Clicks & mortar: Technology in retail

Shopping was once a straightforward process; a consumer would walk into a store and, using cash, purchase a good or service from a vendor. The roles of the consumer and retailer were clear-cut: there were no third parties involved, and no alternate ways to make purchases. This sounds archaic today, because it is. The rapidly evolving nature of technology has transformed the retail sector to such an extent that shopping is no longer simply a transaction; it’s an experience. Where technology has provided the means for some retailers to flourish, it has been a catalyst for the demise of others — the likes of video rental chain Blockbuster and bookstore chain Borders are cases in point.

A ubiquitous mechanism, technology is available to all retail companies; it’s how these companies choose to engage with technology that’s determining their success. In fact, Jack Hanrahan, Non-Executive Director at Sprooki and former Retail Relations Manager at Westfield, believes that at its core, that’s all that technology is; a tool. "Retailers around the globe are starting to understand that technology is a tool, it’s not a silver bullet," he says. "While there is lots of money being invested in technology by great retailers, there’s a growing awareness that retail is very much a people business."

Thus technology in and of itself has little relevance to retailers. Technology as a mechanism to enhance customer experience on the other hand, is vital. "It’s all about the tools and technologies that are helping to deliver a great experience," says Jack. "The idea of being able to personalise an interaction is one of the holy grails for retail moving forward."

Omnichannel retailing

Where multichannel retailing offers customers a number of discrete outlets to engage with a brand, omnichannel retailing enables consumers to engage with more than one sales channel for a single transaction. For instance, you might try a pair of shoes on in a store, Snapchat a picture of them to a friend for a second opinion, but choose to buy them online so that you can compare price points and get the best deal. When omnichannel is successfully implemented, there are various touchpoints at which the consumer and brand interact. "It’s not either/or with this whole notion of omnichanel," says Jack. "It’s really about empowering the customer to deal with a particular brand whenever and however they want to."

While omnichannel is incredibly liberating for consumers, it also provides retailers with an all-encompassing view of their customers and how they interact across different channels. This information can in turn be used to personalise the customer experience — a perpetuating cycle. Stuart O’Neill, Head of Business at SAP Hybris ANZ, believes customer trust and personalised experiences, as developed through omnichannel retailing, are vital to the success of a brand. "One thing that came out of a recent report we conducted, is that those organisations that drove loyalty and a great customer experience, saw a willingness from individuals to share personalised data," says Stuart. "This data enables retailers to individualise the customer experience at the front end, making it more contextual and relevant and keeping them loyal to the brand."

The emphasis on omnichannel is therefore impacting company strategies and structures. "Omnichannel is influencing corporate investments, the way companies go to market, and who they invest in on the board," says Stuart. "We’re seeing the CEO and CIO move up in terms of importance, and the creation of a Chief Digital Officer. From that perspective, it’s influencing both top line and bottom line."

From a technology perspective, omnichannel is changing the way organisations approach their end-to-end retail strategy, and unless brands embrace this evolution they fail to stay relevant. UK-based retailer John Lewis Partnership — which operates John Lewis department stores and Waitrose supermarkets — is one of the leading examples when it comes to the successful implementation of an omnichannel strategy.

Case study: John Lewis Partnership

Anticipating the shift to omnichannel before it really took off, the John Lewis Partnership’s IT Director, Paul Coby, implemented a ‘track, know, and manage’ strategy for the company when he took up his position in 2011. The objective of this approach was to track every retail item from its production into the hands of consumers, know John Lewis’ consumers — what they purchase and are likely to purchase in the future, and manage all of the various channels.

This strategy is at the core of providing convenience and flexibility to customers, and has been effective for John Lewis. However, the development of the technology infrastructure to ensure convenience comes at a cost. In the half-year to 30 July 2016, the company reported sales of £5.3 billion, up 3.1 per cent on the previous year. Yet, despite the growth in gross sales, John Lewis reported a 14.7-per-cent decline in profits. This is largely due to the amount the company is investing in technological research and development.

Upholding the adage ‘you have to spend money to make money’, John Lewis’ annual IT budget is £105 million for capital expenditure (CapEx), and £80 million for revenue expenditure (RevEx). Currently this money is going towards implementing technologies and developing new innovations based on data analytics, wearables, IoT, automation, 3D printing, virtual and augmented reality, smart home, location technologies and visual apps.

Interestingly, 65.5 per cent of John Lewis’ merchandise sales are still made in branches, and three-quarters of its customers buy in store. This corroborates the notion that retail in today’s context is not simply about online, rather it’s about the customer experience and convenience.

"Retailers around the globe are starting to understand that technology is a tool, it’s not a silver bullet." – Jack Hanrahan, Non-Executive Director at Sprooki

Let’s get physical

In its report ‘Technology in Retail: From centre stage to supporting player’, Deloitte highlights the importance of bricks and mortar stores, saying: "Purchases in-store still account for over 90 per cent of all retail transactions." The reason for this overwhelming statistic is that, despite technology’s many advantages, it can’t yet simulate the same sensory experiences we undergo when shopping: the aroma of freshly baked bread, or the feel of a crisp linen shirt between your thumb and forefinger.

