Retail Technology 2020 Outlook

Now back a few weeks after NRF 2020 Vision, here are our thoughts and predictions on Retail Tech for the coming year.

Customer Experience

This was the dominant theme at the show this year. Aptos, Microsoft, SAP, Oracle, JDA, Salesforce, and others all echoed this in their messaging throughout their booths.

Retailers are working at making the shopping experience more enjoyable – whether that is online or in-store. Retail is becoming more automated, more experiential, and more seamless, as shoppers demand the ability to move easily between online and in-store.

Another trend that is emerging is the ability to shop from points outside of traditional areas (stores, online commerce sites) including social media and other apps and platforms.

Personalization

In 2020, retail will be more personal, more immersive, and more automated. Retailers and brands will have to understand shoppers better and will continue to turn to new retail tech options to achieve this. Personalization is a huge theme in this market now and it is likely that we will see this reflected in M&A transactions this year.

Artificial Intelligence

AI is being utilized in many solutions throughout the retail supply chain to help retailers and their vendors to be more efficient and to increase profitability.

Better inventory control is a key area where AI is being introduced. Omnichannel continues to drive the need for more efficient and better functioning supply chain solutions: making sure inventory is where it is needed when it is needed both to keep customers happy but also to reduce the volume of overstock and associated waste. Another technology we saw at NRF used AI to identify return anomalies and trigger alerts and prescribe preventative actions.

Personalizing the customer experience through targeted marketing and advertising is becoming more refined with the addition of AI to solutions that learn customer preferences and are able to better identify products and services that are likely to appeal to different customers during searches and through targeted ads.

BI/Analytics

AI is also prevalent in BI and Analytics, helping to provide data points to retailers that are meaningful and actionable, in real- or near-real time.

Retailers are working hard to understand shopper patterns and consumer behaviour to provide more meaningful interactions based on this information. The amount of data sources now available to retailers is massive; however less than half of marketers have a complete unified view of customer data sources.

As the volume of data sources continues to increase exponentially, retailers and those marketing for retailers will need to adapt their infrastructure to accommodate the increasing complexities of managing that data and making it usable in real time.

In-store Experiences

There is an increasing focus on investments in in-store technologies as retailers introduce new ways to provide consumers with an elevated and more enjoyable experience.

Solutions being introduced in-store include:

  • Smart mirrors that let you see a garment on you in a different colour
  • The ability to order an item to be reserved for you to try on in-store and then purchase. Nike’s Speed Shop in NYC is a great example of this at their “Nike House of Innovation 000”. Customers can reserve shoes online to try on in-store. Taking it a step further for a completely personal experience, customers enter through a dedicated entrance to find a locker with their name on which is unlocked using their smartphone. If customers like the shoe, they simply purchase using their smart phone – no need to line up to pay.
  • Automated shopping that allows shoppers to pick up and pay for items prior to exiting the store without having to line up. In some cases, smart shopping carts providing scan and pay technology; in others (Amazon Go for example), a combination of computer vision, deep learning, IoT, and sensor fusion technology is used.
  • Digital price tags that provide retailers and grocers with the ability to instantly and remotely update pricing and other (e.g. Nutritional) information. Kroger has rolled this technology out across hundreds of stores and says an added benefit is the sustainability effect (another important emerging theme). The tech runs on renewable energy according to Microsoft, and the illuminated pricing means that overhead lighting can be turned down, further reducing energy costs.
  • We are seeing a rise in the use of facial recognition technology in retail and some applications include customized interactive experiences at ordering kiosks where customers can accept the option to activate loyalty accounts and then choose an order based on recent favourite purchases. To create an even more frictionless experience, customers can pay using facial recognition.
VR and Augmented Reality

VR and augmented reality are just starting to make inroads into retail. IKEA is using their ARKit to help shoppers determine if the furniture they like will fit and look good in their home.

Voice Technology

Voice technology is increasingly being used by retailers in an attempt to reach customers where they are. Online ordering using smart home assistants (Amazon Alexa for e.g.) and mobile devices is on the rise.

