retail omnichannel

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October 2012, IDC Retail Insights #GRI237483

IDC Retail Insights: Retail Supply Chain, Sourcing and Product Life-Cycle Management Strategies: Perspective

Perspective: The 3rd Platform ProvidesAdvantages for SMB Retai lers

P E R S P E C T I V E # G R I 2 3 7 4 8 3

Lesl ie Hand Heather Ashton

IN T H IS P E R S P E C T IV E

This IDC Retail Insights Perspective discusses the advantages the 3rdplatform provides for the small and midsize business (SMB retailer).The past year has crystallized the new retail paradigm across allmarket segments. Retailers of all sizes have made notable efforts tobegin bringing "online inside" the store and melding customer touchpoints into a streamlined operating model. Technology provides newways to engage customers through social media, offers emergingmobile commerce coupon and payment options, and presents back-endsystems that enable real-time inventory visibility on the store floor.However, for the small and midsize retail business, making the moveto omnichannel can be daunting.

This Perspective highlights what SMB retailers are doing with regardto the omnichannel challenge, including:

SMB retailers are responding to the mobile-enabled shopper with asignificant shift in their application development plans. Manyretailers are deploying mobile applications they have developed.

SMB retailers are using social technologies to create abidirectional feedback loop with customers.

SMB retailers are adopting cloud services at a slower rate thanlarge retailers. Two target areas for cloud services are storage andbusiness continuity.

SMB retailers are more in the learning mode when it comes to bigdata and its role in supporting an omnichannel strategy.

T h e N e w R e a l i t y o f O m n i c h a n n e l f o r

S M B R e t a i l

Retailers have shared with us their experiences with today's savvyconsumer. There is a good chance most retailers have had customersvisit their store armed with more information than their associates attimes, using smartphones as tools to facilitate their shoppingexperience. Or, perhaps a retailer has started a Facebook page but

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doesn't really understand how to leverage it to drive additional sales orinfluence customer behavior.

Then there are the important infrastructure questions Shouldretailers wireless enable their stores? Should they take advantage ofthe cloud to facilitate order management, analytics, inventory

management, or POS? Are they hesitating because they can't risk anyservice outage at the store? The key to succeeding in the omnichannelretail paradigm is not to adopt these technologies ad hoc but rather tobuild a foundation for all retail functions that will support retailers inevery aspect of their business.

The 3rd Platform Advantage for SMB Retail

The world's information ecosystem now runs on what IDC calls the3rd platform. The 3rd platform goes beyond existing technologyarchitectures and incorporates mobile, social, cloud, and big data into acohesive framework that supports the dynamic retail experience. In the

past few years, the convergence of these four pillars is what isenabling SMB retailers to step into the omnichannel environment andcompete on a level with much larger retailers. It has been noted thattechnology is a great equalizer, and never has this been truer than withthe 3rd platform. Small can be an advantage when trying to respondquickly to changing consumer tastes; these technologies enable thisnimbleness and, perhaps more importantly, are easily accessible andreasonably affordable to deploy and operate.

Why the 3rd Platform Is Optimized for Omnichannel

Pulling together the best of mobile, social, cloud, and big data

analytics into a cohesive platform will set retailers up for omnichanneland offer a number of opportunities, including:

Attracting and retaining customers using socially enriched mediaand leveraging mobile devices

Collaborating with business partners through dynamic supplychains to develop and deliver new products to market at theoptimal time

Empowering sales associates to facilitate in-store purchases anddeliver superior customer service

Gathering intelligence in real time and using it to drive changes inproduct mix or planned promotions

Supporting more predictable inventory and replenishmentprocesses

Using order management systems to meet customer needs flexibly,regardless of customer touch points


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2012 IDC Retail Insights #GRI237483 Page 3

The result is a more responsive, more efficient retailer that can respondto market dynamics. The challenge is for retailers to effectivelyimplement the technologies of the 3rd platform, and this is wheremany SMB retailers are standing today on the brink ofomnichannel, uncertain of what the next best step is.

