Last week, in a move that was reflective of the entire retail industry, Walmart cut its profit outlook for the year. Other retailers have raised concerns as well; Target warned investors in June that profit margins would suffer as a result of an aggressive plan to sell off unwanted inventory; in April, Macy’s warned investors that in the face of economic uncertainty, consumers might spend on vacations rather than the latest fashions. These announcements come in the face of factors that everyone is aware of: inflation, persistent supply chain problems, uncertainty about the lingering pandemic and a resulting loss of consumer confidence.

The Conference Board, an organization that analyzes economic data to publish widely watched economic indicators, announced last week that its Consumer Confidence Index[1] stands at 95.7, down 2.7 points from June. The Conference Board also revised its Leading Economic Index in June,  downward 0.8 points from May (suggesting slower economic growth), after revising its Measure of CEO Confidence downward in May.

All of this creates a kind of echo chamber effect: retailers worry and advise Wall Street accordingly, media amplifies the message, consumers hear it and do what they always do –shift towards “value” and focus on essentials, which worries retailers even more… and ‘round and ‘round we go.

As a reaction to all the noise, several of RSR’s technology company clients have asked us lately if the sturm und drang will trigger a pullback of retailers’ technology investment plans.  Of course, it’s hard to generalize for the whole retail industry – no two retailers are alike except in one way: they’re tight when it comes to technology spending. We see this all the time in our benchmark studies. Just as an example, in RSR’s July 2022 benchmark on how retailers are operationalizing analytics with new KPIs, we found that the top inhibitor to the adoption of new analytics and operational metrics is hard to quantify ROI for new analytics capabilities. This is consistent with virtually every benchmark on any subject we’ve done in our 15 years of existence.  Retailers are very conservative when it comes to tech investments even in the best of times. And these, by all appearances, aren’t the best of times.

But to answer our clients’ question: It’s not likely.

So, what’s different about today’s dynamics that would justify such an assessment?  That part isn’t hard: the rapid consumer adoption in 2020-21 of omnichannel fulfillment options changed … everything. Earlier this year, management consulting firm McKinsey estimated that 80% of retail customers developed “new shopping behaviors” because of COVID-19 (e.g., omnichannel shopping), and one half of those will continue to use services such as buy-online-pickup-instore (BOPIS) in the future.

That should be good news for retailers, who have rediscovered the stores as a key differentiator to big demand aggregators like Amazon and E-commerce pureplays. Since 2020, retailers have experienced a dramatic increase in consumer shopping journeys that begin in the digital domain and end in the store. RSR’s forthcoming benchmark on the state of the store reveals that 68% of over-performing retailers (“Retail Winners”) strongly agree with the statement that the role of the store has changed significantly since the start of the pandemic (compared to 44% of average and under-performers).

But that has put pressure on stores to offer new services to consumers that require technology. A 2021 RSR benchmark report  noted that new consumer expectations are the top challenge causing retailers to consider implementation of services like “buy-online-pickup-instore” (BOPIS) and “buy-online-return-instore” (BORIS). While most retailers did what was necessary to satisfy customers, there is clearly more work to be done to be able to monitor and (hopefully) optimize order management and fulfillment processes.

The Must-Haves

While there are many technology capabilities that rate highly on retailers’ roadmaps, these are the must-haves:

First, enterprise-wide and accurate visibility into available-to-sell inventory. While many retailers have been working at this for years, the forthcoming store benchmark reveals that there’s a lot of work still to do:

Simply put, retailers know that they cannot optimize omnichannel selling and fulfillment without this capability. 

Second, retailers need to optimize order management and fulfillment. This is a complex challenge of interrelated issues that must be addressed to make omnichannel customer order fulfillment a profitable activity. Beyond finding the best place to fulfill an order from (depending on the availability of inventory, labor and shipping costs, and consumer preference) retailers need to integrate order fulfillment with workforce management, customer management, merchandise management, and even instore point-of-sale systems. Some of those operational systems have been in place for decades and were never intended to fulfill new omnichannel selling and fulfillment requirements.

That’s Not All

The must-haves are all about enabling profitable omnichannel ordering and fulfillment.  But customers have expectations about what a 21^st Century store should be like. Here is a list of customer-facing technologies that at least 50% of retailers identified as “high value” to improve the customer shopping experience in the store:

• Interactive displays
• Beacons for marketing
• Endless aisle / Assisted selling
• Clienteling apps for sales employees
• Customer WiFi portals
• Wayfinding (in-store mapping)
• Customer mobile app checkout
• Customer instant checkout (e.g., Amazon Go)
• Self-service for in-aisle self-help
• Ability to use branded app for value-adds

Finally, retailers need to “find the money” to pay for all the new costs associated new consumer shopping behaviors. A big percentage of store labor is spent doing the basics – stocking shelves, receiving orders, counting inventory, changing prices, etc. Retail decision makers need to prioritize non-selling processes in the store that can benefit from greater automation.

What Was The Question Again?

So, let’s ask the question again: will economics uncertainty trigger a pullback from retailers’ technology investment plans?

RSR’s opinion: it’s not likely!

[1] The Consumer Confidence Index measures “how optimistic or pessimistic consumers are regarding the expected financial situation”, according to Investopedia. Measures greater than “100” indicate consumer optimism while measures less than “100” indication pessimism.