In this article we look at the challenges faced by the chain stores compared to independent retailers in making the change to multichannel retail.
Some independent retailers might look at the chain stores like John Lewis etc and feel pangs of green envy; the money they have, the people, the skills. Changing to multichannel retail must be easy for them right? Wrong. This article looks at why and in the next issue will show why independents can in fact do it better and shouldn’t fear or envy the big stores.
I have spoken with IT directors from large chain stores about their plans to move from focusing purely on shops, to multichannel retail. The challenges they face are significant; time consuming and very costly. The intention is quite straightforward. The retailers wish to give customers a seamless experience whether they shop in store or online. So what’s stopping them? The answer; lots! Here are a few of them.
Large retailers use a range of computer systems that tend to include the following modules.
- Merchandising (Managing stock across the organisation)
- CRM (Customer Relationship Management)
- Website management
- Financial System
- Reporting Systems
Each of these modules will have been designed to fit their style of business. Often the different software modules will come from different suppliers and will fit together like a jigsaw (although the reality is that it probably won’t fit together quite this well). Information will be passed from one module to another, so when stock moves around or customers buy from different parts of the business all the information should be captured centrally.
For a 100 store chain the different modules will have cost hundreds of thousands of pounds, if not millions, by the time they are all pieced together. In this size of business the IT systems can make the difference between profit and loss. IT is one of the key parts of a well run, efficient retail business.
So, as an IT director you have toiled for years with software suppliers; squeezing, cajoling and building modules to fit the business and keep the people who work in the business happy. Then along comes the internet and customers suddenly want to buy across multiple channels. Customers also want the same brand experience whether they buy online or in a store. They expect to be able to buy on the internet and return an item to a store! They expect to see an item on the internet and they want to know if it is in their local store. They also want to see an item in store, and then decide to buy it later online. Maybe time to consider a change of career, that oil painting course suddenly looks rather appealing.
So, as an IT director your world has been turn upside down! You are getting pressure from the board to implement these changes because your competitors are working on it and the news is full of stories of companies making high profits when they get this right. But your existing systems were never built to carry multichannel information around the business; they were designed to run the shops.
So what do you do? Well you start to redesign your systems. No longer can you think of your business in terms of shops alone. Now you have all these new requirements to consider, and at the centre of it is the customer. You have to allow the customer to do all those things they want to as mentioned above. Previously the centre of the IT system was considered stock, it was all about stock management, now it is the customer that is the central theme. You have to redesign your system to be multichannel and then add in all the modules and functions your previous system had.
Ouch! Changing systems that have taken years to build is extremely tough. Chain store systems are often built using an off the shelf platform but then bespoke elements added to fit their own specific business needs and to talk to other modules. To put in new systems means a huge amount of work for the IT team, starting with a design brief that documents all the new functions needed, and includes making sure the old functions still work. This will involve properly understanding what each person in the company needs from the system.
Once the requirements brief is written, the new system needs to be designed. The team will look at software companies to help deliver this. Once they have been selected and the system is developed, its then the real problems start.
Because a chain store has different types of software, they usually need to bespoke systems just for them. This means writing new software. Whenever new bespoke IT software is built there will be bugs and bugs cause problems. Problems make customers unhappy, and they make staff unhappy. They stop you trading. To reduce the chances of these bugs appearing you have to test, test and test again, this takes a lot of time. To get good IT people onto your project, i.e. people that design software that works well, you have to pay high salaries. IT salaries are amongst the highest of many professions. So not only does this take a lot of time it is also expensive.
Another problem the IT team will encounter is people. Staff in larger businesses tend to resist changes to their IT system. They see change as having a negative impact on their jobs and find it hard to appreciate the wider benefit across other the company. A whole new thing to learn about, yet they are busy as is it, and they have only just gotten used to the first one. So you get resistance to change, not just with the end users of the systems, but in the management team as well who are protecting their staff. This resistance again slows everything down and often compromises have to be made so that the various teams get the system that works for them.
All of this has to be done with a background of changing regulations financial and business which the IT system must support. So the poor IT director is faced with many headaches, and might well look at independent retailers with an envious glance.
Independent Retailers tend not to have bespoke IT systems like the chain stores. Some of course will have no IT system at all, but many will usually have some kind of EPoS system, possibly on 1 or 2 tills. To change to a multichannel system would often mean disposing of the old EPoS system in favour of a multichannel system. These can be purchased as off the shelf systems. Some compromises have to be made with an off the shelf system, there is no such thing as one system that does everything every independent retailer wants, but the majority of functions will be catered for. A multichannel system can combine web and shop operations in one, with a single customer database shared between shop and website.
Giving a customer an experience across the website and in the shop is possible for an independent retailer with a single system. Unlike the chain stores with huge investments in various IT systems that cover all the various departments, independents can be comparatively fleet of foot with a single system. This makes change a whole lot easier. Granted, the independent retailer is usually no IT expert and therefore the changes can appear daunting to some, but believe me it can be a lot easier than the changes chain stores have to make. As an example, a retailer could completely change their system and website in a 3 month period. For a chain store they are looking at years.
Typical spend for IT systems is 2-5% of turnover for retailers. If the turnover is £30m, this is about £1m a year in IT expenditure. This money soon disappears when making even small changes on such a large scale. For an independent with a £250k turnover, this can mean £7k a year which opens the door to some very good systems.
So, whilst small independents can look at multiple retailers and feel they have it easy in changing to multichannel, with all their resources and money, in fact it is the independents that can have it easier. With the right system they can be far more agile, adapt to changes far quicker than the multiples because they don’t have the huge tanker to turn around.