H o w S M B R e t a i l e r s V i e w t h e 3 r d P l a t f o r m

All this technology talk can be overwhelming for the SMB retailer thatis beginning down the path to omnichannel retail. And, given budgetand resource constraints for many SMB retailers, many retailers wantto understand where exactly their peers are in terms of adopting thefour pillars of the 3rd platform. This is useful for several reasonsbecause it offers good examples of how SMB retailers are utilizingtechnologies such as mobile, social, cloud, and big data. It may alsoserve as a wake-up call for some SMB retailers that have beenreluctant to enter the fray when they see how the market in certain

technology areas is really taking off. Retailers need to start acting sothey aren't left behind. The best place to start this conversation is withmobile, which has arguably become the poster child for omnichannelretail.

Mobility: Have Phone, Will Shop

The meteoric adoption pattern of the smartphone has changed retailpermanently. With more than 150 million new smartphones shippingeach quarter this year and the total number of mobile phones shippingquarterly at 400 million (IDC's Worldwide Mobile Phone Tracker,July 26, 2012), there is no denying we now live in a completely

connected, mobile-enabled world. And, shoppers are using theirsmartphones in many different ways to interact with retailers andfacilitate their shopping experiences.

The new shopper who is armed with a mobile device is now morediscerning of price, quality, and availability and is using thisinformation to drive final buying decisions. As a result, today'sshopper is increasingly more willing to shop around rather than remainloyal to a single brand. This means retailers have to be certain they areengaging with their customers and adding value to the experience toencourage the customers to make their purchases at their store,supporting their brand.

SMB retailers are responding to the mobile-enabled shopper with asignificant shift in their application development plans. For 2012,SMB retailers are allocating their application development resources tomobile platforms rather than traditional platforms. In IDC's 2012Global Technology and Industry Research Organization IT Survey, themajority of SMB retailers are choosing to develop more mobile appsthan traditional apps. A full 59.2% of respondents are developing morethan half their apps for mobile platforms. And 9.2% of respondents are


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only developing mobile apps, which is interesting to note. Given thefact that nearly 85% of respondents are developing at least one mobileapp this year, it is clearly the year of the mobile app (see Figure 1).

F I G U R E 1

S M B R e ta i le r s ' M o bi l e A p p D e ve l op m en t

Source: IDC's Global Technology and Industry Research Organization IT Survey,2012

What's happening here is the perfect storm setting up. There is apopulation of shoppers that has reached critical mass with theirsmartphones, and they are quickly becoming agile at using them in-store. (Have you been inside a Starbucks recently and seen the personin front of you paying with his/her smartphone?) Starbucks

understands the opportunity and has not only used the mobile platformto develop apps that facilitate a sale, effectively monetizing the use ofthe smartphone, but also has developed a loyalty program aroundmobile payments to encourage frequent use. SMB retailers have thesame opportunity to engage their customers with smartphone apps, andthey are committing to the platform with their development plans forthe coming year.

There is another component of mobility that SMB retailers should alsoconsider and that is the mobile infrastructure inside the store. With thepush toward in-store kiosks, digital signs, device-toting salesassociates, and a variety of self-service and POS tools, the

opportunities for incorporating mobility into the retail experienceextend well beyond smartphone apps. Wireless, in-store mobility hasthe potential to support associates in their sales efforts, as well asmanage inventory and tasks. Connected associates can shareknowledge and complete tasks more successfully, better engaging withshoppers. The challenge is to ensure that SMB retailers consider theirmobile strategy first and how it will support their overall retail goals.


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Launching a series of disconnected "mobility pilots" is not the way toproceed, unless they are purely research projects.

Social: It's Nice to Meet You

Consumers cannot go anywhere today without being bombarded with

some aspect of social media. From QR codes in stores, on products,and in advertisements to requests to "Like" products or retailers onFacebook, social media is becoming a major part of the fabric of retail.SMB retailers are responding to the push toward social, and this isevident in their budget commitments for 2012. In IDC's 2012 GlobalTechnology and Industry Research Organization IT Survey, 89% ofSMB retailers indicated they are going to spend up to 24% of their ITbudget on social media in the year ahead. As with mobile apps, thevast majority of SMB retailers are doing something about social thisyear.

