While many high street retailers are hurrying to invest in new
technology without a clear strategy, others are finding ways to realise
its potential. Rachel Miller reports
Business on the high street is certainly brisker, but consumers are
promiscuous and competition has never been more intense. No wonder
retailers are grasping the opportunities they think technology offers:
the chance to reach new customers via the Internet and home shopping
channels, and to slash distribution costs with the latest computer
But jumping on the new technology bandwagon is no quick fix for
retailers, according to a Financial Times management report, ‘IT and the
Future of Retail’, published in September. While information technology
is vital for retailers that want to stay ahead of the game, it must be
used intelligently as part of an overall marketing strategy.
The report warns: ‘Retailers who think they can just add IT to existing
business structures are bound to fail, and those that think there is
just one solution and it will last for ever have missed the point.’
The report’s author, IT journalist and consultant Gary Herman, told
Marketing:‘While researching the report, what surprised me was the way
in which retailers, even big ones, seem to get things wrong quite a lot
of the time. Particularly in the grocery business, they seem to throw
money at the problem.’
It’s all a question of understanding your customer. ‘The people who run
the big superstores have less contact with the market and they look to
technology to provide that contact,’ explains Herman. ‘They expect
technology not just to make the business more efficient but to actually
create new markets and to create an understanding of existing markets.
There’s a lack of strategic vision; they are relying on technology to
provide the answers.’ But, he says, ‘there is no substitute for human
Herman also discovered a pack mentality, with retailers taking their cue
from their competitors, rather than finding the technological solution
that best suits their own business. ‘The market is driven by retailers’
perception of what other retailers are doing,’ he says.
However, while Herman believes that a lot of new technology, such as the
Internet, is still being oversold, he says some retailers are learning
how to harness its power. ‘I was surprised at the number of people who
had achieved some levels of success with marketing on the Internet,’
admits Herman. ‘It does appear that there are now some people who know
what to do.’
The report has plenty of case studies showing businesses using all kinds
of IT - from distribution software to virtual shopping malls - with
imagination and success. And it says: ‘The potential of new technologies
is undeniable, and for those retailers intent on making radical change
or responding to longer-term trends, investment in these areas is a
‘IT and the Future of Retail’ assesses the impact of key retail areas
that are being transformed by new technology: new retail environments,
in-store developments, payment methods and security, and distribution
It also examines electronic malls on the Internet and online services,
such as CompuServe. These still represent a tiny fraction of the retail
trade generated by mail order, says the report. ‘Current Internet-type
technologies are not adequate for large-scale retailing.’
Net catching on
That’s the bad news, but the good news is that electronic retailing is
comparatively cheap and it accesses new niche markets and non-
traditional shoppers that other media cannot reach. Herman is confident
that in time larger numbers of consumers will be won over by the idea of
shopping on the Information Superhighway but, he says, it could take up
to 20 years.
In the meantime, retailers using the Internet need to think about two
key issues: promotion and fulfilment. Promoting the fact that you are
selling online is crucial. Herman contrasts two established catalogue
retailers, Argos and Innovations, which have sites on the Barclay Square
mall. Argos relies on surfers to stumble across its site, while
Innovations has included its Web address on all promotional material.
Argos reports ‘very little interest’, while Innovations claims to
receive 5000 visits a day.
Delivering the goods is the second challenge. One project that Herman
highlights is Peapod, a US grocery delivery service. By focusing on
fulfilment, Herman says, ‘it is likely to last longer than many others’.
Peapod has linked up with stores such as Safeway in San Francisco to
deliver groceries to the door. Users make orders by fax, telephone or
over the Internet. Interestingly, Peapod’s own customer research found
that customers preferred to use the Internet. The company is opening a
third operation this year and already has a penetration rate of 3% in
its first two markets.
When it comes to reaching large groups of consumers, the report says:
‘TV-based home shopping remains the most significant form of electronic
retailing, despite displaying a fairly static market. It is likely to
increase in importance with the emergence of digital television, which
will encourage competition within a market currently dominated by HSN
At present, says the report: ‘Mail order and home shopping account for
an estimated 5% or less of all retail transactions (by value), but there
can be little doubt that ultimately a great deal of shopping will be
done this way.’
Technology will make this possible, says Herman, but ‘social and
demographic changes will make it desirable, and even necessary’. In
short, it combines ‘scale economies with targeted marketing’.
While there is no immediate threat to the high street from home
shopping, conventional retailers will have to change the way they do
These include multimedia kiosks, which are already making an appearance
in Daewoo showrooms, WH Smith and Toys R Us stores. Thomas Cook has been
involved in a number of multimedia trials which, Herman notes with
approval, have been driven by the marketing rather than the IT
department. During a four-month trial, Thomas Cook found that booking
levels were higher than expected. Half of the sales of holidays included
in the kiosk came from the system rather than the normal sales counter.
Other in-store technology, such as barcoding and scanning, is all part
of the push towards the intelligent store, a place where every product
is logged and monitored, from delivery to sale. Herman warns that such
technology must not intrude on customers. He says: ‘The intelligent
store should go unnoticed, but it must also be accurate and up to date.’
At the cash desk or checkout, cheques are becoming a thing of the past
as the use of credit and debit cards increases. However, ‘cash remains
the dominant medium for trading and shows few signs of disappearing’.
Cash replacement systems, such as the Mondex electronic purse, will,
says Herman, ‘take their place alongside existing credit cards, debit
cards and cash’.
As the major credit card companies and the big banks search for the most
convenient and secure payment methods, no one solution stands out above
the others as yet. However, there is little doubt that smart-card
technology is set to make the biggest impact. The technology is
maturing, the costs are coming down and the onus is now on retailers to
invest in the small terminals needed to make a transaction.
New systems go
Many retailers have already invested in computer technology designed to
improve the distribution end of their business, systems which link
consumer data with supply chain management to maximise sales. At one
end, electronic point of sale (EPOS) systems and loyalty cards are
collecting the information, while at the supplier end, electronic data
interchange (EDI) systems are responding.
In the US, this has lead to the emergence of the efficient consumer
response (ECR) movement, which in turn prompted the establishment of
profitable partnerships between retailers and suppliers.
These partnerships include the ground-breaking tie-up between Wal-Mart
and Procter & Gamble in the US. The report says: ‘After years of
negotiating an exchange of weekly price incentives for shelf space, to
the financial detriment of one or both companies, the two decided that a
partnership arrangement might be more fruitful to both.
‘The collaboration involved sharing sales data, inventory levels and
long-range plans using Wal-Mart’s satellite-based communications
network. As a result, Wal-Mart’s detergent inventories have been reduced
from 30 to two days, while P&G claims it saves dollars 500m (pounds
329m) each year on the cost of promotions and late payments.’
Somerfield, the UK’s fifth largest supermarket chain, trades
electronically with 1000 of its suppliers and has formed a supplier
partnership EDI forum. The group is now testing such pioneering ideas as
co-managed inventory (CMI), whereby the responsibility for forecasting
and replenishment of stock is shared between suppliers and customer.
This initiative, believed to be the first of its kind in Europe, is
changing trading relationships. Technology is at its heart, but its
implementation took strategic vision. The report concludes:
‘Increasingly, the retailer is at the hub of a network of relationships
with customers, staff and suppliers, and the retail outlet itself is
taking on an entirely new character as a vehicle for distribution, not
just a storehouse.
‘The biggest problems for retailers seeking to innovate and integrate
will involve the implementation of technologies, not the technologies
themselves. Whatever approach they take, they will inevitably transform