IDC Insights Research Document...shopper sales as a growth strategy rather than same-store sales....
Transcript of IDC Insights Research Document...shopper sales as a growth strategy rather than same-store sales....
IDC Insights Research Document
Printed Page Length: 25 pages Number of Tables: 4 Number of Figures: 3
Top 10 Predictions (Doc #GRI232576 / Jan 2012)
Worldwide Retail Industry 2012 Top 10 Predictions
By: Robert Parker, Ivano Ortis, Leslie Hand, Greg Girard, Christine Bardwell
Predictions
1. Consumers, Not Products or Channels, Will Create the Basis for Growth Strategies
2. The Omnichannel Consumer Will Direct a New Retail IT Model for the Industry —
Omnichannel Orchestration and Optimization
3. Retailers Will Race to Innovate and Will Operate More Efficiently as a Result
4. Retailers Will Synchronize the Supply Chain with the Clock Speed of Their
Customers
5. Retailers Will Create Great Brand Experiences by Enabling Engaged Employee
Experiences
6. Planning Paradigms Will Begin to Evolve to Support Genuine Customer Brand
Engagement Strategies
7. Continuous Assortment Planning Orchestrated for Space Will Become the Planning
Hub
8. The Store Will Evolve — Welcome to the Omnichannel Store
9. Customer Experience Improvements to Boost Online Conversion Will Go Beyond the
Web Store
10. eCommerce Delivery Models Will Fragment
In This Study
IDC Retail Insights spoke with technology vendors, strategic consultants, and a wide variety
of retail stakeholders (both IT and line-of-business) about what 2012 will hold for
companies in their industry. These views together with those of IDC Retail Insights analysts
form the basis of our top 10 predictions for 2012.
Situation Overview
The exercise of putting together our predictions for 2012 is always productive for our
research team. To look forward, we must first look back and, in reviewing our past year's
predictions, we are proud that we have been able to chronicle the larger trends in the
industry.
Prerecession, we introduced the concept of "precision retailing," where reliable visibility to
demand data and advanced algorithms could win the day. The recession didn't necessarily
impede the progress of precision retailing, but it certainly diverted and reshaped the
objectives around a more informed and motivated customer. As Stephen Quinn, the head of
marketing at the world's largest retailer, Walmart, said in a recent Fortune Magazine
interview:
What we've learned through this whole recession is just how incredibly resourceful and
smart our customers are.
Part of this "resourcefulness" was moving shopping online and the use of mobile devices as
in store price research tools. Three years ago, we introduced the term omnichannel retailing
to describe not just independent channels — store, catalog, Web, mobile — but the fact that
these channels had to operate simultaneously for the modern consumer and carry a
consistent brand message.
The past two years of predictions picked up on the omnichannel momentum and discussed
the transformation of traditional retailers, specifically how they think about and measure
growth. Instead of new store openings and same store sales metrics, retailers began to look
at same-shopper sales and, borrowing from their online-only competition, unique visitors.
This continues to be apparent in the numbers from mature economies — Web sales are up
double digits and mobile, triple digits. And even the foundation channels of stores and
catalogs are enjoying growth, albeit in single-digit terms.
THE HOURGLASS ECONOMY
Economists have begun to popularize the term hourglass economy to describe the economic
circumstances at the end of 2011. The premise is that the economy, particularly in the
United States and the United Kingdom, is bifurcated, with the middle getting squeezed.
There is certainly data to support this, but instead of looking purely at income levels, it is
less contentious to look at education levels.
The percentage of the U.S. adult population with at least a bachelor's degree reached an all-
time high of nearly 30% (2010 census). While unemployment was well over 8% for most of
the year, unemployment among the "graduate class" was half that number and real wages
were growing while the number of people in the other 70% slipping below the poverty level
was increasing, effectively hollowing out the middle and creating the hourglass economy.
IDC Retail Insights also believes that to only look at the U.S. economy as an hourglass is
wrong — similar cases, perhaps not as dramatic, can be made for the whole of Western
Europe and Japan. In emerging economies, there are dramatic differences in spending
power between the educated minority and the rest of the population, which is why we see
most of the retail investment going into the urban centers. Even India, which reversed
course on letting multinational retailers in, may have done so not because of pressure from
indigenous retailers, but from the fear of what might happen if the transfer of money from
professional to street vendor was somehow co-opted by large retail organizations.
Most importantly to retailers, the graduate class makes up between half and two-thirds of
consumer spending. The amounts quoted vary, but even at the more conservative one half,
it is significant, given that it comes from 30% of the population. The winners during the
recession were the off price chains that knew how to make money on bargain hunters. IDC
Retail Insights believes that as consumer confidence returns and prospects look brighter in
2012, retailers will have to decide which resourceful and smart consumer they want to
serve — the graduate class seeking to meet specific needs or the value shopper who wants
the best deal.
We saw evidence of this in the 2011 holiday numbers. Overall growth was between 4% and
5% over 2010 (which itself was a fairly strong rebound over 2009). However, there were
other reports that the early openings with "door buster" discounts ate into margins in a
significant way. Meanwhile, online sales experienced double-digit growth and carried much
better margins. At least for this holiday season, the physical store had become the retail
backwater.
CUSTOMER-CENTRIC RETAILING
Regardless of the demographic target, selling to the resourceful and smart consumer will
take retailing beyond "you will buy what we decide to stock" to "we will stock what you
decide to buy." This puts a new type of customer centricity to the retail calculus, and this
has corroborated in our conversations with retail line-of-business executives conducted as
part of our participation in a series of Next Generation Retail summits held around the
world.
