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

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.’

Blurred vision

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

realistic option.’

‘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

and QVC.’

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

their businesses.’


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