Gartner says retailers are investing heavily in digital capabilities to meet customer expectations

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Global retail sector technology spending will grow 3.6% to reach almost $203.6 billion in 2019, with similar growth rates for the next two years, according to the latest forecast from Gartner, Inc. Customer expectations and competition are forcing retailers to evolve and invest heavily in digital business transformation.

Relative to other industries, retail has traditionally been a laggard in terms of appetite for change, digital maturity and hence technology spend, according to Gartner. However, this is no longer the case, and retail now surpasses most other industries with regard to IT spend.

Software is the fastest-growing category of technology spending (see Table 1), as retail CIOs prioritise analytics, digital marketing, mobile applications, e-commerce platforms and artificial intelligence (AI) as the technologies most crucial to their organisation’s mission.

“Retail CIOs used to be tasked with minimizing risk and cost,” said Molly Beams, senior director, analyst 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 datasets.”

Table 1. Retail IT Spending Forecast (Billions of US Dollars)

2018 2019 2020 2021 2022
Internal Services 33.3 33.8 34.0 34.3 34.9
Software 30.2 32.8 35.7 38.6 40.5
IT Services 81.6 85.7 90.2 95.0 100.0
Telecom Services 27.4 27.0 26.7 26.4 26.0
Devices 12.4 12.6 12.6 12.5 12.4
Data Centre Systems 11.5 11.7 11.7 11.7 11.5
Total Spending 196.6 203.6 210.9 218.5 225.4
Total Growth (%) 5.6% 3.6% 3.6% 3.6% 3.1%

Note: Totals may not add up due to rounding.

Source: Gartner (October 2018)

Speaking at Gartner Symposium/ITxpo on the Gold Coast, Australia today, Thomas O’Connor, senior director, analyst at Gartner, said that contrary to what many people believe, physical retail is thriving. Global retail sales will increase 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 Mr O’Connor.

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

“There are many ways for retailers to differentiate from e-commerce giants, and therefore profitably coexist,” said Mr O’Connor. “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.”

Mr O’Connor said that to succeed, retailers need to:

  • Get even closer to their customers using new digital capabilities such as advanced analytics and AI to segment customers by behaviours and validate their evolving wants and needs.
  • Make clear strategic choices to adapt capabilities that are in lock step with how consumers are evolving. Transformative technology must only be scaled once it has been established there is a clear consumer want for it.
  • Predict and drive results by establishing clear leading indicators and measures of digital transformation success.