Some retailers are still stuck in an old customer context as is evidenced by the following
quote from Home Depot CEO Frank Blake (emphasis is ours):
We will continue to invest in our core initiatives to provide customers with exceptional
customer service and great product values. I would like to thank our associates for their hard
work and dedication.
While the intent is certainly admirable, the language is product/service rather than
customer centric. Home Depot's main competitor, Lowe's, is trying to more actively engage
the consumer through its My Lowe's initiative. It will be interesting to see which is more
successful. Another retailer using much more active language is Kohl's, which has done very
well with its omnichannel approaches, as is illustrated by the following quote from Kohl's
CEO Kevin Mansell (emphasis is ours):
Typically, when we see improvements in our trends, they're a result of actions that we have
taken to motivate consumers. So more newness in our assortments, I think, gives us some
confidence that we are getting more visits and we will continue to get more visits.
An even more expansive active engagement of customers comes from Foot Locker's CEO
Kenneth Hicks (emphasis is ours):
We're also able to deliver consistent stories to our customers, and we support the messages
effectively with the right products and displays, as well as the right people in our stores and
in our call centers. These enthusiastic associates are better able to provide technical
guidance and hook up ideas to our customers, leading to improved conversion rates across
almost all divisions. In addition, these efforts have led to both higher footwear unit sales
and average selling prices across the company as a whole.
So the theme for this year is that 2012 is a pivotal year as retailers choose which half of the
hourglass to focus on. Either way, they will have to actively and genuinely engage smart,
resourceful shoppers across all channels. Same-shopper profitable growth will depend on it.
IT SPENDING
Of course, these initiatives to realize more customer-centric business models will be
underpinned and enabled by technology. And retail spending forecasts for 2012
demonstrate this activity. Overall growth worldwide is 4.4%, led by the industry's largest
segments (see Table 1).
Table 1
Worldwide Retail Industry External IT Spending by Select Segment, 2011
and 2012 ($M)
2011 2012 2011–2012
Growth (%) Comments
General
merchandise 20,457 21,397 4.6
A good 2011 for the largest retail
segment
Food stores 17,700 18,533 4.7 Grocery continues to grow ahead
of the industry
Home furnishing 6,698 6,960 3.9 Growth still slower than industry
overall
Building materials 5,581 5,837 4.6 DIY slowly coming back
Drug stores 5,531 5,843 5.6 Aggressive plans for 2012
Apparel and
accessories 5,181 5,415 4.5
Nice recovery, innovation-rich
segment
Total retail 81,369 84,954 4.4
Note: The six largest segments are listed.
Source: IDC Retail Insights, 2011
Table 2 shows growth by technology category. Software spending is growing well above the
overall industry average. Investments in new analytic, commerce, and operational execution
applications drive this trend. Hardware growth will be a healthy 4.1%, largely driven by
continued investment in emerging regions. Services are rapidly losing share of budget as
expectations for more turnkey implementations are raised and outsourcing services
become more competitive.
Table 2
Worldwide Retail Industry External IT Spending by Technology, 2011 and
2012 ($M)
2011 2012 2011–2012 Growth (%)
Hardware 29,203 30,413 4.1
Software 23,885 25,260 5.8
Services 28,281 29,281 3.5
Source: IDC Retail Insights, 2011
Table 3 rounds out our view for spending in 2012 by showing growth by region. The overall
Asia/Pacific growth number is impeded by Japan, and the rest of the region is closer to the
"rest of the world" (ROW) category (which includes Latin America and Eastern Europe),
which has growth of more than 7%. The United States shows healthy growth on a base that
represents nearly 40% of the total industry spend.
Table 3
Worldwide Retail Industry External IT Spending by Region, 2011 and 2012
($M)
2011 2012 2011–2012 Growth (%)
United States 31,557 32,781 3.9
Western Europe 24,487 25,357 3.6
Asia/Pacific 14,094 14,772 4.8
ROW 11,231 12,044 7.2
Source: IDC Retail Insights, 2011
Future Outlook
1. CONSUMERS, NOT PRODUCTS OR CHANNELS, WILL CREATE THE BASIS FOR
GROWTH STRATEGIES
As we discussed in our opening comments, the movement toward becoming more customer
centric is driving new industry business models. This premise remains connected to same-
shopper sales as a growth strategy rather than same-store sales. That shopper, whether
existing loyal, existing casual, or new, will be at the center of the business model, and retail
brands will be built around the promises made. Channel and product strategies will flow
from that brand promise and customer orientation.
Product strategies will have to match the brand promise and customer need. Retailers will
become even more advanced in their analytic tools to create more relevant assortments and
timely allocations. Further, product fulfillment will be a key device in generating loyalty,
whether the execution is in sourcing product, shipping orders, or completing store tasks.
This customer-centric, omnichannel shift is making it quite clear that organizational
structures that isolate channels (e.g., a Web only division) are failing or will fail eventually.
Retailers wishing to be customer centric must start with their organizations that too often
have a channel or product bent.
And the impact will be felt up the value chain. Wholesale distribution companies are already
being asked to align with the priorities of their customers' customers. More items to more
locations at smaller increments will be the new standard, and business models that enable
that profitably will be central to distributors' strategies.
2. THE OMNICHANNEL CONSUMER WILL DIRECT A NEW RETAIL IT MODEL FOR THE
INDUSTRY — OMNICHANNEL ORCHESTRATION AND OPTIMIZATION
The IT Spending section in this document shows IT spending will continue its momentum in
2012. A good portion of the growth will be in technology, especially software, to support the
customer-centric initiative. Our conversations with retailers over the past several months
have revealed that this effort will be more than simply modernizing the application and
commerce portfolio; rather, it will be a complete replatforming — what IDC Retail Insights
calls the omnichannel orchestration and optimization (O3) platform (see Figure 1).
