Assessing The Value Of Retail Technology Investments

  • Written by  Jeff Wacker, TD Bank

0aaJeff Wacker TDBankAcross the retail industry, consumers are using a variety of channels to shop. We live in a world where consumers can browse for a great pair of sneakers on their smartphone during an evening show, buy it at their desk the next day and drive to the retailer's brick-and-mortar store to pick it up after work. As a result, retailers are actively working to address their customers’ buying patterns and behaviors.

For example, Office Depot’s CEO, Gerry Smith, recently cited on an earnings call that the retailer is planning to leverage its brick-and-mortar stores to provide a competitive edge over online sellers, using their stores as extra distribution centers to respond more quickly to the changes in customer behaviors.

However, many retailers are understandably finding the new omnichannel landscape complex and overwhelming. This is a reality that was underscored by the results of TD Bank's most recent survey of more than 150 treasurers, CFOs and other financial professionals from large retailers across the U.S. According to respondents, shifts in consumer spending from brick-and-mortar stores to online is one of the most significant challenges for their business this year. The results also showed:

  • 59% plan to make technology a top investment this year;

  • 26% report concerns about their supply chain management;  

  • 47% felt the increase in online sales will be the biggest trend impacting the company; and

  • Nearly half cited technology as the biggest driver impacting their ability to grow.

This makes evaluating technology investments critical. Savvy retailers understand the need to prioritize technology investments, especially when it comes to their supply chain management. Target announced last April it's invested in robotics and has begun testing their ability to track inventory on its store shelves. Other retailers, such as Amazon, have stated that they are adopting technologies to manage back-end inventory management. For example, last year the company revealed a partnership with the UK government to test drones for package deliveries.

The decision to invest in inventory management should not be underestimated. Investing in one portion of the supply chain will likely not work. Instead, retailers should work toward integrating the supply chain from back-of-house to the point-of-sale.

So why take this approach? Here are three reasons why retailers should invest in supply chain management:  

Greater Transparency

Inventory tracking technology can help mitigate supply chain risk and ensure that retailers invest in the appropriate amount of merchandise. Retailers have a line of sight into what's hot and what's not, and can ultimately promote popular products and discontinue others.

Inventory management technologies can also pinpoint potential macro and micro trends for retailers. It's important for retailers to stay attuned to cultural trends and respond in real time via all customer touch points.

Identifying Consumer Preferences

An integrated inventory management system tracks customers’ buying habits; through this data, retailers can promote popular merchandise to a specific customer base and demographic. This information allows retailers to customize emails, mobile alerts and social media advertisements to target customers’ buying preferences or interests.  

It's also becoming increasingly popular for consumers to have a customer profile on their favorite retailer’s web site. From the retailer’s perspective, a profile helps to identify the customer's specific needs, and ensure that they offer those products and services.

Despite the mounting challenges that brick and mortar stores face in competition with e-Commerce web sites, Ulta Beauty has bucked this trend by optimizing strategic insights into its consumer preferences. Ulta's Chief Marketing Officer said that they looked closely at the core motivations of customer engagement, and tailored the in-store experience to be more engaging, while using e-Commerce to complement their brick and mortar outlets. Ulta also established a strong loyalty program, which has amassed over 23 million active members

Improved Customer Service

Tracking technologies can improve the customer ordering experience. Whether consumers buy an item on their mobile device, web site or brick-and-mortar location, inventory management technologies decide where the order gets filled. This streamlines the delivery process and ensures merchandise is delivered quickly. For example, Office Depot's CEO Gerry Smith realized that his online purchases and in-store pickup sales grew in recent quarters, so he plans to utilize the chain’s 1,400 stores as "distribution centers."  

Fast fashion, obsolescence of inventory and multiple buying cycles, among other trends, are disrupting the retail space at breakneck speeds. As retailers move quickly to develop new omnichannel selling strategies and adapt to the latest and greatest technology, the need to prioritize these investments is critical. This presents both a challenge and an opportunity for today's retailer; they'll need to get more sophisticated when it comes to evaluating technology investments.

Choosing a financial partner is essential for a company. Finance executives rely on a long-term strategic financial partner who truly understands their business, and offers the appropriate resources and services. Asset Based Loans provide flexible, low cost financing to support a variety of needs for a business strategy, including: working capital, growth and acquisitions, to name a few. Working with the right financing partner allows retailers more time to focus on their business strategy.

TD Bank’s recent survey highlighted the concerns of large retailers as consumer spending habits shift increasingly towards e-Commerce. Investing astutely in areas of technology will be critical for retailers to prosper, and prioritizing investment in supply chain management to boost transparency, better understand consumer preferences and enhance customer service will pay sizeable dividends for them going forward.

Jeff Wacker is Head of Asset Based Lending Originations at TD Bank. His career includes 20 years of leveraged finance, asset-based lending and private equity experience in North America and Europe.  Previously, Wacker was with TD Securities in New York, where his focus was Capital Markets and structuring of syndicated debt.  Prior to that he was with SunTrust Robinson Humphrey, where he led the ABL Syndications team and covered Leverage Finance for the Transportation and Retail sectors. Wacker also held a variety of leadership roles at GE Capital in Chicago, Stamford, and London.

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