Customer expectations, competition to drive digital spending for retailers: Gartner

Customer expectations and competition will push companies in the global retail sector to invest heavily in technology and digital solutions. Spending in technology will grow 3.6% to reach almost $203.6 billion in 2019, with similar growth rates expected for the next two years, according to market research firm Gartner. 

Previously, the retail industry didn’t spend as much on digital as compared to other industries, but the trend is changing, with retail now surpassing IT in spending across sectors, the report added.

“Retail chief information officers used to be tasked with minimising risk and cost,” said Molly Beams, senior research director at Gartner. “Now they are held accountable for business results. They are prioritising ROI and other measurable business impacts. Retail CIOs are investing in analytics for both near-term benefits like decision making and to prepare for innovations such as smart machines, AI and augmented reality — all of which will require robust data sets,” she said.

The firm also said that spending on software was the fastest growing category for retail as CIOs try to prioritise analytics, digital marketing, mobile applications, e-commerce platforms and artificial intelligence.

In terms of volume, IT services account for the lion’s share of expenditure at $81.6 billion followed by internal services at $33.3 billion and software at $30.2 billion.

Gartner also said that contrary to popular belief, physical retail is thriving globally. Thomas O’Connor, global client director for General Electric at Gartner, said that as global retail sales increase by 4.8% in 2018, more stores are opening than closing and consumer confidence remains high.

“In retail, there is only one battle that matters — the fight for the customer,” said O’Connor.

“There are many ways for retailers to differentiate from e-commerce giants, and therefore profitably coexist,” he added. “We think that yes, there will be a robust retail industry. But the rules of the game are changing rapidly. Different kinds of retail businesses will continue to arrive and challenge the status quo.”

Explaining further, O'Connor said that in order to remain competitive with online players, physical retailers should get even closer to their customers by using new digital capabilities such as advanced analytics and AI to segment customers by behaviours and validate their evolving wants and needs.

"The physical stores need to make clear strategic choices to adapt capabilities that are in lockstep with how consumers are evolving. Transformative technology must only be scaled once it has been established that there is a clear consumer want for it," O'Connor said.

However, Gartner predicts that by 2023, Alibaba and Amazon will have captured 40% of the global online retail market, up from 33% in 2017.