As Figure 1 shows, the objective of the technology investment aligns with customer-centric
strategies as it puts the customer experience optimization at the center, whether that is
individual shopping episodes or the long-term experience with the brand.
Figure 1
THE O3 PLATFORM
Source: IDC Retail Insights, 2011
Working from the outside in, the platform is enabled by foundational technologies that are
maturing rapidly — big data, cloud, social, and mobility. The platform itself is a central
repository for standard information/content management as well as operational processes.
The real value from the platform will be harvested from the intelligence layer, which will
leverage the standard processes (and associated information) across functional domains to
align with the customer need and deliver on the brand promise.
Those functional domains — product management, supply chain, merchandising, and
customer experience — will come together under initiatives related to omnichannel
excellence:
Omnichannel fulfillment. The customer-centric strategy is meaningless if the
retailer can't execute.
Omnichannel merchandising. The old assortment science no longer applies.
Omnichannel marketing. Retailers must attract shoppers to their brand in the
consumer's context, not to their store with promotions bait.
Omnichannel commerce. As ecommerce gains more share (of both dollars and
influence), mobile and social commerce is hitting a fast track. Unified commerce is
the key.
The balance of our predictions will explore these four initiatives further to see how retailers
will approach the business challenges and deploy technology to take advantage of the
opportunities.
3. RETAILERS WILL RACE TO INNOVATE AND WILL OPERATE MORE EFFICIENTLY AS
A RESULT
Retail brands are certainly transforming to be responsive to consumers wherever they are
and however they shop, and at the same time retailers are expanding assortments through
marketplaces, and yet localizing assortments in store. While there is much activity in
operations, merchandising, and marketing to create winning customer experiences and
brands customers love to shop, the pace of innovation in the supply chain is remarkable.
Retailers are no longer waiting to be the accidental beneficiaries of adapted manufacturing
supply chain processes and applications but are now the de facto innovators in the supply
chain. Retailers, driven by real challenges including the complexity and risk of competing in
global markets from a business growth and product development perspective, must think
and act like the brands that they aspire to draw customers toward. Further, they must be
innovators in product and service to have any quantifiable brand advantage.
Advantage comes from beating the competition to market with highly sought-after
products, an accomplishment made possible by having finely tuned consumer listening
capabilities and efficient processes to act on insights gained, better and faster than the
competition. Technologies must foster responsiveness and agility, leveraging data assets
much more consistently throughout the enterprise and applying what we know about
consumer needs, supply, and competitive pressures in much closer to real time, to keep
pace with the current cadence of business and shifting consumer demands.
Mobile, social, and cloud-based technologies are enabling all brand constituents —
customers, associates, and suppliers — to engage with digital assets and products in
unparalleled ways, enabling higher levels of productivity and more successful products —
higher quality, higher margin, and better performing. Retailers will increasingly turn their
attention to the whole consumer-driven supply chain, implementing integrated end-to-end
mobile, social, and cloud-enabled processes inside and outside of the organization.
Indeed, leveraging technology to capture inspiration at the moment it occurs and facilitating
the use of this data in the development of new products may raise new legal issues
regarding whether products are truly "inspired by" or knockoffs. Likewise, interacting with
consumers to hone products designed to meet real needs will also raise issues regarding the
reliability and applicability of voice of the customer data.
4. RETAILERS WILL SYNCHRONIZE THE SUPPLY CHAIN WITH THE CLOCK SPEED OF
THEIR CUSTOMERS
Business is certainly fast paced; it's virtual and, as we described in the previous prediction,
the customer's shopping needs are somewhat of a moving target, therefore our strategies
need to be comprehensive and highly responsive. One of the challenges is the faster cadence
of business necessary to respond to rapidly evolving consumer needs. This often results in
clock-speed mismatches. The demand side of the supply chain is operating at ever faster
rates than the supply side — thus causing issues with inventory as we potentially don't
have the right products in the right place at the right time. We increasingly run the risk of
developing or procuring product through our normal seasonal processes that have little
shelf life by the time they get to market.
The accelerating pace of business necessitates rethinking our approach to the supply chain
and the way that supporting IT capabilities are consumed. There are four essential pillars of
modern supply chain operations:
Digitally connect processes, data, and people from the point of product inspiration
to the customer's purchase of that product
Enable visibility, not just to products in DCs and stores but also to the extended
pipeline — on trading partner shelves and in production
Enable omnichannel customer-optimized planning, scheduling, and execution that
improve sourcing, order orchestration, and fulfillment activities
Perfect inventory management, replenishment, and fulfillment capabilities,
achieving new levels of operational excellence and return on assets
Some of the specific capabilities that will increasingly come into play in the digitally
connected supply chain are a services-oriented layer that easily enables integration of
potentially disparate applications; common data structures — customer, vendor, product
and inventory, orders, and work — that are shared throughout the enterprise; social
networking that facilitates communication between associates and customers about
products, customer response, and service; mobile capabilities that improve access to
information, portability of our work and significantly bolsters creativity, spontaneity,
productivity, and communication; and cloud-based services that enable extended
collaboration and logistics capabilities that add flexibility and agility to our businesses.