We asked SMB retailers what the main drivers were behind social

media investments, and the answers reveal one of the best uses ofsocial media: the feedback loop (see Figure 2). The top 2 responseswere to gather feedback from customers on products and services andto increase awareness of products and services. This combinationillustrates one of the great benefits of social media the bidirectionaldynamic that enables SMB retailers to push information to theircustomers to keep them informed and then use the same medium togather important reactions and feedback from customers. SMBretailers will then be able to make critical pivots in their product mixesand promotions to respond to customer preferences. And, they can dothis much more quickly than traditional methods have allowed.


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F I G U R E 2

T o p D r i v e r s f o r S o c i a l M e d i a i n S M B R e t a i l e r s

n = 405

Note: Multiple responses were allowed.


As with mobility, social media should be addressed in a strategic way,using it to support the unified goals of a retailer. We asked SMBretailers what some of the challenges of social media were for them,and the two biggest challenges were getting customers to participateand curating all of the content generated. These challenges reveal adisconnect between social media's potential and what is happening inthe trenches. SMB retailers need to plan for the administration andmanagement of any social media project to ensure they are gaining thebenefits of social media.

SMB Retailers Don't Have Their Heads in the Cloud

Our latest survey revealed that a significant percentage of SMBretailers are not yet evaluating or using cloud services or technologytoday. Thirty-one percent of SMB retailers are not currently evaluatingor using cloud computing. Another 27% of SMB retailers are at theresearch and evaluation phase. Twenty-two percent of SMB retailersare planning implementation within the next year, and only 19% ofSMB retailers are actually currently using cloud computing technologyin a pilot or in production.

This low adoption rate signifies the nascent state of the cloud servicesmarket overall, but we should note that adoption plans have almostdoubled in the past year. The top reasons SMB retailers identified aschallenges to cloud adoption were concerns over security and highavailability. This is understandable from an SMB retailer perspective its business runs on a data network that cannot go down ever.However, today's cloud services providers have worked to build in


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redundancy and backup capabilities to prevent an event such as anoutage from impacting a retailer.

A promising result is that of those SMB retailers that are currentlyusing or planning to use cloud-based services; the majority of them(61%) are planning to increase their spending on cloud services in the

coming year. This reflects the value these retailers are seeing fromcloud and their interest in increasing that value. Those SMB retailersthat are not investing in the cloud could be missing out on a keyenabler of the 3rd platform. Cloud services are a great equalizerbecause they enable SMB retailers to attain many of the technologiesand applications that have traditionally been available only to largerretailers. SMB retailers should make an effort to explore theopportunities the cloud provides.

Despite the low adoption rates for cloud today, it is important for SMBretailers to find a comfortable entry point into leveraging cloud foromnichannel retail. Taking a closer look at how SMB retailersenvision using the cloud for business reveals a new opportunity forthem to blend two of the four pillars of the 3rd platform: cloud and bigdata. Our survey revealed that the top 2 uses of the cloud by SMBretailers are storage on demand and data backup/archiving (see Figure3). This may be a good place for SMB retailers to jump into cloudservices, since initial results from SMB retailers have been positive.


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F I G U R E 3

C l o u d U s e s f o r S M B R e t a i l e r s

n = 245


Where Big Data Fits into the SMB Retailer Picture

Using cloud services for data storage is a natural fit for SMB retailers,and it feeds into one of the four pillars of the 3rd platform that is lesswell understood by SMB retailers big data. Opportunities for bigdata abound in retail. They include the ability to integrate all of the


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disparate data that comes from systems throughout the retailorganization, such as POS data, transactional data, product data,customer patterns and preferences, and data from social media. Thegoal of retail big data is to monetize all these various data streams interms of sales growth, cost reduction, and customer loyalty.

But what exactly is big data? The question confounds many SMBretailers, and our survey captured the confusion. Sixty-three percent ofrespondents answered they were "not aware" of the phrase "big data,"when asked. Given this level of confusion, it is worthwhile to shareIDC's definition of big data to help understand why big data is soimportant to retail and how SMB retailers can use it to their advantage.

