Retail leaders lead in tech investment

Tech investments are proving their ROI in a challenging macroeconomic environment when retailers need an edge to ensure decent margins, revenue and cost savings.

Why it matters: The more retailers invest in technology, the more they’re able to widen the distance between themselves and their competitors, new data from research and advisory firm IHL Group shows.

What they’re saying: “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,” says Greg Buzek, president of IHL Group.

What’s happening: Compared with their counterparts, top retail leaders are focusing their investments to a higher degree on enabling geolocation for marketing and inventory availability (by 13x their rivals), electronic shelf labels (by 12x their rivals) and updated point-of-sale software (by 7x their rivals), according to IHL.

Of note: There are three areas where retailers are likely to make investments this year, per the report:

• Tech that helps reduce the margin loss from online transactions for store fulfillment.
• Tools to enable retailers to operate their stores with less labor or more efficiently, such as through the use of self-checkout, scan and go and electronic shelf labels, or by providing workers with up-to-date mobile devices and with Waze-like directions for finding items in-store.
• Security features that reduce theft’s impact, such as predictive and prescriptive analytics.

Zoom out: Retail tech startups have seen more than $3 billion in investment, per PitchBook, with IT-focused companies (such as Grabango and Trigo) garnering more than half of that.

Zoom in: 2022 was marred by excess inventory as consumer discretionary items fell out of favor and retailers over-ordered to mitigate supply chain disruptions, making real-time inventory data and store management tech all the more valuable.

• “The combination of automated data collection with frictionless commerce is probably the next step that the market is looking for,” Anat Shakedd, CEO of Tel Aviv-based Nexite told Axios in August.
• The company has raised nearly $100 million, per PitchBook.

By the numbers: During the past two years, the retail sector increased the amount of revenue it spent on technology purchases by 25% as it grappled with e-commerce’s rapid growth.

• This year retailers will add another 4.3% increase to IT spend, IHL says.
• The top performing retailers — defined as those that had more than 15% sales growth last year — are making IT investments at a rate 2.2x the average performing retailer.

What’s next: IHL expects retail’s tech priorities for the year to gravitate toward personalization, inventory visibility, empowering the store worker, and revamping its point-of-sale infrastructure.