Innovations that continue to gain traction in retail supply chains include:
Collective intelligence, social networking, and analytics that connect retailers with
customer intentions so that they are not crippled by driving product assortments
and strategies by looking in the rearview mirror
PLM applications that enable retailers to capture inspiration as well as manage
product development calendars, sourcing, workflow, specifications, materials costs,
and lead times
Social networking that connects associates to work and support from peers,
supervisors, and digital resources
3D visualization that supports everything from expediting product sampling
processes to engaging customers in store and collaborating on shelf assortments
and placement
Voice and mobile capabilities that permeate supply chain operations and product
development, supporting right- and left-brain activities — capturing inspiration and
improving productivity
RFID being alive and well in retail, with a majority of the activity in apparel
Cloud-based sourcing, logistics, order orchestration, and compliance capabilities
that enable agile responsive operations
5. RETAILERS WILL CREATE GREAT BRAND EXPERIENCES BY ENABLING ENGAGED
EMPLOYEE EXPERIENCES
Of course the last mile of the omnichannel shopping experience is the interaction that
occurs between the customer and an associate in store, on the Web, or at a call center. One
of the concerns we hear from retailers is that shoppers are often better informed than
employees, particularly regarding assortment, inventory availability, and specials. This
situation is untenable moving forward, and retailers must provide the appropriate tools to
make their associates useful to shoppers. Retailers are racing to not only engage their
customers but equally engage those on the front lines.
To do this effectively, retailers must take advantage of technology. This includes social
capabilities, but mostly in the social business (sharing, collaborating with other associates)
context. Mobility of course must also advance rapidly from the single-purpose inventory
control devices now widely deployed to more multipurpose (inventory, clienteling, etc.)
approaches on consumer-ready devices. There should also be consideration of cloud-based
applications that can help the associate, perhaps selectively by geography or product
category.
The applications unify and modernize existing capabilities but also extend a plethora of new
capabilities to the workforce that supports higher levels of productivity and engagement.
Engaging employees will also be key to executing on the speed and innovation demands
discussed in the previous two predictions. Task management applications should be tied to
shifting assortment strategies so that the associate responsiveness (speed) can match the
market dynamics.
As to innovation, the example of the Best Buy collective intelligence effort comes to mind.
Best Buy blue shirts (store associates) are able to give feedback on products and suggest
configurations that may be more suitable for the local trends (and sometimes catch a
broader trend earlier). This highly successful effort is a great example of the impact of the
engaged employee and will be part of the justification for new investment in 2012.
6. PLANNING PARADIGMS WILL BEGIN TO EVOLVE TO SUPPORT GENUINE CUSTOMER
BRAND ENGAGEMENT STRATEGIES
The waning retail planning paradigm, conceived almost 30 years ago, retains its product-
centric roots. Conventional product centricity is infused in:
Systems, for example, planning cubes dimensioned by time, merchandise class, and
location (a concept now expanded to "channels" to include ecommerce)
Key metrics by which planners plan, track, and forecast their business (e.g., units
sold, on hand, or on order as well as turns, dollars in sales, inventory, receipts, open
to buy, initial markup, average unit retail, and return allowances)
Space management in financial productivity, turns, allocation across products,
categories, and other aggregations as well as in collaborating with internal business
partners (merchants/buyers, marketing, store operations, distribution, sourcing,
etc.)
Grading stores and assigning (i.e., assorting and allocating) merchandise to them
and across channels
Life-cycle price, promotion, and markdown strategies and tactics
Tasks comprising the retail planner's role and responsibilities, for example,
attending to current season affairs via weekly (or daily) meetings to review last
week's key metrics trends, daily or weekly course correction decisions, weekly (or
monthly) reforecast of key metrics to season's end, competitive analysis, and
supplier reviews
Simultaneous planner tasks to plan future seasons' performance with the same
product-centric tools, metrics, and collaboration
Now, as more customer-oriented analytics become available, planners are bringing them to
bear on the many aspects of planning enumerated above, such as complementing store
grading on department size and unit volume with clustering store departments based on
local market demographics, competitive intensity, and so forth; dropping/adding products
from assortments with an eye on the most valuable customer or shopping mission baskets;
and demand transfers from one product to the next based on customer purchasing patterns.
Concurrently marketing to the greatest extent as well as buyers (or merchants), albeit with
slow adoption of collective intelligence tools, and store operations to a lesser extent also
brings customer-oriented analytics to bear in their domains.
While the trend toward using more customer-centric analytics is a positive development, in
the waning planning paradigm, customer insight is still only brought to bear on product-
centric decisions in a handmaiden role, without the customer (or segments), the customer
experience, or the customer's engagement with the brand being the focal point of key
planning, tracking, and forecasting metrics or of the planner's decisions these metrics
inform.
As critiqued above, the waning product-centric planning paradigm of today does not
provide all that planning needs to create the basis for growth strategies in customer-centric
retailer (outlined in prediction number 1).
There is an extended set of planning considerations, enumerated in the ellipses of Figure 2,
that must be addressed if retailers want to genuinely engage customers around their brand.
The O3 platform discussed previously provides the foundation for this new merchandise
intelligence to be integrated at all phases of this customer engagement — attract, inform,
sell, and serve.
Figure 2
THE EVOLUTION OF MERCHANDISE STRATEGIES
Source: IDC Retail Insights, 2011
In a complementary fashion:
Merchandise financial planning needs to extend to customer financial planning with
growth metrics such as same-shopper sales, shopping mission sales, current and
lifetime customer margin or profit, and investment (analogous to price investment
to increase unit sales), enabled by processes and systems to plan, effect, and track
these outcomes.
Assortment planning needs to extend to customer experience planning, with the
goal of enhancing "the show," which lies at the heart of a successful customer
engagement, to include, for example, connected, interactive, and transactional
digital signage and selling floor events in the stores channel as well as online
shopping and lifestyle living apps and operating metrics such as investment in and
returns on spatial, technology, and talent resources applied to customer
experiences.