"There are two macro reasons why people shop," says Jack. "One is that it’s a functional requirement, for instance, buying a battery for your phone. The other is the experience — from the social engagement, to the tactile nature of trying on an item of clothing or holding something tangible in your hands — and physical stores can really amplify that."

Flying in the face of the now defunct prediction that e-commerce would bring about the demise of bricks and mortar retail, many formerly exclusively online players are opening up physical stores. Amazon, the American-based e-commerce giant, opened its first physical bookstore in Seattle, US in late 2015 and is looking to expand its physical presence.

Similarly, one of its major competitors, Alibaba, opened its first physical store in Beijing, China at the beginning of this year. Other notable brands that have launched a physical presence include Warby Parker, Bonobos, Birchbox, Shoes of Prey and Casper.

The 2016 Commonwealth Bank ‘Retail Insights Report’ predicts that this trend from e-tail to bricks and mortar will continue, revealing that 18 per cent of Australia’s online retailers are planning to establish a physical outlet in the coming year.

"Human beings are highly emotive, we love a great experience, and we love to touch and feel and be able to try things on," says Stuart. "At this stage, there’s a very real requirement for physical stores and I don’t see that changing any time soon. What I can see changing is the experience within the physical stores. Having smart change rooms, endless aisles — seamlessly integrated technology that enhances the experience is increasingly important."

Safety first

Unfortunately, customer and internal data is of great value to cyber criminals, and with the increasing role that technology is playing in the retail sector and huge amount of customer data that is extrapolated to improve and personalise the customer’s shopping experience, the sector is highly targeted and at risk. According to the ‘2016 NTT Group Global Threat Intelligence Report’, the retail sector experienced the most attacks per client of any industry sector.

"At this stage, there’s a very real requirement for physical stores and I don’t see that changing any time soon."
– Stuart O’Neill, Head of Business at SAP Hybris ANZ.

"Unfortunately, with technology, as soon as someone comes up with a new secure base, someone else comes up with a way to hack it or get into that database," says Jack. And as the number of channels consumers can use to engage with a brand proliferates, so too does the capacity for security breaches.

While security breaches have costly consequences related to operation downtime and recovery, the biggest ramifications are related to brand reputation and customer relationships. A large number of high profile companies have been hacked in recent years, including British Airways, which was subject to a large-scale cyber attack that saw tens of thousands of its customers’ frequent flyer accounts hacked in 2015. While no personal data was allegedly stolen, frequent flyer accounts were frozen, and the airline’s brand was tarnished.

Another high profile example is Target, which was forced to pay out more than US$100 million to banks and customers who lost money in the 2013 hack of its database. This particular breach occurred at the Point of Sale (POS) via software that was installed on machines used by customers who were swiping the magnetic strips on their cards when making a payment. Over 70-million customers were impacted, and the drawn-out lawsuit that followed only served to exacerbate the retailer’s sullied image.

As Jack notes, "Security and cybersecurity are very important to the industry, and it needs to go well beyond the IT department. It needs to be of paramount concern to the board and the leadership team — they need to make sure the data people have provided, and that they have collected, is secure and is not going to be infiltrated."

Interestingly, research conducted by Hybris reveals that consumers are more likely to trust private organisations over public organisations with their private data. "That’s because of that ‘big brother’ feeling — I’m providing this data, what are they going to do with it?" Stuart explains. "We don’t expect private organisations to do anything more with our data than maybe market to us. While this isn’t necessarily accurate, it’s an interesting insight into public perception and how it influences a consumer’s engagement with a brand."

What the future holds

It sounds like something out of a science-fiction story, but Amazon are actively working on Prime Air, a delivery technology that will see drones deliver packages ordered on Amazon in 30 minutes or less. The drones themselves will weigh only 55 pounds, and will therefore only be able to transport packages up to 5 pounds. While Prime Air is currently still in the R&D phase, Amazon is testing vehicles in various different locations, including the US, the UK, Austria and Israel.

Another technology that is yet to reach its potential in the retail space is biometric software. According to next-generation technology company CSC, biometric software — which identifies a person based on physical attributes such as their face, eye or fingerprint — can be integrated into digital platforms as well as in store. While applications such as Apple Pay really only scratch the surface, they demonstrate the ease of the technology, which will purportedly benefit retailers and consumers alike. With the ease of something like fingerprint technology, retailers would likely see reduced shopping cart abandonment online and on mobile devices, and payments would be more secure. For consumers, passwords would be eliminated and their personal data safer.

Although proximity marketing is technically not a new concept, location-based services like Bluetooth beacons and GPS Geofencing are causing the market to boom. Research conducted by MarketsandMarkets predicts that the proximity marketing market will be worth US$52.46 billion by 2022, at a compound annual growth rate of 29.8 per cent between 2016 and 2022. The research also indicates that North America and APAC have the major markets for proximity marketing due to their smartphone penetration, availability of mobile internet, and high use of mobile applications. Having recently been appointed director of Sprooki, a proximity marketing company based in Australia, John believes that location-based services have the ability to engage consumers on a deeper level. He says, "Proximity marketing makes a connection using location as a tool to enhance the experience for a consumer in a mall and engage with them in a relevant, contextual moment in time."