Should retail still be nervous about the cloud?

Discussion
Jan 27, 2017
Tom Ryan

A survey of from IHL Group shows that retailers plan to spend 34 percent of their software budgets on the cloud in 2017, up from 26 percent in 2016.

Speaking at a breakfast panel at the 2017 National Retail Federation Big Show, Jeff Roster, VP of strategy at IHL, asserted retailers need to leverage the cloud’s speed, scalability and flexibility to catch up to Amazon.com. According to BizTech, he said, “You are either at the table of unified commerce or you’re on the menu.”

Connecting e-commerce, point-of-sale (POS), order management, fulfillment and inventory management at a single source, the cloud is expected to help retailers deliver a seamless and personalized experience for shoppers on mobile devices. Fast access to real-time data can also help in areas such as product development and inventory management.

Yet retailers have been hesitant to capitalize on the cloud. A primary reason is it appears to work best as a software as a service (SaaS) model and IT departments are reluctant to abandon their earth-bound infrastructure.

In 2014, Accenture noted in a report that established brick-and-mortar retailers had been slow to embrace the cloud over fears that they may disrupt their core systems — particularly POS. Moreover, with core systems seen as differentiators, cloud software was often being written in-house, which was leading to significant expenses tied up in technology maintenance and upgrades.

Accenture still felt at the time that increasing demands from consumers would lead retailers to make a leap to an “era of cloud computing in which applications are distributed across the local data center, a cloud provider and the datacenters and cloud providers of a retailer’s trading partners.”

While cloud computing has received more attention over the last two years, costs, security and agility are some concerns when working with a remote partner. SPS Commerce’s new report, “Retail Insight: Moving Beyond Omnichannel,” also still finds legacy systems are the top factor hindering omnichannel execution. Of the retailers surveyed as part of the report, 29 percent named legacy systems as their top obstacle.

DISCUSSION QUESTIONS: Should retailers still have concerns about switching from legacy IT systems to a SaaS-supported cloud operating platform? What obvious and less obvious challenges have you seen encountered by retailers making the shift?

Braintrust
"While some retailers may be concerned about letting go of internally managed systems, I believe the bigger issue is budget."
"The one exception is POS, which processes the majority of a retailer’s revenue. No CIO will trust store sales to an imperfect network."
"It’s easy to say that retailers just don’t want to let go of their hardware, but I think the issue is far more complex."

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18 Comments on "Should retail still be nervous about the cloud?"

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Mark Ryski
BrainTrust

Moving legacy IT systems to the cloud is inevitable. The benefits of cloud-based systems are well understood and compelling. While some retailers may be concerned about letting go of internally managed systems, I believe the bigger issue is budget. Many retailers are burdened by legacy systems that would require a significant investment to transition — a real challenge given how many retailers have cut capital expenditure budgets as a result of negative same-store sales results. Additionally, the potential disruption of transitioning core systems to the cloud represent a significant risk. Despite these challenges, moving core systems to the cloud is a smart move.

Charles Dimov
BrainTrust

Completely agree! SaaS has been shown to beat on-premise systems in study after study. Don’t forget that on a Total Cost of Ownership (TCO) basis, cloud computing means lower personnel costs, space costs, electricity, heating/cooling, software upgrades, maintenance, insurance, etc. All these are easy to forget and often hidden costs that all erode margins.

For retailers the best option is to look for best-of-breed solutions that help them upgrade and augment their retail technologies. Rather than doing a full forklift of the existing system, start adding SaaS systems where they will have a big impact. Perhaps the POS, Order Management System or parts of the warehouse system. This approach is palatable and grows the experience base and comfort level.

One way or the other, as you point out, Mark — it is inevitable. Retailers need to start taking the small steps (like best-of-breed point approach). Better a small step than being left behind completely!

Paula Rosenblum
BrainTrust

Jeff is a good friend of mine, but I have to disagree with him on this one. The “cloud” is a delivery mechanism. It’s not a “thing.” Functionality is what matters, not the delivery mechanism.

Plus, it is no small thing for retailers to move their IT expense from the CAPEX line (below the EBITDA) to an expense (affecting earnings).

It’s easy to say that retailers just don’t want to let go of their hardware, but I think the issue is far more complex. Along with the expense issue I mentioned above, retailers tend to believe they need certain customizations (right or wrong). That’s lost in the cloud. The frequency of updates, while ostensibly frictionless, can potentially have a lot of friction (this one is real).

I have always believed that for the most part, cloud has been driven by investors and vendors, while retailers have resisted until they’re running out of gas.