Product-centric regular, promotion, and markdown pricing needs to extend to
omnichannel offer management as the localization and placement of product are
extended to the contextualization of individual customer offers with "messages of
influence" dynamically delivered to individual customers based on their current
circumstances such as in-process shopping mission and presented offers accepted
or rejected; recent activities such as an abandoned ecommerce shopping cart; and
historical behaviors such as propensity measurements of shopping and buying
behaviors in every channel, not just ecommerce.
The emerging supersets of merchandise planning focal points require systems, processes,
and organizations that more tightly integrate merchandising and marketing on a common
platform of an extended set of customer insights, beyond the narrow financial metrics of
annual spend, annual transaction, and simple demographics of age, income, and geography
relied on today, to include such metrics as:
Preferred channels and product categories
Breadth of categories shopped
Participation in loyalty programs and branded credit facilities
Return and exchange behaviors
Promotional and campaign response patterns
Shopping mission patterns
Product attribute propensities
Brand propensities
Declared lifestyles
eCommerce shopping, searching, and buying behaviors
7. CONTINUOUS ASSORTMENT PLANNING ORCHESTRATED FOR SPACE WILL BECOME
THE PLANNING HUB
Prediction number 6 addresses the need to extend the frontier of merchandise planning
paradigms beyond the product-centric roots. In a complementary fashion, prediction
number 7 addresses the need to reposition product-centric planning on a new foundation
built on and around assortment planning.
As practiced today, the efficacy of assortment planning (i.e., "assortment planning" as the
term is used in general merchandise and apparel or "category management" as practiced in
food and consumer packaged goods retail) has long been constrained on a number of fronts.
The ongoing developments shown in Table 4 are redressing these concerns to varying
degrees.
Table 4
ASSORTMENT PLANNING CONSTRAINTS
Long-Standing Constraints Ameliorative Developments
The lack of good product and the
growing importance of customer-
oriented analytics for store clustering,
customer segmentation, weather-
driven shopping patterns, and style
size profiles in apparel and footwear
Descriptive and predictive analytics and flexible,
scalable business intelligence (BI) tools for strategic,
tactical, and operational decision making — some
now emerging with real-time capabilities — and
new sources and types of data (e.g., weather event
markers and metrics, trade area location
intelligence, and price zoning)
Limited scalability, speed, and
flexibility of system with poor
visualization tools
Advanced software design and data management
techniques (e.g., column-oriented databases, in-
memory data storage and analysis, inexpensive
analytical appliances built from commodity
hardware and software, and elastic on-demand
cloud capacity remedy system scale, speed, and
flexibility constraints)
Multimedia user interfaces and 3D augmented
reality combined with digital asset, attribute, and
content management and governance bringing
merchandise visualization within reach
Reliance on spreadsheet
workarounds in the absence of
enterprise systems
Flexible, responsive enterprise systems that
integrate with desktop applications (in particular
Excel, Access, and PowerPoint) and with central data
management, eliminating much of the need for
desktop workarounds
Process and system designs that
relegate assortment planning to being
a static preseason activity, not a
dynamic continuous process through
season's end
System-level improvements in analytics, business
intelligence, scalability, and flexibility that support
the maturation of assortment planning into a
continuous process; accelerating rates of change
related to customers, competition, products,
channels, and so forth that put a premium on
continuous assortment planning — driving process
change management toward a continuous planning
paradigm
Disconnects with interdependent
processes such as product and price
life-cycle management and space and
fixture management
Space-aware assortment planning tools currently in
the market, with more coming; price life-cycle
management being woven into forecasts and
allocation decisions; improved visibility of WIP and
delivery status of orders
Inadequate governance and life-cycle
management of product attributes
and digital content
Digital asset, attribute, and content management and
governance practices evolving to take advantage of
emerging system capabilities
Limited ability to execute operational
tasks required to present assortment
as planned
Task management complementing workforce
management, reliable depictions of store-specific as-
built shelves and fixtures, case pack optimization,
and vendor and supply chain compliance to store
delivery orders reducing execution errors
Source: IDC Retail Insights, 2011
Taken as a whole and individually, the forces described above will put continuous space-
aware assortment at the hub of successful retail growth strategies. They will advance the
progression of planning toward our concept of LASAR-like planning — localized
assortments orchestrated for space, allocation, and replenishment.
Key dimensions of this new basis of competition will include such capabilities as:
Spoke configuration of planning processes around a space-aware assortment
planning hub, including merchandise financial planning; localization driven by store
clustering and customer segmentation; vendor, brand, and product development
management; global sourcing; allocation and replenishment; and life-cycle price
management
Intelligent in-season corrective action decisions in response to current or foreseen
supply disruptions, sales/sell-through variance to plan, and other contingencies
Unifying assortment planning organizations, processes, and systems across all
channels — stores, online, catalog
Decision making informed by descriptive and predictive analytics, and optimization
science too when appropriate, at the SKU-store (channel) level and summarized up,
not at, the category or class level and disaggregated down
Flexible merchandise hierarchy management to align assortment decisions with
customer experience objectives (as described in prediction number 6)
Acceleration toward the incorporation of macro- and microspatial constraints into
assortment plans — in view of assortment breadth and depth decisions, with
consideration given to, and explicit trade-offs made between, visual presentations
and the science of space optimization
Recognition that adroit governance and management of product attributes through
time, under governance of planners, merchants, product development, brand
vendors, marketing, and operations, are critical to insight, customer segmentation,
and store/channel clustering to tuning assortments for maximum value
8. THE STORE WILL EVOLVE — WELCOME TO THE OMNICHANNEL STORE
The store will evolve to be an integrated part of the omnichannel strategy. In regard to the
empowered-associate customer experience (discussed in prediction number 5), think of the
omnichannel store as the single brand place where you can bring online capabilities
(including social) inside the store and store value outside following the customer journey.
