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Beyond essential infrastructure to get stock onto shop shelves and to take money from customers effectively, IT spending has traditionally remained low as retailers, up against an increasing number of rivals for customers, focus on other areas such as reducing prices or opening further branches.

For IT projects that are implemented, from supply chain management solutions such as barcoding and stock replenishment systems, to electronic point-of-sale (EPoS) systems, the primary driver is efficiency - driving down costs while creating a better customer experience.

However, in recent years IT’s potential to offer more to the retail industry has grown, presenting strategic opportunities that are increasingly important to attract and retain customers and stay ahead of the competition.

The value of these opportunities doesn’t necessarily lie in cutting costs, but in generating customer loyalty, taking advantage of new sales channels and preparing infrastructure for the future. The challenge is to exploit and make the most of these opportunities when IT spend is relatively limited. Under such severe pressure for budget, selecting an IT partner who can deliver cost-effective but transformational technology is crucial.

From cost-cutting to business transformation

Supply chain management and stock replenishment are examples of existing, core IT functions where modern technology can revolutionise existing processes. Radio frequency identification (RFID) is one such area, with the potential to replace barcoding systems as a more efficient alternative.

An application of RFID in the retail sector could allow shop floor employees to quickly and exactly identify the number of items on shelves. This may sound fairly simple, but when counting, for example, the number of particular sizes of identical looking products such as suits or shirts, a lot of time can be saved. The aim would be to achieve 100% stock accuracy with increased employee productivity and supply chain efficiency.

Of increasing importance though are functions tied to customer experience and loyalty. As high street competition becomes fiercer and online shopping continues to squeeze margins, IT that can help differentiate retailers from one another and connect meaningfully with customers is imperative.

On a basic level loyalty cards give customers a financial incentive to return, but now advanced cards designed to store more detailed personal information can specifically target certain demographics with tailored offers or deals. For example, a customer could swipe his card in a specially designed in-store kiosk, and then using the data on their purchase history and demographic, be offered deals specific to his interests. More detailed customer knowledge used in this way can shape future strategic decisions, including what products are purchased, which customer group has most growth potential, and even the in-store layout.

Opportunities also present themselves in the online environment. The multi-channel retail world we now live in offers consumers more choice than ever, but also means retailers have to work hard to ensure consistency across all channels.

In customers’ eyes, the in-store and online functions need to be seen as one and the same. For smaller companies using the same stock for both in-store and online portals, this can come in the form of back-office software that can update stock levels in real-time. This would mean that if an in-store customer purchases the last item of a specific product, the online store would automatically update its status to show it is currently out of stock, avoiding any unfulfilled orders.

For larger companies, IT managers should consider integrating the two approaches so that if a product is out of stock, in-store customers can make an online order at the till there and then, leaving only delivery.

Another IT consideration in the modern retail world is the implication of mergers and acquisitions. Retailers finding themselves in this situation need to use IT to manage the challenges presented by two firms integrating all operations, including supply chains, purchasing decisions and uniting all branches of both companies onto the same system.

With many retail IT systems based on ageing legacy solutions, this task has presented a significant and time-consuming challenge to companies facing a merger. It is however a great opportunity to establish processes based on more standardised industry solutions, so any future consolidation can be carried out as efficiently as possible.

The outsourcing challenge

Techniques such as those mentioned above hold huge potential, but if implemented badly or without due consideration they can spell trouble.

The task is not necessarily easy, especially when dealing with technology that is relatively untried or requires specific expertise to make it work properly. Take RFID for example. With tags designed to record all attributes of a particular product - from size and colour to name, description, identification number and price - the data storage demands can be unthinkable. Early implementations of the technology learnt this lesson the hard way. In this case, it’s more a matter of what data isn’t tracked then what is.

So how can it be done? The most important factor when implementing advanced IT in retail is the choice of IT supplier. While most large retailers will outsource parts of their IT to third parties, high-profile failures - such as that which affected Sainsbury’s a few years ago - would suggest that not all make the correct choice of partner. The relative scarcity of IT budget within the retail sector means that any investment must be made as cleverly as possible.

It’s important to remember that just as retailers must know their customers as well as they possibly can if they are to succeed, so must IT suppliers. Only by immersing itself in its customer’s business can an IT provider truly understand what short and long-term goals it intends to achieve.

Modern outsourcing companies that realise this will take the time to integrate themselves seamlessly into their customers business - with dedicated local teams on-site to consult and work alongside client teams and manage the offshore delivery.

The local outsourcing presence is essential to build bridges between different departments and explain IT’s role in each area of the business - especially important in the retail world where some key elements of IT heavily involve other departments such as procurement and marketing. This tight integration and alignment of outsourced processes with the overall IT and business agendas means that the impact of the relationship is larger and felt faster, driving both transformational revenue generation and cost reduction.

More traditional offshore outsourcing relationships where work is carried out entirely overseas may be sufficient for basic tasks, but when the commercial future of a business is tied to the effectiveness of its IT strategy, a more tightly integrated approach is essential.

The potential of IT to transform retail businesses has arguably never been greater, but the risks of getting it wrong are equally high. Retailers looking to implement advanced IT functions should be applauded for embracing technology that can innovate and revitalise the customer experience, but their choice of supplier is vital to its chances of success.

Cost-effective and strategically minded IT that can transform a business does exist, with new generation outsourcing providers best placed to provide it. By choosing such a supplier and learning from the failures of the past, retailers may find that they can actually achieve more with less.