Firms that supply technology to the retail industry are always banging on about improving the customer experience. But are they missing the point of retail?
Take supermarkets, for example. They are laid out in such a way as to make customers walk the distance of the store, so they are exposed to all kinds of tempting offers along the way to entice them into an impulse buy.
With the supermarket experience, there’s no such thing as a simple transaction. If you’re popping in to buy some breakfast foods, for example, you can bet the cornflakes will be tucked away at one far corner of the store and milk at the other. And you can be sure that bacon will always be displayed in a refrigerated shelf at the other end of the supermarket from the eggs.
Less razzle, more dazzle
That is why IT vendors are mistaken in thinking retail is about having the right mix of merchandise, at the right price, in the best location. What they should really be selling is technology to dazzle customers.
As evidence, witness the success of Scion Technologies and Steljes in the retail sector. Scion makes a switch that enables video content to be distributed more cost effectively around supermarkets. Steljes supplies the screens that sit on every aisle and that customers have to walk past as they try desperately to locate their favourite cereal.
This in-store TV service is clearly an effective way to tempt shoppers into spending more money than they had intended, by running seductive commercials. All the major supermarkets are running these systems, and Scion, a tiny company based in a converted barn in Berkshire, has pulled off multimillion-pound deals (through Steljes) to supply the technology for in-store TV to Sainsbury’s and Asda. A number of other supermarket chains are also showing a keen interest.
Jonathan Pengilley, commercial director at Steljes, said: “The retail sector could be a ripe area for audiovisual sales.”
Mark Brown, marketing director at Scion, agreed. But he warned: “Pricing will be the key to making sales.”
The reason for this caution is that the past two quarters for the retail sector have been terrible. Don’t expect any ‘hail fellow well met’ treatment from the IT managers of most supermarket chains or department stores when you visit. They will probably have just come out of a meeting at which budget and resource cuts topped the agenda.
As IT vendors prepared for this year’s Retail Solutions show (last week at the NEC in Birmingham) the news is of the gradual downturn in the economy. Worse still, retail sales were down by 4.5 per cent last month, the lowest recorded fall since 1990. Almost all retail Initial Public Offerings have been cancelled, and morale in the retail sector could hardly be worse.
This grim news hasn’t made its impact on the IT sector yet, although anecdotal evidence of the impact of the slowdown could soon be translated into some unpalatable figures on the balance sheets of retail specialists.
A representative for the Retail Solutions show said: “It is clear to us that there is a huge oversupply of solutions in various technologies and that consolidation will soon produce a mix of acquisitions, business failures and a retreat to home territory by a number of US software vendors.”
Smart vendors should prepare to work on their marketing pitch, reinforce existing partnerships and work a lot harder at demonstrating return on investment for their customers, areas in which few can claim to be demonstrating best practice.
As financial directors know, marketing has been a discretionary spend ever since the day big corporations first separated it from sales. Arguably, only marketing can save the vendors currently under threat.
Eric Thickett, managing director of systems integrator Mitech, argued that the best way to sell technology to the retail sector is to offer anything that can shave a few points off the running costs.
“If technology were a garment, and retailers your potential customers, the question they’d be asking themselves is, ‘Does my bottom line look big in this?’” he said.
Mitec, with its partner supplier Tiscali, promises to save retailers money on their communications costs by providing a private broadband connection, which could deliver a range of management cost savings. The biggest of these is obviously the delivery of Voice over IP (VoIP).
“We’re offering private broadband connections so our partners can guarantee the benefits of VoIP,” said Lance Spencer, Tiscali’s product director, who recently manned Tiscali’s stall at the VoIP for Business show in London. “This will be great for retailers. It cuts the cost of calls as well as cuts the management costs because moves and changes are much easier.”
The benefits of VoIP to retailers depends on their size. You are wasting your time trying to sell VoIP to top-tier retailers on the promise of cutting call costs, warned Colin Duffy, managing director of Voipfone, one of the new generation of internet telephony providers.
“All the big corporates have spent years studying VoIP. Besides, they already have excellent communications, and their buying power means they have good tariffs.”
The flexibility of VoIP is more likely to appeal as the cost of managing people goes down. Among VoIP’s benefits, the ease of setting up new users and, indeed, all the communications needs for new shops, is massively improved.
This was how ISP AltoHiway convinced third-tier retailer Lush to take its broadband service. The cosmetics retailer is constantly opening new outlets, and closing unfavourably positioned ones. This makes management a potentially expensive business, but AltoHiway was able to sell its Private Branch Network as the solution to Lush’s comms and management cost problems.
“Lush has made its costs fixed and much more manageable through broadband,” said Chris Wood, sales director at AltoHiway.
Tricks of the trade
The other great hope for cutting retailer’s costs is in tightening up supply chain management. Supposedly, Radio Frequency ID (RFID) was going to enable retailers to improve the visibility (and subsequently the control) of their supply chain. Fewer goods would be lost, and as transit times improved fewer goods would perish. Retailers would suffer less shrinkage, their profits would increase, and the benefits would be passed on to the consumers in the form of lower prices. That was the promise that IT analysts were making last year.
As ever, the IT industry could be accused of using the politicians’ trick of rewriting the past and over-promising the future. The price of my Kellogs Crunchy Nut cornflakes has refused to fall, which must mean that RFID has not delivered.
There’s even more evidence that RFID hasn’t worked as expected, and from a very reliable source. According to Joshua Greenbaum, principal consultant at US-based Enterprise Applications Consulting, RFID simply won’t cut any more ice with retailers. “The RFID phenomenon has drawn attention, but no one is committing tens of millions to it,” he said.
Worse still, the technology will never deliver the promised benefits without further technology being layered on top of it.
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