This is what we call "online inside."
This is a scenario that opens up a broad new set of marketing capabilities, where IT is a full
innovator and enabler. Starting with POS, retailers have the opportunity to evolve
traditional POS technologies into real-time architectures that can better serve:
Current business objectives (e.g., scale up POS and store systems capacity to meet
growing demand and to support new store openings with rapid time to market and
low cost of ownership)
Future business objectives, both in the short term (e.g., differentiate the customer
experience by enabling immersive, personalized brand experiences) and in the
longer run.
In other words, POS will evolve from just processing store transactions, meeting
fiscal/regulatory requirements, and updating inventory counts and other attributes in batch
mode to centrally and remotely managed real-time commerce engines available for all of
the selling channels. Key for retailers to differentiate will be the ability to bring online inside
the store — what we call "online inside" — fostering consumers' appetite for socializing
while shopping. For example, integration of social network services in the store will be an
emerging trend that will drive store revenue, increase average basket size, and drive
incremental store traffic or empower in-store associates with more accurate, timely,
customer-centric information that may better guide the sales process and overall customer
assistance.
Mobile POS and mobile store tools will also be in greater demand, and the same POS
decision made today for traditional checkout lanes should support future requirements for
future deployment of different checkout "form factors" (self, mobile, etc.). Mobile POS can
be a great queue-busting tool that reduces checkout time and delivers a perception of better
customer service. While efficiently checking out customers, well-trained sales associates
empowered with a mobile tool can also attain additional objectives in a timely manner
(cross-sell, upsell accessories or related services, capture customer feedback and insights,
perform inventory lookup for customer orders of out-of-stock products, etc.). The vision is
that of a point of sales and interaction and socialization engine all combined, with a separate
payment services layer abstracted from POS and sales channel in use, integrated with, and
going forward embedded into, an omnichannel orchestration and optimization platform,
leveraging cloud resources at the infrastructure, platform, and potentially also application
level. The omnichannel orchestration and optimization platform will also embed all of the
relevant store integration frameworks along with online, call center, and mobile technology
integration, configuration, and management capabilities into a consistent shopping
experience.
As a result, we recommend retailers consider the following action:
Implement points of socialization based upon an O3 platform. Make the same
and unique POS engine available to all sales channels. Embed a mobile retail
platform with shared management of mobile for both workforce and customer
usage. Abstract payments — with a payment services layer — from POS. Leverage
cloud resources at the infrastructure, platform, and potentially also application
level. Integrate social network services in the store. Embed predictive retail
intelligence in action "at customer" and not "at product," also fed by location and
(social) collective intelligence. We envision the omnichannel orchestration and
optimization platform will also embed all of the relevant store integration
frameworks along with online, call center, and mobile technology integration,
configuration, and management capabilities.
9. CUSTOMER EXPERIENCE IMPROVEMENTS TO BOOST ONLINE CONVERSION WILL
GO BEYOND THE WEB STORE
In 2011, many online retailers focused on improving the online customer experience with
the use of add-on tools, such as ratings and reviews and recommendation systems, the
effect being an uplift in conversion rates and basket sizes. This trend will continue in 2012;
however, retailers will need to start looking at the touch points across the whole online
customer journey rather than just when the consumer reaches the online store. These touch
points are broad and varied and are certain to increase and diversify over time.
Whereas search used to be a certain source of traffic to retail Web sites in the past, other
customer journey starting points are beginning to come to the fore. Sure, Google is still a
primary driver of traffic, but shoppers are also now initiating their purchasing journeys
from many other destinations such as social networking sites, ratings and reviews sites, and
daily deal or coupon sites such as Groupon and Living Social. Aggregator sites such as
Polyvore are also popular ways of shopping as consumers can browse products from
multiple online retailers in one place.
The shopping experience has evolved in this way for a number of reasons, the primary
reason being that consumers are more value focused. In these austere times for developed
ecommerce markets, consumers are researching before purchasing and shopping around to
find the best deal. Finding the best deal means finding the best value, but value does not
necessarily mean cheap. Consumers want products that are suitable and will last.
Purchasing on impulse is happening less frequently and, instead, discussing purchases with
friends through social networks and reading ratings and reviews are becoming deciding
factors when making a considered purchase.
The "final mile" will also become a stronger point of differentiation as retailers compete to
offer cheaper delivery, more accurate delivery times slots, and delivery in the shortest
possible time. The final mile also extends to the store. Online pure-play retailers are rolling
out lockers in malls and click and collect locations with noncompeting partner retailers,
thereby increasing the competition in the physical store space but without the cost of
owning high street stores. Multichannel retailers will look at innovative ways to compete
with these new dynamics.
Mobile will continue to spawn innovation, though in 2012, retailers will need to focus on
getting the basics right. The period of doubt is over; mobile is here to stay. Retailers that
have been tinkering around with mobile will now be forming clear strategies based on best
practices involving sales, marketing, and customer service. Moreover, mobile has become so
relevant to the retail business that when a digital decision is to be made, retailers will
decide first how it can work on mobile, with any other channel becoming second priority.
But just because retailers will be getting back to basics does not mean they will be holding
back in terms of innovation. Augmented reality will become more widely adopted, and we
will also start to see innovation around payments in online retail as mobile wallets start to
find a place and Intel introduces NFC chips to laptops, with interesting consequences for
online payments and retail loyalty schemes.
Channels will continue to appear and evolve. The next big "thing to watch," if you can excuse
the pun, is Internet television. IDC Retail Insights believes 2012 will be the first year we
start to see real advances in this area.
