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Retail needs to root out cost and lean on IT

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(Image credit: Image Credit: Pressmaster / Shutterstock)

Argos. Cath Kidston. John Lewis. M&S. Oasis. Warehouse. Laura Ashley. TM Lewin. The list goes on… and on and on. No business wants to say that they’ve been worst hit by the coronavirus pandemic, but physical retailers could certainly claim to be right up there with the afflicted. It’s been hard to miss the litany of closures, layoffs and strategy U-turns as one brand name after another has toppled into an abyss that’s mostly not of their own making. There will be time enough one day to analyses whether famous marques could have done more to mitigate the worst of the pandemic but for the survivors the need to put out fires and future-proof for more possible trauma is acute.

Resilience is of the essence as retailers scramble to deal with the fallout of broken links in supply chains and shuttered storefronts but, after somehow managing through the current crisis, retailers will have to prepare for resilience and understand the new needs of consumers. For years now, conferences about the future of retail have zeroed in on the consumer experience, omnichannel and other fashionable debates. Today’s situation offers a bromide and cost management has become the apparent short-term be all and end all. It’s time to run fast or get eaten.

There is probably no going back to ‘Business As Usual.’ Alvarez & Marshal predict that 17.2 million UK consumers will make permanent changes to their shopping habits in the wake of Covid-19. Late-adopters who have been slow to embrace online shopping have seemingly been driven to action by the catalyst of the virus and many of them won’t be going back to the high street, at least not in the way that they once did. That change is already being reflected in hard numbers: online retail sales are up £4.5 billion, despite a general cutback in non-food purchasing. We also continue to see a move away from seasonal apparel buying in favor of outlets, and a shift of emphasis from franchising to direct-to-consumer sales.

Little wonder that it appears high-street retailers are flipping their models to online (TM Lewin), venturing into adjacent markets (Next moving into beauty), personalizing the online shopping offer (Dixons Carphone with ShopLive) and generally doing everything to extract cost from their operating models. But the cost-cutting can’t go too far as Boohoo discovered when it’s supply-chain was revealed or as in the case of Mike Ashley’s Sports Direct empire and its employee relations issues that have created brand challenges. Retailers still need to safeguard brands and show proof of sustainability and good ethics.

Unlocking cost via IT

Already an industry plagued by fine margins and weighed down by the Amazon effect, retail needs to search high and low for savings. Nobody knows what new normal will be, but, like a football team, we know you need to start with defense and earn the right to play, saving costs now to later invest in creativity. That will likely mean lots of closures, redundancies and renegotiating of finance agreements but one less well-known area that is ripe for cost extraction is IT.

Today, there has never been such a clear mandate for IT leaders to drill down on costs. Many will examine options such as outsourcing, offshoring software development to lower-cost countries, moving more services to the cloud to take out CapEx spending, renegotiating existing contracts and looking at less pricey providers of computers, storage and networking. Even before the pandemic, smart retailers were already responding by automating more and pursuing open, extensible systems, thereby saving money, improving operational efficiency, lowering risk and accelerating time to market.

Within IT, costs can be saved in even what may appear to be the least promising areas. For decades now, retailers have paid a high price for their loyalty to the familiar enterprise tech giants, paying high prices for hardware, software and services because they felt locked into the systems that control payroll, accounting, procurement, logistics, supply-chain management and other rote tasks. That lock-in is real: it can be very hard for large organizations to disentangle themselves from the tentacles of databases and enterprise resource planning systems from the likes of SAP and Oracle.

But there is one way that they can save money and even see support improve and that is to tap into third-party support where outside providers take over the software support duties that would usually be handled by the software provider. There are huge savings to be made here and technology analyst Gartner said last year that it expected the third-party support market to almost triple in value to over $1bn by 2023.

Emerging stronger

These are extraordinarily tough times for retailers but the old dictum still applies: when life gives you lemons, make lemonade and set up a stand to sell it. It’s notable that while the pandemic has been a catastrophe for the high street, some pockets of retail, often characterized by having strong IT infrastructure, have excelled and outperformed.

Supermarkets and grocers of course have prospered as people hunker down and comfort eat or bulk-purchase. But there are other examples too: some obvious, others not so much. Obviously, value still counts so mass merchants such as Costco have thrived. More of us are working from home so we have bought technology products but also furniture to equip home offices, which has caused the likes of Ikea to see upticks in parts of their businesses.

With more time on our hands, a chance to focus on personal fitness and with public transport problematic, so specialists like Halfords in cycling equipment have seen demand threaten to outstrip supply. Online-only ventures such as Zalando have come of age but so have companies that have invested in high-end technology and innovation to support equally innovative business models – see Overstock.com in the US. We also want to treat ourselves and loved ones so online luxury goods retailers such as Farfetch have excelled while Etsy and Depop have boomed too for low-cost craft goods. All these have been able to ride out the storm better than most and there has also been a knock-on effect with logistics operators such as Ocado and Deliveroo soaring.

By using IT creatively, retailers can emerge stronger and able to overcome future shocks, putting the money saved to fund future innovation. It’s time to root out costs, remove expensive infrastructure, address support overheads and help build a better return on investment from technology.

Mark Armstrong, GVP and GM EMEA, Rimini Street