By ALLAN DICKSON
In the devastating wake of the global pandemic, companies across industries are grappling with the economic impact – and few more so than the embattled retail sector. Without a doubt, “making the numbers” is rare amid weaker revenue. This means there is inevitably a strong focus on cost containment, including IT spend, often resulting in the dilution or even abandonment of IT initiatives that are essential to retailers’ long-term competitiveness.
The worst hit are likely to be those companies that have regularly deferred replacement of stable older IT systems “for another year” to save money. Today, many existing portfolios contain proprietary and highly modified best-of-breed applications that may span several generations of technology. Functionality within these may be brittle and difficult to change, requiring expensive interfacing and laborious integration.
Consumers now adopt technology that improves their lives at an ever-accelerating pace. In the US, the Internet reached an 82% adoption rate in 20 years, while the smartphone exceeded that adoption rate in less than 12 years. This trend has been underscored during the pandemic, whereby consumer behaviour has rapidly gravitated to online shopping.
This continuing and swift adoption by consumers of technology-based solutions has had a material impact on the retail industry. Many longer-term plans for entering the online marketplace now have to be cast aside to meet customer expectations. They must move up the priority list from the tactical “will do” to the strategic “must do”. There is no negotiation anymore, nor time to wait.
Wasteful IT strategies, legacy systems
Yet the question remains. Why have so many retailers been glacially slow in adopting technology-based innovation? In many cases, it arguably comes down to myopic control of IT spend!
To begin with, legacy application maintenance still takes up an inordinate amount of IT and financial resources. Notably, the findings by US-based company RSR Research indicate that a typical IT budget is split 48:52 between infrastructure needs and business applications. The latter portion is typically then split 46:54 between new development and the maintenance of the existing portfolio of systems.
This means that the lion’s share of the IT budget is focused on keeping the lights on, rather than shedding new light – and paving the way for a new era of digitally led retail.
In short, bold steps (and appropriate budgets) need to be embraced in order to start moving to a more flexible core. That said, even focusing on their core is not enough. Consumers are looking for retailers to add pieces to all their platforms – yet this is difficult to achieve with legacy systems.
The problem may even extend beyond the legacy code to the IT resources themselves. The traditional method for application development and support – the hierarchical Waterfall approach – was largely used with legacy applications. This required detailed documentation and deadlines were not particularly tight.
IT now must move fast and adjust its own way of doing business to accommodate the speed of business and consumer change. New skills, using Agile development methodologies and practices — including prototypes and iterative sessions — now have to be employed to deliver timeously on doing little things that make a big difference; and of course, finding new ways to add value for the consumer.
Forward-thinking IT paying dividends
Some local retailers have invested in updating their technology and systems over the past few years, allowing them to flex and adapt during the recent pandemic and position themselves for the “new normal” beyond. Some examples include:
- Head of strategy and innovation at Shoprite Neil Schreuder recently indicated that the retailer’s much vaunted and highly successful Sixty60 online shopping app required little extra investment as it had already invested heavily in improving its systems.
- The Foschini Group (TFG) has been able to breathe new life into the ailing Edcon Group’s Jet stores. CEO Anthony Thunstrom noted: “We have a new point-of-sale system which has got much more functionality built into it. We were about to launch that with some of our TFG brands, so we have just reprioritised the launch into Jet… Because of the lack of funding, they (Jet) really have had no money to spend on IT infrastructure, so we are bringing them across entirely onto our systems.”
- Woolworths South Africa has recently embarked upon a point-of-sale pilot. The retailer had a number of compelling reasons to replace its outdated POS systems, and most centre on improvements to the customer experience.
These retailers have been able to extend the reach and range of the services they offer consumers by leveraging previous IT investments. Each acknowledges that a commitment to continuous improvement in customer experience is the new normal.
Naturally, many smaller retailers may feel that their pockets are not as deep as these top-tier retailers, but unless they learn to focus less on cost containment and more on technology investment, their consumers (and shareholders) may leave them behind.
As Mark Lamberti, founder, architect and former CEO of Massmart for 19 years, once remarked: “You cannot grow your profits just by cutting costs.”
To move ahead and survive in the highly competitive retail sector, players will have to bite the bullet and spend money to make money.
The author, Allan Dickson, is independent chairman at redPanda Software