BrainTrust Query: Is retail technology in a rut? Where will the next big advance come from?

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Aug 11, 2006
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By Mark Lilien, Consultant, Retail Technology Group

Eight years ago, the Nasdaq Composite Index broke 2000 for the first time. And it just broke 2000 again…after soaring to 5000 and plummeting to 1000 in the interim. Given that the Nasdaq is a strong proxy for technology stocks, does this mean that retail technology is in the doldrums right now?

IBM, certainly a tech powerhouse for software, hardware, and services, is around 76 dollars per share. A year ago it was at around 84 and five-years ago it was 105. For the last few years, the major tech growth stocks making news have been Asian outsourcers (Cognizant, Infosys), not software, hardware or telecom innovators. The score box:



































































Today*


Year Ago


2-Years Ago


5-Years Ago


Microsoft


24


27


28


33


Dell


22


40


35


28


Oracle


15


14


11


16


SAP


44


43


39


39


Intel


17


27


23


30


Infosys


41


36


24


17


Cognizant


66


49


27


5


Nasdaq Composite


2060


2175


1800


2000

* Share prices (rounded) as of 8/9/06

Major technology innovation comes in fast-paced cycles. Client-server networks, the internet, cell phones, Y2K and ERP solutions all grew quickly, in double and triple digits. They helped change society. They were huge, headlining, transformational, quantum-leap investments. Do you see any technology on the horizon with relevance to retail (and I suppose, what doesn’t have relevance?) with comparable strength?


Discussion Questions: Do you agree that retail technology is currently in a rut? When can we expect the next big advance and from whence will it come?


Retailers benefit from technology in two ways: they sell it (Comp USA, Best Buy) and they use it themselves (POS solutions, CRM, RFID).


Certainly RFID and CRM have major potential to be the “next big thing,” but are they giant-size leaps forward? Any Big Picture Potential on your radar screen?
Or will technology, including retail technology, just stay in the doldrums for a few more years? Will we just have step-change improvements (HDTV, WiFi cell phones, Vista) instead
of “true breakthroughs”?

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10 Comments on "BrainTrust Query: Is retail technology in a rut? Where will the next big advance come from?"


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Eliott Olson
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Eliott Olson
14 years 6 months ago

Retail always has problems with measuring return on investment for capital projects in existing stores because it is difficult to quantify results and, in many cases, the operations oriented managers view all expenses as costs and not investments. There was also a bunch of IT money poured into 2000 compliance that may or may not have increased productivity but surely increased costs. In any case, most retailers view throwing money at existing stores right up there with taking their wives out for a champagne dinner and the opera. It is something they might have to do but don’t like doing.

Expect very little revolutionary technology from existing store groups but expect a new chain to emerge, capitalizing on technological innovation as Wal-Mart did with logistics. Tesco might be a player or it might come from the internet.

Pete Hisey
Guest
Pete Hisey
14 years 6 months ago

It’s going very slowly, but electronic shelf pricing has enormous potential to allow retailers to alter pricing by daypart to, for instance, charge higher prices on some items during convenience shopping hours, and lower prices when the regulars are stocking up.

I was in Brazil about 10 years ago, talking to a grocer there about how he would compete with Wal-Mart. He took me back to his server farm and asked, “Has Wal-Mart ever had to change its prices 26 times in one day, like we did when we had 1,500% inflation? We learned, and we learned how to use it to our advantage.”

I think that ESP is going to make a lot of retailers more profitable and allow them to be closer to their customers. For instance, an active smart card for loyal shoppers might instantly change prices for the better as the shopper reaches the shelf, leading to greater impulse sales.

The possibilities are endless.

John Franco
Guest
14 years 6 months ago

The development and implementation of new technology has sped up the product development cycle tremendously. This gives a new product that could be earth-shattering a much shorter time on the market before something new comes along. So things are growing, but new things are introduced more quickly than ever before, and nothing has time to take hold as the next big thing.