Should retailers have concerns? Yeah, I do.

David Dorf
BrainTrust

Most retail systems are made better by the cloud. They can scale more easily, stay updated with new features and tend to be more secure. The one exception is POS, which processes the majority of a retailer’s revenue. No CIO will trust store sales to an imperfect network. So retailers can either invest in the network infrastructure to provide a backup network (like 3G or 4G) or ensure the POS has resiliency when offline. SaaS is here to stay, even for store systems.

Cathy Hotka
BrainTrust

Roster is exactly right. The show floor at NRF was full of companies promising incremental tweaks when big sweeping change is the order of the day. Retail companies need to get on board or watch history pass them by. IT staffs need to be transforming the company, not backing up files and updating software.

Bob Amster
BrainTrust

“The cloud” is an overused term that can mean many things to different people: SaaS, remote computing, outsourced data centers, etc. The main component of the “the cloud” that makes it acceptable to embrace is the improved reliability of the infrastructure (read: communications networks) that gets businesses and people connected to the cloud. As a fervent proponent of SaaS and outsourced data centers, I believe that IT executives need to get over the “it has to be under my roof so I can control it” syndrome. For a vast majority of businesses (90 percent) the cloud provides the opportunity to concentrate more on the business and less on the security and infrastructure that is required for the applications to run, not to mention the tremendous increase in accessibility afforded by browser-based applications.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Cloud-based, like managed services, offers economies in CAPEX, OPEX, time to implement, maintenance, etc. Executives can rightly lose sleep over committing their operations to the contributors of a cloud service. Technology services should be classified for cloud use. The heart of retail is in its ability to operate, and core applications systems with inherent data stores are crown jewels that would be a big burden to replace. Confidential information loss (i.e., credit card, staff information) places a big burden on brand equity. Retail should protect and build its assets, realizing that doing this is a cost of business.

Lee Kent
BrainTrust

While I believe that retailers would surely benefit by moving away from sluggy old, linear-based legacy systems, I get their pain. The cost along with unraveling all the chicken wire that is keeping it all together. Over the decades retailers have made heavy capital investments in their legacy software making it cost prohibitive to rip and replace. The result? Patched-on workarounds to add current capabilities. These old systems also stand in the way of getting them to real-time information due to their linear nature and thus lack of speed.

Using one of my mothers favorite words, it would “behoove” them to move to the cloud but hey, I get it. But the game is on and the game is in the cloud.

For my 2 cents.

Ken Morris
BrainTrust
In the past, networks were unreliable, slow and expensive, thereby creating a decentralized store technology model — generally updated with yesterday’s data — based on necessity. As retailers and solution providers look for ways to accelerate the path to unified commerce, more and more capabilities are being centralized or offered as cloud-based services. Retailers are embracing this move to the cloud as they realize that it is key to accelerating their path to a unified commerce platform that is integrated, scalable and flexible to support evolving business needs. Further bolstering the move to the cloud is the availability of much more sophisticated networking technology. With today’s network technology, retailers can truly achieve 100 percent uptime — removing the last perceived hurdle to moving away from decentralized commerce solutions that have been the norm for decades. Cloud computing, either off or on-premise, offers the quickest and surest path to seamlessly connect all e-commerce, mobile commerce and in-store POS transactions to order management, inventory, marketing, financials, supply chain and customer service. According to BRP’s 2017 POS/Customer Engagement Survey, within two years, 60 percent of retailers plan to have centralized or cloud-based POS, up from 36 percent today. Retailers are recognizing the value… Read more »
Ralph Jacobson
BrainTrust

I realize there are still retailers, very large and very small, that are hesitant to move to cloud platforms, however experience has shown that the traditional apprehensions have not proven to come to light. The security is there with the right technologies in place. The flexibility, speed and total cost of ownership is compelling to move to cloud. Those three aspects are critical for profitable retail growth.

Tom Redd
Guest

Who is this Jeff guy? I am with Paula. Change for retailers takes time, but in the end the cloud is more efficient and as a basic platform very secure. There are many apps for retail that need little customization because they are rule-based and thus the rule set changes can tune the functionality to meet the needs of the retailers. The rapid scalabity of the cloud and the overall cost savings are a big plus for retailers.

And yes, I do know this Jeff guy … he is smart but carries around a lot of stuffed animals at trade shows. The analyst trade can do strange stuff to people after many years.

GO ROSTER GO!