There are four Vs of big data volume, velocity, variety, and value.Volume represents the sheer amount of data that retailers are looking toharness and manipulate. Data from social sources has grown fromterabytes to petabytes and soon will grow to exabytes. The data held insocial media alone is expected to grow at a rate of 10.2PB annually(see Business Strategy: The Big Data and Analytics Pillar of 3rdPlatform Retail IT, IDC Retail Insights #GRI236643, August 2012).Velocity describes the speed of the data being manipulated rangingfrom batch-processed data to streaming data. Variety covers thediversity of data that makes up big data, ranging from structured tosemistructured to unstructured and residing in sources that includecore transactional systems, collaborative systems, and externalinformation systems. Value is the reason SMB retailers shouldincorporate big data in their omnichannel retail plans. Through insightsgained from big data, retailers can deliver personalized shoppingexperiences or influence social communities around a product or

service.

SMB retailers are starting to make investments in big data. Themajority are allocating less than $25,000 in the coming year. However,a promising 22.1% of SMB retailers are investing more than $100,000in big data this year (see Figure 4). This can be something as complexas leveraging some of the new open source technologies for big data,such as Hadoop, or it can be as simple as buying customer data as partof prospecting. However the method, SMB retailers are starting tomake moves in this area to support their retail efforts.


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F I G U R E 4

S M B R e t a il e r s ' B u d g et A l l o c a t i o n To w a r d B i g D a t a


E s s e n t i a l G u i d a n c e

SMB retailers have a unique opportunity when it comes to the newretail paradigm. They have the ability to adopt some of thetechnologies of the 3rd platform that will facilitate theirresponsiveness to change and allow them to use their size to theiradvantage. While there is clearly activity in each of the four

technology areas of the 3rd platform, from mobile to social to cloud tobig data, now is the time to make an even greater commitment to thesetechnologies. Here are some recommendations to get started:

If you have not already created one, develop a cloud road map andbegin to consider what the best entry point will be for yourorganization.

Understand how big data applies to your organization and identifyhow to capture and leverage the various types of data that flowthrough your value chains.

Consider how you can integrate your current efforts in socialmedia into a dynamic, bidirectional feedback loop with yourcustomers, making sure that you identify the appropriate contentcurator roles within your organization.

Establish a mobile app development plan and be certain to considerhow mobile infrastructure could be used in your retail plans.


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Creating a retail environment that is differentiated by an SMBretailer's connection to the customer and the level of service is thegoal. If retailers can use these technologies to get their sales associatesto focus less on putting inventory on the shelf (through the use ofsystems that intelligently drive fulfillment) and spend more timeserving the customer, they will succeed in the promise of omnichannel

retail the endless aisle, higher sales capture and, ultimately, asatisfied, loyal customer.

Note: All numbers in this document may not be exact due to rounding.

L E A R N MO R E

R e l a t e d R e s e a r c h

Perspective: Customer Needs and Strategies Grocers EmbraceOmnichannel Retail(IDC Retail Insights #GRI235877, July 2012)

Worldwide Retail IT Spending Guide, Version 1, 2011 (IDC RetailInsights #GRI233454, February 2012)

Perspective: NRF 2012 What a Difference a Year Makes! (IDCRetail Insights #GRI233126, February 2012)

Perspective: IDC Retail Insights' 2012 Supply Chain Predictions(IDC Retail Insights #GRI233025, February 2012)

Worldwide Retail Industry 2012 Top 10 Predictions (IDC RetailInsights #GRI232576, January 2012)

C o p y r i g h t N o t i c e

Copyright 2012 IDC Retail Insights. Reproduction without writtenpermission is completely forbidden. External Publication of IDCRetail Insights Information and Data: Any IDC Retail Insightsinformation that is to be used in advertising, press releases, or

promotional materials requires prior written approval from theappropriate IDC Retail Insights Vice President. A draft of theproposed document should accompany any such request. IDC RetailInsights reserves the right to deny approval of external usage for anyreason.

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