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Overall IT spend may be down but e-commerce attracts investment

Spending on IT by the largest UK retailers remains at a low for the second year running but there is still a willingness to invest in new projects and e-commerce and multi-channel systems are high up the agenda, according to the latest Martec International/BT Expedite report. By Glynn Davis

GENERAL MERCHANDISE

Overall IT spend may be down but e-commerce attracts investment

Spending on IT by the largest UK retailers remains at a low for the second year running but there is still a willingness to invest in new projects and e-commerce and multi-channel systems are high up the agenda, according to the latest Martec International/BT Expedite report. By Glynn Davis

At a roundtable in London to launch the research Brian Hume, managing director of Martec International, revealed that the average spend on IT across the leading 100 retailers was 1.1 per cent of sales (the same as last year), which is the lowest level over the eight years that the survey has been undertaken and during which time the average has been 1.7 per cent.

This represents a significant 20 per cent drop on IT budgets and has prompted Hume to question whether 1.1 per cent “becomes the norm if CIOs (chief information officer) have done a good job on this reduced level of spend?”.

John Bovill, IT director at Aurora Fashions – that operates fascias including Oasis, Karen Millen and Whistles, suggests not: “The low spend on IT is not sustainable, you have to make strategic investments.”

For Aurora and many other retailers this involves committing funds to e-commerce and multi-channel projects. For the non-food retailer subset the report found e-commerce to be the top investment priority with 24 per cent stating it as their key focus, while for all retailers it was second with 17 per cent giving it top priority as the main focus is on store systems, with 22 per cent of retailers stating this as their number one priority.

Maybe this focus is not surprising as non-store sales now represent 6.3 per cent of total sales compared with 4.8 per cent last year, according to the report. For the leading 100 non-food retailers the online sales split is even higher at 8.5 per cent of total sales. From this batch the subset of department stores achieves non-store revenues of an impressive 9.9 per cent.

And Hume believes the future continues to look bright for the channel: “Of the top companies there was nearly 50 per cent growth and who knows what 2010/11 growth will be, but it will be significant.”

The survey found that only 12 per cent of the leading retailers expected growth to be the same as last year while a resounding 88 per cent forecasted an increase in sales levels from their online channel compared with last year.

What is therefore extremely surprising is the number of retailers that have failed to implement a transactional website. Across the 142 food and non-food retailers surveyed Hume says 35 were still not operating an online store. To address this issue; of the food retailers surveyed three per cent stated their intention to implement an e-commerce system for the first time this year and among non-food retailers it was five per cent.

Bovill suggests some companies may have been slow to go online because of the challenges they face from having franchising models, the issues surrounding pricing transparency across countries, and most fundamentally the view that the online channel would not be a profitable route to market.

Of some concern was his belief that a reluctance to go online by some retailers was based on the “trading mentality that still exists” in their organisations whereby there is an ongoing worry over the online store cannibalising high street shop sales.

“Cannibalisation will happen but it is not a tale of woe because online is not going to take away all of your high street business. The critical mass of sales will still come from your stores,” suggests Bovill.

Retailers that have implemented e-commerce systems have found they are not just a straightforward driver of sales but that a spin-off has been the customer data that they are able to cost-effectively collect and leverage into customer loyalty capabilities.

Hume says earlier loyalty programmes such as Tesco Clubcard cost retailers 0.5 per cent to 0.75 per cent of sales (even after suppliers had made their contributions) to collect data on their customers but “with the advent of e-commerce retailers can now collect data without having to bribe their customers with coupons so this makes CRM more applicable”.

This backdrop has certainly led to an uplift in spend on CRM systems, according to the report, with 11 per cent of the non-food sub-set of retailers planning to replace their existing systems and nine per cent of all retailers intending to do so.  Another five per cent of non-food merchants are set to implement a marketing system for the first time while six per cent of all retailers have such plans.

Bovill recognises the benefits of marketing systems but admits it is tough to generate insight from the data accumulated on the company’s customers – especially when the business operates across multiple channels.

“The route to market today is through various channels so there is the [accumulation of] data but the intelligent use of this data is a big bit of work for us. We’ve got a CRM system but the single view of a customer is hard to achieve,” he explains.

One of the difficulties is marrying the technology side of the business, where the raw data is collected, and the marketing function where the actions are not always grounded heavily in analysis and statistics. “Mixing the art with the science is hard,” says Bovill.

This need for collaboration between the two areas of the company is one of many signals that IT is moving out of the back room. An example of this is with the use of tablets and mobile Point-of-Sale in-store that Aurora is currently experimenting with. “We’ve been dabbling with tablets for product look-up. It’s also possible to move onto mobile PoS and the cash desks can then go. This is technology moving to front-of-house,” he explains.

The report highlights how mobile devices are becoming increasingly important for retailers, with five per cent stating they use mobile commerce compared with only two per cent last year – although Hume cautions that this probably includes retailers simply sending emails to confirm shipment of customers’ goods.

However, he says real m-commerce growth is inevitable: “You can see the embryonic stages of mobile commerce. Although the percentage growth rate is high [from a very low base] it will take some time before it registers on the radar. But it will happen.”

What is also clear is that this change is helping evolve the role of IT in retail, according to Bovill, who suggests: “We’re in the information age and this is an exciting space for IT. It’s become more front-of-house as customers are engaging with us differently.”

As technology becomes more customer-focused then Bovill believes the CIO and the IT department’s work across the entire business will become much more prevalent and the group will have “ownership across the whole business”.

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