Mobile

Use of mobile devices by customers, store, delivery, and warehouse personnel is also rapidly increasing. Providing customers with the ability to scan for pricing and product information is a way to utilize the devices that consumers are already carrying. Providing employees with the information they need at their fingertips, in one place, elevates the level of customer service they can provide. Additional mobile solutions we saw at NRF are being used by Retailers to better train employees and many of these are using gamification and rewards to keep employees engaged and up to date. Mobile technology is now also being used to connect online shoppers with live associates in brick and mortar stores to help drive omnichannel sales.

With the move to mobile and cloud, security has become a huge issue for retailers who recognize that protecting the sensitive information they have to maintain is key. Breaches in security are extremely harmful on many levels, notwithstanding the loss of customer trust and loyalty.

Robotics

Some retailers are using robots in different areas of the organization but predominantly in warehouses where these autonomous mobile robots (AMR) are deployed to help fulfill customer orders. The addition of automation can significantly reduce order processing times. Some retailers have adopted the use of robots as in store assistants to help locate merchandise and answer customer questions.

Sustainability

Retailers are increasingly focusing on sustainability throughout the supply chain. Maintaining optimal inventory levels is critical to keep overstocking (and the associated waste) to a minimum. One consolidated inventory system that can be used to redirect stock to where it is needed vs. systems that are siloed is imperative to both a sustainability effort and to keeping customers happy and improving top and bottom lines.

Consumers are becoming more concerned about the effects of retail waste on the environment and appreciate retailers who are investing in solutions to help minimize their environmental impact.

M&A in Retail Tech

Deal making continues to be steady in the Retail market. Although the number of deals was slightly down in 2019 to 123 from 129 in 2018, there were several very large deals that pushed total valuation for the year almost 1.5x higher than 2018.

Transformative Retail and eCommerce Deals in 2019 included:

  • Marlin Equity Partners’ acquisition of Clarus Commerce for $235,000,000
  • Shopify’s acquisition of 6 River Systems for $450,000,000
  • Centerbridge Partners’ acquisition of IBM Corporation’s marketing and commerce software for $500,000,000
  • Fidelity National’s acquisition of Worldpay for $35,500,000,000

Retailers are Investing in Technology

Retailers and suppliers throughout the supply chain are investing heavily into new technologies that will help them to understand shoppers better and become more efficient and profitable.

CB Insights reported that financing increased nearly 60% to $3.7B in 2019, as retailers recognize the need to invest in tech that can potentially improve productivity and profitability. And in 2019, the 31 new retail technology unicorns that appeared connect digital and physical retail in shopper marketing, inventory tracking, and online order fulfillment.

According to a 451 Research Voice of the Enterprise survey, 48% of respondents say they anticipate customer engagement tools to receive the highest amount of investment within their organization over the next 12 months. Digital transformation initiatives are a focus for retailers and their suppliers, and the IT vendors they are relying on to keep them competitive and relevant to consumers.

Deal Drivers for Retail Technology M&A:
  • There will be an increasing number of transactions with companies focused on digital transformation to enhance the customer experience
  • Technologies that provide better analytics and data management
  • Solutions utilizing AI to learn and predict consumer shopping behaviours and habits
  • Marketing  solutions that incorporate a more holistic view of consumers across many different touchpoints and can deliver more personalized messages
  • Targeted advertising solutions that are tailored to the individual
  • Supply chain technologies that provide better and more efficient inventory management, fulfillment, and logistics
  • Mobile retail solutions

We anticipate there will be at least as many transactions in Retail Tech in 2020 as there were in 2019 and potentially more, given the sheer volume of cash available and continued confidence in the economy.

Buyers will be looking at growth opportunities across retail technology and will be particularly focused on companies achieving strong growth or those with new or transformative technology.

If you are interested in having a conversation with us, please email us at info@tequityadvisors.com or use our calendar link to schedule a call: https://www.timetrade.com/book/KZ9W2

 

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