Stuart Silverman
Guest
Stuart Silverman
14 years 6 months ago
“Is retail technology in a rut?” vs. “What’s the next big thing?” are 2 different issues. If the growth and deployment of new ideas is not very robust, I point to consolidation. Consolidation of retailers means that there are fewer retailers to buy new technologies, thus limiting what technology providers will invest. This has also forced a consolidation of retail technology providers. Consolidation of retail technology providers has several impacts. One, it is in the technology provider’s best interest to leverage what they have already developed – so that tips the balance in favor of small incremental improvements to existing technologies. Two, there is less competition, thus reducing the imperative to improve. Three, the technology decision making process at retailers has traditionally been very conservative. This tends to favor purchases from the larger accepted technology providers. So, it becomes a vicious circle of non-innovation. Retailers buy safe decisions from the leading technology vendors who have little incentive to do new things. But it’s not all doom and gloom. There are some bright spots. Look at… Read more »
Dan Gilmore
Guest
Dan Gilmore
14 years 6 months ago
It’s not just retail technology that is in a “rut,” it is technology in most areas of business. The biggest factor is that we have simply automated virtually every functional area of business, in retail and outside of retail. There are few really new vistas to explore. I’m not sure CRM or RFID are really breakthrough type technologies. So, the real question is, where can we see opportunities for really automating or advancing current technology? In general, I believe the next wave of overall business IT, if it comes, must inevitably move from automation of transactions to a higher level of “intelligence” – more smarts. We’re certainly moving down that path incrementally in retail with inventory and merchandising optimization applications, data mining, etc., but I think 20 years from now we’ll look back and see we were barely scratching the surface. The implication – which isn’t necessarily a good one, in some respects – is that there will be more decision-making by computers and less by humans. I also think we will see a wave… Read more »
Dr. Stephen Needel
Guest
14 years 6 months ago

The breakthrough may be less of a technology breakthrough and more of a use of technology breakthrough – we don’t make nearly enough use of the information and systems we have.

Bill Robinson
Guest
Bill Robinson
14 years 6 months ago
Retail technology in a rut? Absolutely, because the retail community is retooling its infrastructure. And no retail software vendors are able to provide an integrated suite without the retailer having to risk major disruption and endure huge costs. But three pieces of infrastructure are rapidly being installed that will catapult the retail community to a new level. First, the industry is about half way through retooling store level systems from the stalwart PC-based point of sale oriented approach of the 90’s. The new store level equipment is typically able to offer more services to shoppers and empower store level employees. They also capture more customer touch points. Second, retailers, large and small, are connecting their stores and suppliers with high speed communication links. Third, retailers are implementing data warehouses that are fed by the myriad best of breed applications they’ve purchased or developed over the last two decades. More customer touch points to track. Better communications. More analytical power. These three pillars will galvanize new dimensions in retail technology that will serve the customer better,… Read more »
Mark Burr
Guest
14 years 6 months ago

I think that there is a big difference between technology ‘breakthroughs’ and real implementations. Whether or not true innovation may have slowed, I don’t believe that there is any indication that retail spending and implementations of existing and updated retail systems has slowed by any means measurable. If measured accurately, it would likely be well on the increase.

Simply take into account any one of the following or more:

Self-checkout, biometric payments systems, quick pass payment systems, innovation in fuel retailing combined with marketing, expansion of RF capabilities in-store, improved infrastructure speeds, remote payment, computer automated ordering, RFID in-roads (albeit slow), advancements in data warehousing, supply chain system enhancements, data synchronization, and the list goes on…and on…

A rut? Hardly.

David Mallon
Guest
David Mallon
14 years 6 months ago

First, the premise for the question doesn’t hold up. The retail sector doesn’t have much impact on the overall performance of the technology sector. Citing the performance of the tech sector in general as evidence of what’s happening in retail just doesn’t make the case.

That said, to be in a “rut” you have to have had a smooth road that has been worn. Retail has always been among the slowest industries to deploy technology, and that hasn’t changed. The old model just doesn’t adapt well. Change management issues prevent successful tech adoption. And, in general, retailers are bad at making capital investments of any kind.

Where are the tech companies that have been successful in retail? JDA and Retek have always struggled (Retek, now Oracle’s problem). I can’t think of many worse businesses to be in than selling technology to retailers.

Ragnar Haugan
Guest
Ragnar Haugan
14 years 6 months ago
The discussions we have had lately about inventory levels through the supply chain and today’s discussion of retail technology, are all related to bringing the business process of retail, (starting in the back office of the manufacturer), through the supply chain to the involvement of the customer of the future; up to a new and “different” level. We have not seen the the dramatic changes yet, but the technology that can bring the added value to improve this “total process” to a new level will be welcomed in the board rooms. (If they can see the possibilities and have the financial strength and stamina to get up in the front of the development.) The risk of failure is high and the small steps to towards the future high stakes will be taken by trying to adopt the new breakthroughs and knowledge that can be documented as successful. And the number one demand for a retail chain today is to have total control of the flow of goods! How many suppliers will knock on the door… Read more »
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