Michael Day
BrainTrust
Last week at NRF I was introduced to the acronym TIGER: “Technology Innovation Gap In Retail,” along with various estimates and projections regarding just how much retailers will need to up their game and increase their IT spending to effectively compete with Amazon, etc. (my favorite: “Those retailers that are winning are increasing their IT spending at a rate 4X faster than those who are struggling to grow their revenues”). At this point many retailers still don’t know what they don’t know when it comes to the cloud. For me NRF2017 did validate what we already knew: Writ large, and in a material way, global retail is starting to sing the song of connected data and analytics. Now let’s see who actually walks the walk. Retailers have a lot of work to do, and cloud solutions will play a significant role (the need for agility, flexibility, speed to value, etc. around deployment of connected data business value solutions and analytics insights, probably guarantees cloud will be a major component of the retail systems infrastructure landscape moving forward). For a lot of retailers the immediate answer will most likely be a hybrid existence, a mix of legacy on-premises and cloud. But… Read more »
Adrian Weidmann
BrainTrust

The question and its answer are not that simple. The issue at hand is that Moore’s Law, cloud computing (what Tom Friedman refers to as the “supernova”) and the expectations of digitally-empowered shoppers are collectively forcing retailers to move outside of their IT and process comfort zone. On top of all that is determining why and what retailers should actually be processing and computing. Simply digitizing the status quo is not the answer. Retailers and brands need to collaborate and realize that to match the seismic shift that consumers/shoppers are experiencing, retailers and brands need to completely reexamine their legacy systems to determine if they even matter anymore. Chances are, many of them don’t!

Kai Clarke
BrainTrust

No. Virtual computing, data access and effortless programming are all part of today’s “cloud” environment which will only continue to grow. All companies, retailers included should be embracing this for their applications, IT platforms, etc. This is the movement of technology. Why would they be nervous?

James Tenser
BrainTrust

Cloud-based solutions make plenty of sense for online retailing and analytics systems. For certain store-centric functions, however, retailers are correct to resist relocating mission-critical computing to remote, centralized systems.

Case in point: store-level perpetual inventory and automated ordering systems for FMCG need a “local loop” linking handheld devices and the POS to work effectively. That typically means placing a small dedicated server in each physical location. The alternative, sending shelf-scan data upstream to centralized order management platform, introduces delays in communications and ordering time lag inaccuracies that cause out-of-stocks, excess inventory, labor excesses, or all three.

Of course local replenishment systems still need to report upstream to management and analytics systems, These can dwell successfully in the cloud, enabling visualization of insights and reporting. This “big loop” is essential too, but it does not erase the need for the local loop.

Sky Rota
Guest
7 months 27 days ago

Old fashioned companies moving to the cloud is like everything else today, it is change. I know my father was scared to hand over the reins to a new platform. My Father fought moving to a cloud based system for years, and it took a lot of convincing and lots of work to get there. Now he is seeing his sites working faster than ever and his company believes this is one of the reasons he has seen an increase in business this past year. He has also saved on in-house maintenance of his servers. It was time to futurize his business. I’m proud of him for embracing this change. It was harder than most people think. You go dad!

Vahe Katros
Guest
Once again I am reminded of an old saying from back in the day: “If SAP is the answer, what’s the question?” That statement applies to any computing infrastructure investment and I submit that the question was not just: how can I deal with the costs and integration headaches of what was then called “islands of automation,” but how can I achieve a next generation supply chain? SAP and others helped do that via a new technology architecture and in the process, they helped alter the architectures and business models of numerous industries. So now to paraphrase: “If the Cloud is the answer, what’s the question?” Based on what Tom wrote via Jeff, I’m hearing the question as: “How can I enable “unified commerce?” Well to me, that rhymes with how can I have my own version of Walmart’s Retail Link that this time enables collaboration all the way to the customer’s smartphone? That’s a lot more compelling than moving to the cloud to get rid of Fred, the head of IT ops who never clears out the fridge. (Don’t worry Fred, you can stay, just no more Chinese food ok?!” How might this look? Perhaps it might make sense… Read more »
Dave Nixon
Guest
Dave Nixon
7 months 25 days ago

It should be embraced!

Less cost, higher security, pay as you go (or for what you need), reduced operations and support costs (resources) and scalable with a mouse click; why wouldn’t a business with razor thin margins, like retail, leverage this new wave of infrastructure?

wpDiscuz
Braintrust
"While some retailers may be concerned about letting go of internally managed systems, I believe the bigger issue is budget."
"The one exception is POS, which processes the majority of a retailer’s revenue. No CIO will trust store sales to an imperfect network."
"It’s easy to say that retailers just don’t want to let go of their hardware, but I think the issue is far more complex."

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