Tough love memo to retailers - stop wasting money on incremental tech!

The retail sector is littered with recent casualties - see Toys R Us, Maplins, New Look, Select, Feather & Black, Multiyork et al for proof. No retail category is immune, whether cheap clothes or luxury furnishings. And yet again, the list highlights that it’s mostly the traditional retail brands, rather than online pureplays, who are struggling to salvage operations through mass store closures or rent reductions.

But as Stuart Lauchlan noted recently, there is hope for the retail sector,  if they can get their technology and data strategies right. This is certainly something top of mind for three leading UK firms, Sainsbury’s-Argos, John Lewis and House of Fraser, as they seek to reinvent their respective retail brands for the digital era.

One major problem only just coming to light for retailers is that even where they have put technology in place to serve the modern customer and ‘go digital’, all too often this has been done as an add-on rather than as something integral to the business.

Andrew Murphy, Group CIO at the John Lewis Partnership, argues that the extent to which technology has helped add value to customers is only now becoming a focus:

Companies like big complex retailers with large physical estates and huge workforces have tended to layer on front-end technology. We’re only retrospectively starting to consider how that integrates within the organisation and actually add overall value to the customer experience.

As we’ve moved through the era of multi-channel into omni-channel, that’s been a dawning realisation for many executives. It couldn’t all be iterative and additive. There comes a point where you have to integrate and become more than a sum of the parts.

The reason so many retailers are falling by the wayside could also be down to their general lack of appetite for embracing the digital era. George Goley, CTO at Sainsbury’s-Argos, sees a sliding scale of companies.

• At one end you have those who want to go back to the old ways of being cash-only.
• Moving along you have the technology-supported firms, who want to use commodity software, but not embed it in the DNA of the company.
• Then you get to the technology-driven businesses, the Amazons, Googles and Facebooks, for whom tech is the driver and makes the difference.
• And finally the technology companies, an Oracle, IBM, Salesforce, Infor or Microsoft.

As to where Sainsbury's-Argos sits, Goley expains:

At Sainsbury’s-Argos, we’re moving toward being technology-driven and we think that’s right and proper. Other folks think that being technology-supported is right and proper. The people that get the most from their investment are those who embed it most deeply throughout their company as part of their DNA and fundamentally depend on it to drive their business. It’s harder to get return on investment when you’re looking at it as just a supporting thing and a necessary evil you need to deal with.

Internal support needed

There has also been too much emphasis on technology to push forward innovation and digital tools that the customer can take advantage of, rather than to support people working within retailers.

Julian Burnett, CIO & Executive Director - Supply Chain at House of Fraser, called for more focus on fusing technology into the daily lives of every staff member so the customer experience they generate amplifies the brand:

I sometimes typify the last five years as being applying lipstick to a pig. I look at large-scale organisations in any sector, but retail in particular – they grow through growth of people, and technology in the service of that growth is best directed at those people, particularly those that can express your brand values connecting with customers every day.

We cannot ignore that we are very large businesses made up first and foremost of people undertaking processes. Omni-channel retail isn’t just about channel. In fact I’d really like us to stop using the word. It’s about the experience we can provide our customers and through that, the expression of our brand. That comes through the connections of people and processes at vast scale where technology is in service of.

(House of Fraser, which employs around 180,000 people, is facing its own crisis. The 170-year old retailer held emergency funding talks earlier this week with specialist lenders amid mounting fears for its future. Whether the store decides to put Burnett’s advice into practice and manages to survive this latest challenge remains to be seen; Burnett is leaving the business shortly, to be replaced by Gary Monk, executive director for operations.)

Certainly carrying on down a path of incremental technology change is not likely to help House of Fraser, or any other struggling retailers. As Murphy notes:

While seductive, and often in isolation looking like it offers a return on investment, when you line them up over the last five or 10 years, and play back the market value of the companies that have done that [piecemeal technology rollouts], these are non-returning investments. In fact they’re value-destroying investments because the value of the retail companies has gone down.

This is why I’m resolutely holding the part of the business that I’m responsible for in a place of tension that says it is not enough for it to have an isolated ROI, it is not enough for it to be better next year. It has to create broad and long-term sustainable value. And that can only be measured across the whole company.

So a rather bleak outlook for retailers so far, with a general theme of wasted technology investments and lack of interest in becoming technology-driven businesses. Is there any glimmer of hope for the sector? Yes – and it comes in two forms: data and the human touch.

One of the biggest assets retailers possess is data, but some of the longest-standing companies are struggling to get value from it. Burnett argues:

We are entering the next period of retail evolution and data will be at the forefront of that. Those that can exploit it in an industrial sense will gain advantage.

The potential for data sharing could also help retailers forge better relationships with their suppliers, who are looking for some control over how customers view their brand when it’s on display in a John Lewis or an Argos.

There is already lots of data available that could let retailers offer suppliers like a Dyson or an Apple an opportunity to express themselves to customers in their preferred way, and get access to the data – but a lot more work is needed on the implementation. Goley says:

That’s certainly an opportunity that we didn’t have before and we don’t have yet. The technologies we are using, the technology being built are not yet ready to be that transparent, especially in the era of GDPR (General Data Protection Regulation). They are not yet good enough.

As noted on diginomica before, looking at physical stores as an asset to be newly exploited rather than a hindrance could also help retailers keep customers on side, who often already have an emotional attachment to established brands.

Goley suggests that in the US, Amazon isn’t quite as aggressive about investing in physical locations as delivery works better there than in the UK:

That’s a huge advantage for us. People would rather stop at a Sainsbury’s and a John Lewis, a House of Fraser on the way home and pick up their stuff.

The other part is the empowered people – technology with the human touch. In the UK, people like going into shops, they get well treated in shops. People count with a John Lewis jumper on or a Sainsbury’s badge.

My take

Some tough love advice! Worth listening to.