Annual retail technology investment gap could top £22 billion, creating innovation vacuum
Annually, retail faces a potential sector wide tech investment gap of billions of pounds, according to the KPMG/RetailNext Retail Think Tank (RTT).
This is creating an innovation vacuum which not only threatens retail performance, but also risks long-term sector health and business survival, the RTT’s latest quarterly whitepaper argues.
It suggests omnichannel retailers should be spending between 4-8% of their revenue on technology per annum. However, currently most retailers only spend between 1.5-3%, leaving an estimated best case of a 5% investment gap based on annual turnover.
With retail sector revenues in 2022 reaching £441 billion according to Retail Economics, the RTT estimates that this could see the potential annual tech investment gap topping £22 billion.
Whilst retailers face budgetary pressures and rising costs across their operations, the RTT warns that this perennial underinvestment in technology comes at a time when retail industry health is being called into question.
Data from RetailNext shows that in Q3 footfall, a key indicator of high street health, remained resilient, up +0.7% year-on-year.
However the latest RTT Retail Health Index predicts sector health will dip for a seventh consecutive quarter, with the index dropping -1 point in Q4 to 68 points, which is -7 points lower than Q2 2020 when the UK went into lockdown and non-essential retail was forced to close.
The aforementioned whitepaper flags that many retailers are slow to adapt, with evidence including Wilko’s collapse, the demise of Debenhams, Topshop/Arcadia Group, Made.com and Joules.
It says that the market is now in a more or less permanent state of flux and retailers unable to adapt in terms of their culture, staff roles and contracts and investment in technology, will go out of business. The whitepaper also predicts that the retail industry will see some more major failures in the next couple of years.
UK Head of Retail at KPMG and Co-chair at the RTT, Paul Martin, comments: “Those retail businesses that are around now have a runway for the next three to five years, but if they stand still and fail to innovate, they won’t have a runway past three to five years.”
“Innovation is, of course, a broad topic and is often associated with technology and data, with generative AI currently the latest hype. Overall though innovation should be seen as much broader than that. It is critical for the survival and prosperity of the sector, whilst at the same time innovating for the sake of doing something ‘new’ is not a recipe for success.”
Gary Whittemore, Co-chair of the RTT and Head of Sales EMEA & APAC at RetailNext, says: “Innovation is a state of mind that should be instilled within the culture of an organisation from the very top.”
“However, there are plenty of retailers that talk about the need for innovation but then fail to see it through to actual implementation. The reasons are manifold – politics, siloed thinking and management, and a lack of investment in people and tech.”
“Specifically, retailers need to innovate in the skills and technology that will enable them to understand their customers better in terms of how they shop across multiple channels, more so because in tough times, multichannel retailers tend to fare better than pureplays.”
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