The State of the SMB Retail Market in 2012
By Julie Ritzer Ross
Long the bread-and-butter of many VARs operations, the SMB retail market continues to offer promise for the Channel as the lingering effects of the recession become less pronounced and new technology directions open doors to repeat and first-time retailer customers alike.
“It is increasingly clear that retail is in a period of significant transformation,” writes Jeffrey Roster, research vice president, Gartner (www.gartner.com)
, Morgan Hill, Calif., in Market Insight: Retail Primer, North America
, published in March 2012. “Retailers responded quickly to the economic upheaval of late 2008 by freezing IT projects and performing massive cost-cutting and store closures. Initially, they were slow to grasp the significance of transformational technologies their customers were already using. But it is clear now that the freeze is thawing,” and retailers of all sizes are “actively experimenting with new engagement tools, business models and ways to communicate with their customers.”
By Gartner’s account, total U.S. IT spending by the retail sector will reach $76.2 billion in 2012 and $84.3 billion by 2015, showing a compound annual growth rate of 3.8 percent between 2010 and the latter year. Moreover, the company’s research indicates, the anticipated 4.22 percent increase in retail technology expenditures in 2012 compared to 2011 exceeds the projected average growth rate (3.14 percent) of all vertical markets combined. Only the healthcare, insurance, and utilities sectors will see bigger technology spending increases.
But while there appears to be technology traction in all SMB retail segments going forward, some offer a wider breadth of sales opportunities to VARs than others. Lee Holman, lead retail analyst, IHL Group, Franklin, Tenn. (www.IHLServices.com)
, says that according to the 9th Annual RIS News/IHL Group Store Systems Study
, conducted by his firm and VSR
sister publication RIS News
, specialty soft-goods (apparel) retailers are leading the IT deployment charge, with investments up by 5.4 percent for the enterprise and 4.9 percent for stores this year over last. “The numbers for their hard goods cousins are 2.7 percent and 3.8 percent, respectively,” Holman observes.
Gartner’s data tell a similar story. Between 2010 and 2015, combined annual spending on technology by specialty soft-goods and specialty hard-goods retailers will increase from approximately $72 million to $90 million. Spending by retailers in the general merchandise, supermarket, and restaurant/hospitality segments will be far more modest during the identical time period, with general merchants’ yearly IT investments rising to about $30 million from $28 million and yearly IT investments by both grocery and retail/hospitality players inching slowly upward to approximately $27 million, from $25 million.
No matter the retail vertical, shifting priorities among SMB retailers call for VARs to offer technology options that foster customer engagement and improve the overall in-store experience. This has been a concern among larger players for quite some time, but SMB merchants, too, are recognizing the role such solutions play in meeting shoppers’ demand to purchase what they want, when they want it and, if necessary, involve more than one retail channel (e.g., a website to place an order and a brick-and-mortar store for pickup) in the process.
“What is driving customer strategy is the essence of the connected consumer,” notes Sahir Anand, vice president and principal analyst, retail and banking, Aberdeen Group (www.aberdeengroup.com)
, Boston. Aberdeen Group’s Retail and Consumer Markets survey, he says, reveals that 57 percent of retailers, including SMB retailers, want to present a more individual and personalized shopping experience in order to positively impact customer profitability.
Mobility on the Rise
Tablet devices and associated solutions are therefore very hot right now, purports Holman, noting that 41 percent of SMB retailers surveyed by IHL seek to deploy them this year and 23 percent intending to follow suit next year. The leading functions for which these devices will be employed all tie in to customer engagement and the desired enhanced store experience. For example, 57 percent of merchants queried by IHL said they will harness tablet computers for inventory management and 32 percent, for messaging. SMB retailers could, like some of their larger counterparts, arm staff with these devices to enable them to tap into merchandise availability at other stores in the chain and, in an omni-channel approach, at web store fulfillment centers. Twenty-five percent of retailers will le leverage tablets and associated solutions for mobile POS.
Mobile devices are being seen as perhaps the most critical tool in saving the sale in a physical store, and are no longer being perceived as the purview of larger retailers, concurs Nikki Baird, managing partner, Retail Systems
, Denver, Colo. Moreover, mobile capabilities are becoming a must for incorporation into mid-tier and SMB e-commerce platforms.
“If you don’t have the product on your shelf, or if you know there are shoppers at a competitor’s shelf that will be looking for hot products that are out of stock, mobile is the place to be to capture those sales,” she explains. “That means a search strategy, that means an in-store strategy, and it means mobile commerce has to be much more than product descriptions.” Having a mobile purchase option, SMB retailers now realize, definitely saves the sale, she observes.
Kiosks are gaining ground for much the same reason, Holman reports. He notes that 31 percent of SMBs queried by IHL cited plans to deploy kiosks in 2012, and an additional 13 percent claimed they will follow suit in 2013. These will be configured to perform a variety of functions, from taking orders to giving customers access to retailers’ websites in-store.
Digital signage, too, is gaining steam and will continue to attract more attention because it can be made to deliver many things, from music, fashion shows and how-to spots to large displays that interact with consumers and create a cooler atmosphere.
In a related vein, SMBs are embracing solutions intended to yield deeper insight into consumer buying patterns, as well as those that support an omni-channel approach to doing business.
This doesn’t mean, however, that the SMB market is pulling entirely away from basic technology, such as upgraded POS hardware and peripherals. For example, Holman points to louder cries among SMBs for EFT/debit/signature capture devices as the EMV initiative (migration to EMV and away from magnetic stripe, promulgated by EMV Co., Visa, MasterCard and financial institutions) takes hold and retailers are compelled to embrace EMV technology.
A Different Conversation
Despite the spate of opportunities in the SMB retail arena and SMBs’ growing affinity for an ever-widening array of technology applications, the state of the market is such that VARs will need to adjust their approach to selling to and serving end-users. For one thing, analysts say, traditional resellers face competition from ISVs on the software side, as some retailers are turning directly to these sources.
“At one time, VARs dominated the SMB space, but that has changed dramatically,” Roster observes. While VARs are still on top, software developers are achieving success in generating business in the space, especially as mid-size retailers begin to embrace enterprise software initially targeted at their Tier 1 counterparts. Roster believes this trend will accelerate as these Tier 1 providers seek out new markets and developments on the cloud front allow mid-size and even small retailers to deploy solutions that would otherwise be beyond their reach.
Additionally, the traction gained by packaged applications geared toward very small retailers with one to 10 stores will continue to put pressure on the VAR value proposition. “It is becoming more important than ever for resellers to add value in the form of services, consultation, programs, and the like,” Holman asserts.
Building on that value and remaining competitive, sources concur, will necessitate that VARs change the course and focus of their conversations with prospects. Cost and bells and whistles, they say, should be de-emphasized in favor of talk about how technology will transform the customer experience and the operation. Providing VARs stick with this agenda, they will reap the benefits.