Bricks-and-mortar retailers may be struggling in the downturn, but online retailing is booming, CIOs heard at a meeting of Computer Weekly’s CW500 club.
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Research by the Interactive Media Retail Group (IMRG), the trade body for online retailers, shows that the market for e-commerce is growing by 22% a year.
Sales over mobile devices are growing exponentially and will reach £1bn in 2011, IMRG predicts, equivalent to 1% to 2% of UK retail trade.
But UK retailers are behind the game when it comes to exploiting the web and mobile commerce.
“The problem we have from a retailers' point of view, is that they are behind the curve, and the consumer is far, far ahead,” David Smith, managing director of IMRG told the group.
Retailers are ‘asleep'
Retailers like B&Q are asleep. They haven’t caught up with this. That is why the high street is dying
Former director, Boots
For example, half the population of the UK are on Facebook, but only 40% of the top retailers. Similarly only 32% of top retailers have an account on Twitter.
Technology is moving so quickly, one former director of Boots told the meeting, that retailers that do not embrace online and mobile commerce quickly are unlikely to survive.
“Retailers like B&Q are asleep. They haven’t caught up with this. That is why the high street is dying,” he said.
As online sales develop, visits to traditional stores will become more like a trip to the theatre, said Smith. Customers will go for the experience the brand, to look at products, and check prices, but they might buy online.
“You are going to have near-field communications, video walls and interactive touch screens on the windows, where you can buy products when the store closes,” said Smith.
Near-field communications technology will allow retailers to send personalised special offers to customers’ mobile phones when they walk into a shop.
Sometimes we can run the risk of innovation for our customers, rather than with our customers
Phil Dixon, development director of Betfair
Mobile wallets will change the way that people pay for goods. And developments in web technology will allow retailers to tailor the content of their sites to the interests of each visitor.
Crowdsourcing will become increasingly popular. One T-shirt store in the US, for example allows customers to submit their own T-shirt designs. Other customers vote and the company puts the top 10 designs into production.
The same principles could apply to furniture stores, for example, with customers voting which design of chair or sofa should be manufactured.
Several retailers are working on the technology, but it will be some years before its ready, said Smith.
Animation on the iPad
Net-a-porter, the online luxury fashion retailer, is reaching out to its customers by publishing a weekly interactive animated magazine for the iPad. And it is offering interactive TV on the Net-a-porter web site, though the Google TV service.
“Beautiful animation is becoming very easy to do from a programming point of view, but it's very challenging for our designers,” James Christian, innovation lead at Net-a-Porter told the meeting.
“We have seen increased engagement, people are reading more pages. They are watching videos for longer on Google TV.”
Phil Dixon, development director of Betfair, an online betting exchange with three million subscribers, however warns against innovation for innovation’s sake.
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Betfair has found to its cost that introducing technology for its own sake, can alienate, rather than engage customers.
Risk of alienating customers
“We have probably drifted a bit in the pressure of growing our business in the past. Sometimes we can run the risk of innovation for our customers, rather than with our customers,” he said.
“We enjoy a great reputation as a technology company, but the most important thing we have learned is that technology does not matter if you take it out of context.”
Betfair developed a hierarchy of customer needs to guide the development of its websites.
First, each development has to work; second, it has to be quick; and third, it has to be useful. Only when these criteria are met, can designers consider how to make the new application “cool.”
At the same time, Betfair made a 14-point pledge to its customers, promising to keep the site online at all times, to make it load fast, and to offer a great customer service.
“If we have a site, or an experience, that does not solve those foundational needs, or an innovation that comes across as arrogant - i.e. that the customer don’t want - we lose access to that asset. But more foundationally, by making these commitments, we win really passionate advocacy that builds our business,”said Dixon.
One of Betfair’s targets is to deliver web pages in no more than three seconds. The target is still an aspiration, with current speeds running at a slow 18 seconds.
“The reality is we are so lucky to have such an active business when we don’t support it with page loads,” said Dixon.
“But we have made the commitment because we want to show our customers where we are going and we are taking them on a journey. And we have a significant proportion of our site deployed internally where we meet that speed.”
Yet traditional retailers have a lot of technical hurdles to overcome before they fully embrace e-commerce, IMRG's Smith said.
Linking legacy systems
It's not sexy, but in order to play in this joined-up world, we need to have a single view of the customer
Ken Woghiren, head of architecture and strategy, at BBC Worldwide
Linking legacy IT systems to create a single view of the customer, whether they buy from stores, or online, is far from easy.
But its one of the major challenges facing organisations, Ken Woghiren, head of architecture and strategy, at BBC Worldwide, told the meeting.
“There is quite a lot of plumbing that needs to be put into place. It's not sexy, but in order to play in this joined-up world, we need to have a single view of the customer,” he said.
Legal issues pose another challenge. They include delivering the right terms and conditions on web sites, and protecting sites against attacks from hacking groups.
And working out how to handle product returns for online sites, with returns typically running at 45% or 50% of goods sold, is a further challenge.
“How quickly can I get that product back and up on the virtual shelf? Can I cut down on the mountain of stock I have? It's going to be technology that will drive that,” said Smith.
Payments over the web are another issue that UK retailers will need to tackle urgently if they want to win overseas business.
“The UK is very much a credit card-based economy. If you go to other countries on the continent, they have a myriad of other ways to take payment. If you are a UK retailer and you are used to taking credit, how are you going to deal with countries like Germany, where it is cash on delivery ?” he said.
For Woghiren, the biggest challenge is predicting what consumers will expect from the next round of technology.
“You get focused on the here and now, but the kids of today, the way they are working with technology is very different,” he said.
“To some, having the ability to send out joined-up emails to customers is a big thing. But the kids of today don’t use email. It’s all about Facebook and direct messaging. So why are you putting so much effort into a CRM system that works today but won’t work for kids in five year’s time?
“I don’t have a crystal ball. The only thing I can do is get my organisation as fleet footed as possible to react to the opportunities,” he said.