and motivating them to deliver good work are not simply blips on the road back to normal; there is a chance that the number of people working in front line retail will remain low, so this should be one of the biggest conversation starters for 2023 – how will retailers use tech to raise productivity among the staff they do have and automate more processes so that the tasks that are handed to staff will be more effective.