ISG Provider Lens™ Retail Software and Services - U.K. 2021 - Ecommerce Platforms
Technology to Rewrite the Rules of Engagement in U.K Retail
In 2019, the U.K. had one of the highest adoption rates of online shopping among western economies, accounting for 20 percent of all retail revenue in the US$550 billion industry. Population density, logistics infrastructure and the shopper’s ability to move across channels were the major factors driving this trend. In 2020, owing to the pandemic, ecommerce revenue jumped by 45 percent and now accounts for almost 30 percent of all retail revenue. On the other hand, the physical store remains a strategic asset for retailers but is morphing from large-format, single-channel layouts to small-format, multi-use fulfilment and collection touchpoints. Here are five trends emerging in the U.K. retail market:
- Applying ecommerce optics to stores: Retailers are trying to manage their stores with the same data orientation they have adopted for the online channel — via instore analytics, digital content (display tags, ratings and reviews), shelf monitoring technologies, information systems for employees to streamline clienteling. The aim is to enhance productivity, ease of access and personalisation inside the store.
- Creating a unified continuously evolving retail ecosystem: Retailers are leveraging technologies across multiple supply chain touchpoints for end-to-end technology enablement. For example, a robot can be deployed to scan shelves for out-of-stock items, trigger a request for replenishment to the backend, and then prompt the backend for allocation and dispatchment with minimal human intervention. Deploying such a sophisticated mechanism incurs an upfront cost but would eventually help decrease the long-term cost at the same time, making the supply chain more agile aligned to future needs. Also, the motive is to shift the onus of maintaining the supply chain from humans to automated systems.
- Omnichannel is the biggest use case for stores: According to a McKinsey report, the pandemic saw 6-10% of new shoppers getting added to the click-and-collect and drive-through collection bandwagon in the U.K. In addition, small-format retail stores, especially in residential areas, are doubling up as micro-fulfilment hubs.
- Things that made online shopping unprofitable are being neutralized through tech innovation: In this section, ISG analyses how technology has a direct impact on economics in two different industry segments within retail.
- In Fashion, smart-fitting technologies such as True Fit® and Virtusize have far-reaching implications that directly affect the viability of online fashion. The percentage of returns in online shopping is around 25-40 percent — the primary reason being apparel purchased online may not have the desired fit. It affects the viability of fashion ecommerce at three levels. Firstly, the retailers’ margins shrink with nearly a 5 percent impact on the bottom line. Secondly, a sub-par CX directly affects future chances of a sale — shoppers with a positive fit experience are more likely to buy from the brand again. Lastly, returns happen at the cost of sustainability. Here, virtual fitting solutions such as Virtusize (online shoppers can find the right size by measuring the items being considered against the items in their closet or with similar items from other brands that fit them well) can help achieve a 30 percent decrease in the return rate and an increase of 20 percent in average order value.
- Grocery is a segment that is still mostly confined to the physical stores. One of the primary reasons is that in such as thin-margin business, the unit economics of online delivery can be challenging as the cost of picking, packing and logistics outweighs the profits. However, automated picking and packing systems coupled with an AI-enabled delivery logistics algorithm is solving this problem to a large extent.
- Retailers are shifting to hybrid operating models: In every aspect of retail, whether store operations, store customer-facing technology, supply chain, online or backend operations, retailers are trying to adopt a hybrid human-machine model where both can complement each other. For example, wearables can help store workers have a more fruitful discussion with customers; on the other hand, self-service checkouts eliminate the need of a cashier. This applies to even ecommerce — tedious tasks such manual product tagging get automated through visual AI software and the savings go into designing a more comprehensive loyalty program for online customers.
This inaugural report on the retail software and services industry for the U.K. examines some key software and services areas, where there are enough vendor and provider activity and developments taking place to enhance existing and add new solutions to the retailers’ repertoire. This enables them to combat the new dynamics originating from the COVID-19 pandemic.