The important point among all of this channel activity is that the focus for retailers in 2012
is bringing all of these touch points together (search, social, shop, and serve) for a seamless
omnichannel retail experience — while at the same time leaving room for any newcomer
consumer touch points in the future. The ecommerce platform should be at the heart of this
consolidation.
10. ECOMMERCE DELIVERY MODELS WILL FRAGMENT
Although retailers will be looking to deliver on the online innovation and consolidation
discussed in the previous prediction, they are faced with the growing issues of lacking
industry resource as well as the situation whereby ecommerce growth is outpacing
investments in supporting technology.
Technology and service providers have also clocked on to the problems and have
broadened their technology delivery scope to meet the needs of retailers. For example,
software that has historically been sold as a one-off license and delivered as an on-premise
solution is now being offered as SaaS with a number of different payment options. This is a
broader trend originating from the acceptability in retail of running SaaS-based third-party
ecommerce add-ons, and one that is finding traction with the ecommerce market dynamics
as described above.
Another related problem is rearing its head as retailers look to international markets for
continued growth. Although ecommerce will continue to outgrow physical retail in mature
markets, sales growth is starting to plateau here too. To ensure continued growth, retailers
will continue to expand into emerging markets by dipping their toes in ecommerce.
However, ecommerce talent is even scarcer in developing online retail markets, so retailers
are looking for ways to maximize their presence in these markets with the few resources
available to them.
This is where ecommerce outsourcing models are coming to the fore. Retailers are not only
relying on outsourcers to manage their infrastructure, integration, and ecommerce
platforms; providers are also expected to be able to supply the payment and fulfillment and
logistics services in emerging markets, either directly or through partners. As such, there
will be more movement toward full ecommerce outsource models — from likely sources
such as ecommerce platform providers, but also from traditionally logistics focused
businesses moving into the technology space.
With all players jostling for a piece of the services action, it is fair to say that retailers will
become overwhelmed by the options available to them. Any provider that can pull all of
these offerings into a single simplified approach will win out. For this reason, IDC Retail
Insights believes that in the medium term, there will be a gradual consolidation of options.
This will occur as providers learn what works best for their business and, more pertinently,
as M&A activity creates integrated ecommerce stacks, and therefore single contracts.
Essential Guidance
The retail industry is in the midst of tremendous change, and with change comes
opportunity. Technology is increasingly critical to business success, from better planning
and execution behind the scenes to the technology that is exposed to the customer and
creates differentiating experiences. To align technology investments with business
priorities, IDC Retail Insights offers three core recommendations explained in the sections
that follow.
INVEST IN THE "FOUR FORCES" OF PRODUCTIVITY
In the decade from 2000 to 2009, retailers improved their information technology,
measured as spending as a percentage of revenue, by more than 25%. Investments in
virtualization, low-cost offshore development, business intelligence (BI), and wired
networking costs all contributed positively. It is important to distinguish productivity from
cost cutting. Productivity is measured by output over input so investments should provide
scale costs (input) while enabling a wide number of options for capturing business value
(output).
The productivity investments for this decade will revolve around what IDC refers to as the
four forces — mobility, social business, big data, and cloud. In fact, survey work completed
in 2011 shows that investments by retail companies are already under way and that these
investments will fundamentally change future cost models (again, the input side of
productivity).
Business value (the output part of IT productivity) can be less clearly articulated by IT
organizations. Two things are clear. First, the line-of-business executives (product sourcing,
supply chain, merchandising, marketing, distribution, store operations, etc.) have an
increasingly influential voice in what is being delivered. Second, the capabilities delivered
will be at the intersection of the four forces, as shown in Figure 3.
To understand Figure 3, think of the horizontal continuum as infrastructure. At one extreme
are broadly applied resources (compute, storage, and networking) as delivered by the
cloud, and at the other end are resources applied to a very specific domain, as we see with
big data appliances or applications. The vertical continuum is application related, which
stretches from those with an individual focus under the domain of mobility and those with
an organizationwide focus under social business. Four essential capabilities are created at
the intersection of these technology investments:
eBusiness 2.0. At the intersection of cloud and social business is the opportunity to
realize the promise of ebusiness. The hype-heavy discussions at the turn of the
century were hampered by infrastructure cost models that were fixed and
expensive as well as by the lack of a good mental model for interorganizational
collaboration. Cloud (flexible infrastructure costs) and social (a collaboration
model) provide the basis for revisiting ebusiness investments.
Corporate application store. At the intersection of mobility and cloud is the
emerging practice of building corporate app stores. The term consumerization has
been overused, but the original intent applies here. Line-of-business employees are
now used to having an application choice on their personal devices and will expect
the same for corporate applications. Large IT organizations have been busy building
service catalogs for their organizations, and IDC Retail Insights believes that quickly
developed and free apps (and we used apps to distinguish them from applications)
will be available in corporate app stores. The objective for the IT organization will
be to encourage the consumption of back-end services through consumerlike apps.
Automated processes. At the intersection of mobility and big data is the M2M
movement. Here, corporate IT organizations in the retail industry will continue to
look for ways to better instrument processes for data acquisition, monitoring, and
even actuation. A wireless device in the hands of every employee and the cost-
effectiveness of wireless sensors constitute the mobility story. Being able to handle
new volume, variety, and velocity of data is the big data part of the equation.
Integrated business intelligence. At the intersection of big data and social
business is a trend we have been following for several years and perhaps the most
important capability that will be created for the intelligent economy. Integrated
business intelligence is the evolution of past BI and data warehousing investments
into decision environments that model behavior and allow the organization to
engage the analyzed information to take better corrective and competitive actions.
