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IHL: The three drivers of retail technology purchases are…

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Retailers are buying technology for specific reasons.

Retailers are expected to continue increasing their spending on technology in 2023.

According to a new study from analyst firm IHL Group, “Building an Insurmountable Lead – How Technology is Separating Leading Retailers from Competitors,” successful retailers will make strategic investments in technologies to extend the lead against their competitors in 2023.

However, IHL research indicates that three specific needs are driving technology purchases for 2023:

  1. Reducing margin loss associated with online transactions for store fulfillment. According to IHL analysis, this area has seen up to 800% growth as a percentage of revenue since 2019 depending on the segment.
  2. Reducing the amount of labor required to operate stores. Whether through labor-replacing technologies such as self-checkout, scan-and-go, electronic shelf labels or automated micro-fulfillment centers; or solutions that make associates more efficient (such as mobile devices, communication to parking lots, or digital directions for picking in-store), IHL says retailers are trying to do more with fewer workers due to challenges with staffing.
  3. Security technologies to reduce impact of theft. IHL data indicates retailers are investing in anti-theft solutions ranging from physical security to predictive and prescriptive analytics, computer vision to identify threats, and other loss prevention technologies.

[Read more: NRF: Retail shrink nears $100 billion; ORC a top challenge]

IHL analysis also reveals that from 2020-2022, retailers increased the amount of revenue spent on technology purchases to deal with the growth of e-commerce. During 2023, IHL expects an additional 4.3% increase in retail IT spend.

However, the study indicates that the best-performing retailers (those with 2022 sales growth of more than 15%) are investing in IT at a rate 2.2 times the average performing retailer and 5.4 times that of below-average retailers for 2023.

Furthermore, the best performers are investing in their store IT infrastructure at a rate 43 times higher than the poor performers in 2023. These retailers are also investing in geolocation technology for marketing and inventory availability at a rate 13 times higher than competitors, electronic shelf labels at a rate 12 times higher than competitors, and updated POS software with microservices at a rate seven times higher than competitors.

The top technology priorities for 2023 for all retailers include the following:

  • Customer experience personalization (54%).
  • Inventory visibility (52%).
  • Store associate tools (47%).
  • POS infrastructure (42%).

“For most of the last two years, government stimulus helped increase retail sales for almost all retailers,” said Greg Buzek, president of IHL Group. “But going into 2023 those retailers who will win will do so through better execution and improving margins of e-commerce transactions that are fulfilled through local stores. And that involves investments in technology.”

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