Ecommerce Platforms
In this quadrant, ISG has evaluated leading ecommerce software vendors in the U.K. There are several similarities in terms of the product roadmap of these vendors. Many are offering cloud-based offerings with the underlying proposition of headless commerce and microservices, allowing a greater degree of customisation, configuration and quick time-to-market. Vendors are taking an application programming interface (API)/mobilefirst approach to platform building. Also, many new out-of-the-box functionalities such as promotions, recommendation engines, progressive web applications (PWAs) and loyalty programs are being offered. A significant amount of effort and investments are directed towards the use of machine learning (ML) to obtain a 360-degree view of the customer.
Adobe (Magento), Oracle, SAP and Salesforce are positioned as leaders in this quadrant.
Merchandise Planning and Management
In this quadrant, ISG has evaluated leading software vendors that offer merchandise planning and management solutions. Retail planning plays a pivotal role in ensuring that the cross-channel demand is aligned with a retailer’s supply chain. In 2020, when the pandemic started spreading its tentacles far and wide, retailers started facing challenges associated planning for skewed and unforeseen demand. This was mainly because the historic demand analysis became ineffectual and the real-time demand for inventory was vigorously fluctuating without rationale patterns that could have been based on seasonality, consumption habits and geography. Retailers that performed well and benefited were the ones that had their merchandise systems collaborating with other supply chain systems. For example, SAP S/4HANA Retail for merchandise management enterprise resource planning (ERP) acts as the core for both the Merchandise module and the Supplier module, thereby ensuring that there is a common data stream for the retailer to have greater real-time visibility and adapt to the supply-demand imbalance.
Oracle, RELEX, SAP and SAS are positioned as leaders in this quadrant.
Retail Transformation Services
This quadrant focuses on established and prominent IT service providers undertaking retail transformation work. Investments are being made in integrating omnichannel, managing merchandise and enhancing the customer experience (CX) in digital stores. Moreover, retailers are experimenting with technologies such as algorithmic retailing, artificial intelligence (AI) and the Internet of Things (IoT) for better inventory tracking, workforce enablement, shrinkage prevention and operational planning. Generally, for service providers, a retail transformation engagement necessitates applying a combination of various technologies at different nodes to achieve a significant and measurable business impact and can simultaneously provide a distinct advantage to the retailer, which its current business model is failing to achieve. IT service providers are working on various areas across the retail spectrum to achieve scalable and hyperpersonalised ecommerce, a great store CX, store operations management, workforce enablement, agile supply chain and an automated back office. Unlocking the potential of (physical) stores and integrating them with the ecommerce platform is currently the biggest digital transformation opportunity for every service provider.
Capgemini, Cognizant, HCL and TCS bagged the leadership spots.
Platform Migration Services
Providers that offer migration and replatforming services to retailers are evaluated in this quadrant. There are three visible trends in this space:
- At the infrastructure level, retailers are moving from traditional hosting to one of the cloud hyperscalers – AWS being a front-runner in the majority of cases.
- At a platform level, retailers are trying to migrate from on-premises versions to softwareas-a-service (SaaS)-based platforms. Regular updates, server-side maintenance by the vendor, consumption-based pricing, and the ability to scale up and scale down in real time are some of the primary reasons behind this move. A lot of cross-movement is taking place across technology ecosystems. For example, retailers are moving from Oracle ATG on-premises to Salesforce Commerce Cloud, although Oracle has come up with its own commerce cloud solution.
- A few large retailers are moving away from packaged technology offerings and investing in developing their own microservices-enabled platforms. Not getting entangled in a technology ecosystem, shaping the product from scratch to match their business model and having complete control of the environment seem to be some of the driving factors.
Capgemini, Cognizant, HCL and TCS won the leadership positions in this quadrant.
Managed Services
Managed services providers undergird the retailer IT environment. Managed services are often underestimated and downplayed, whereas there is a tremendous level of innovation and improvisation taking place in this space. It is no longer restricted to vanilla infrastructure, app and network management, rather it has morphed into a space where retailers are relying on service providers to enable digital experience monitoring, AIOps, and intelligent automation. Moreover, the primary managed service provider is often the preferred partner to kick-start the retail transformation journey. In the same vein, many leading providers have developed retail exclusive platforms, frameworks and accelerators to manage and modernize different retail cross-channel touchpoints.
Capgemini, Cognizant, HCL, TCS and Wipro have emerged as leaders in this quadrant.
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