Retailers should have an investment plan not only for the four forces individually but also
for the four enabling initiatives described above. If investment hasn't started, the company
is already behind.
Figure 3
Retail Initiatives from the Four Forces of Productivity
Source: IDC Retail Insights, 2011
CREATE A VISION AND INVESTMENT ROAD MAP FOR AN O3 PLATFORM
If the retail initiatives from the four forces of productivity (refer back to Figure 3) are
intended to drive improvements in internal operations, the O3 platform (also built on the
four forces; refer back to Figure 1) is what is exposed to the customer and enables the
transformation to customer-centric retailing.
Using our O3 platform as an architectural reference point, understand what your future
omnichannel platform will look like. When evaluating the next logical step of gap analysis,
be sure to take an honest assessment of the company's organizational, process, and
technology capabilities. Transformation begins with getting the organization and process
right before undertaking technology modernization.
DON'T FORGET THE IMPORTANCE OF BEING GENUINE
Too often retailers embark on employing a new way to reach customers (social, mobile, etc.)
but do so in a contrived way. The result is never good and often only serves to alienate
those the effort was meant to reach. When devising technology to reflect the brand promise
(assuming that promise is genuine of course), make sure that efforts to execute comply
honestly to the mission.
One way to assure this standard is met is to think about some new titles in the IT
organization. Some interesting examples we have seen are:
Social network anthropologist. An individual who observes the behavior of key
consumer types and better informs efforts
Scrummer. An individual who rapidly develops applications that encourage the
consumption of back-end services that encourage interaction and build brand
loyalty
Sensortician. Like an electrician, but someone who wires processes with sensors
for better data acquisition
Data scientist. An individual who can see the unique patterns that lead to evidence-
based differentiated experiences
We realize that not all of these positions have a direct impact on your degree of
genuineness. The important point is to rethink how you staff and augment those project
managers, system operators, and application developers with personnel who know how to
use the new tools.
Learn More
RELATED RESEARCH
Asia/Pacific Retail 2012 Top 10 Predictions (IDC Retail Insights #AP9140605T,
December 2011)
Business Strategy: How to Win and Keep More Customers by Excelling in Omnichannel-
Driven Order Management and Fulfillment (IDC Retail Insights #GRI229602, August
2011)
Perspective: Top 10 Recommendations for the Holiday Season (IDC Retail Insights
#GRI229659, August 2011)
Business Strategy: The RRM 2.0 Manifesto — Omnichannel Price, Promotion, and Offer
Optimization (IDC Retail Insights #GRI228477, June 2011)
SYNOPSIS
This IDC Retail Insights report presents the 2012 top 10 predictions for the retail industry.
Bob Parker, VP of Research, said, "2012 begins with the continued momentum from ongoing
improvement in consumer confidence. However, the recession has made a lasting impact on
business models, and retailers will have to use technology as a key mechanism for adapting
their business models and becoming more customer centric."
Table of Contents
1. PREDICTIONS
2. IN THIS STUDY
3. SITUATION OVERVIEW
THE HOURGLASS ECONOMY
CUSTOMER-CENTRIC RETAILING
IT SPENDING
Table 1: Worldwide Retail Industry External IT Spending by Select
Segment, 2011 and 2012 ($M)
Table 2: Worldwide Retail Industry External IT Spending by
Technology, 2011 and 2012 ($M)
Table 3: Worldwide Retail Industry External IT Spending by
Region, 2011 and 2012 ($M)
4. FUTURE OUTLOOK
1. CONSUMERS, NOT PRODUCTS OR CHANNELS, WILL CREATE THE BASIS FOR GROWTH
STRATEGIES
2. THE OMNICHANNEL CONSUMER WILL DIRECT A NEW RETAIL IT MODEL FOR THE
INDUSTRY — OMNICHANNEL ORCHESTRATION AND OPTIMIZATION
FIGURE 1: THE O3 PLATFORM
3. RETAILERS WILL RACE TO INNOVATE AND WILL OPERATE MORE EFFICIENTLY AS A
RESULT
4. RETAILERS WILL SYNCHRONIZE THE SUPPLY CHAIN WITH THE CLOCK SPEED OF THEIR
CUSTOMERS
5. RETAILERS WILL CREATE GREAT BRAND EXPERIENCES BY ENABLING ENGAGED
EMPLOYEE EXPERIENCES
6. PLANNING PARADIGMS WILL BEGIN TO EVOLVE TO SUPPORT GENUINE CUSTOMER
BRAND ENGAGEMENT STRATEGIES
FIGURE 2: THE EVOLUTION OF MERCHANDISE STRATEGIES
7. CONTINUOUS ASSORTMENT PLANNING ORCHESTRATED FOR SPACE WILL BECOME THE
PLANNING HUB
TABLE 4: ASSORTMENT PLANNING CONSTRAINTS
8. THE STORE WILL EVOLVE — WELCOME TO THE OMNICHANNEL STORE
9. CUSTOMER EXPERIENCE IMPROVEMENTS TO BOOST ONLINE CONVERSION WILL GO
BEYOND THE WEB STORE
10. ECOMMERCE DELIVERY MODELS WILL FRAGMENT
5. ESSENTIAL GUIDANCE
INVEST IN THE "FOUR FORCES" OF PRODUCTIVITY
Figure 3: Retail Initiatives from the Four Forces of Productivity
6. LEARN MORE
RELATED RESEARCH
SYNOPSIS
CREATE A VISION AND INVESTMENT ROAD MAP FOR AN O3 PLATFORM
DON'T FORGET THE IMPORTANCE OF BEING GENUINE Copyright 2010 IDC. Reproduction is forbidden unless authorized. All rights reserved.