The dictionary defines legacy systems as: ‘Denoting or relating to software or hardware that has been superseded, but is difficult to replace because of its wide use.’
This description will be recognised by all too many established retailers feeling trapped by their old systems, and competing with an increasing number of agile newcomers whose IT infrastructures are purpose-built for today’s digitally led environment.
Their problems stem from the fact many of these legacy systems were designed to suit a different operating environment, when physical stores were the only channel to market. But with modern e-commerce and the mobile-first shopping habits of consumers, the demands on retailer technology is very different.
Andrew Martin International CEO Michael Durbidge has first-hand experience from his previous role as director of omni-channel at B&Q, where he led its digital transformation.
“Retailers have never faced the issue of their core systems not being fit-for-purpose,” he says. “They’ve always worked around any problems by customising bits and bolting on other parts. But this led to the problem of the [regular] updates to their core system not working, so the bolt-on parts needed reconfiguring before the update could be undertaken.”
This ongoing cycle of customisation and cobbling together meant a core system update for B&Q would take four times longer, be 10 times more costly than it should and still not work as effectively as designed. In the case of B&Q, the core of its system – its enterprise resource planning (ERP) system from SAP – was a quarter of the size of its ancillary bolt-on elements.
For a growing number of retailers this cycle has become unsustainable. In many cases it has become uneconomic (or near impossible) for the underlying ERP to take upgrades from software providers. These have proven to be the worst cases of legacy systems, alongside in-house built systems, which have become millstones around many retailers’ necks.
According to Martec International deputy managing director Fran Riseley, part of the problem is that retailers believe far too many operational aspects of their businesses are the “secret sauce” that differentiates them from the competition, and they have built bespoke systems to support this viewpoint.
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Evidence of this build in-house/customised mentality can be seen in research from Martec and Relex Solutions, which showed 23% of retailers surveyed across Europe had built their forecasting-for-stores software in-house, 27% had built forecasting software for their distribution centres in-house, 28% for their replenishment-for-stores software and 16% for their in-store space management software.
“We spend a lot of time with retailers trying to get them to simplify their business’s [IT systems],” says Riseley. “We are finding a trend towards them taking packaged [out-of-the-box] systems rather than building in-house, but it is happening much slower than we predicted.”
Durbridge agrees that the requirement for constant customisation is debilitating and he advocates: “The more out-of-the-box the solution then the greater the solution’s life will be”.
This is typically the approach taken by the new ‘digitally native’ retailers and it has been successfully been replicated by Shop Direct.
Two-speed approach to IT
Shop Direct transformed itself from a legacy-bound (including some 30-year-old mainframes) retailer into one that is digitally focused with a mobile-first approach. Shop Direct group CIO Andy Wolfe headed up the transformation, and says he inherited a complicated mixture of systems encompassing antiquated elements as well as state-of-the-art components.
He undertook a complete overhaul with a clear strategy that avoided what he says is one of the major failings of many retailers in “trying to fix the whole thing and then ending up getting lost in it”. Wolfe adds: “It is not about whipping everything out. You have to modernise big chunks while maintaining the momentum of the business and recognise the roles that the various systems play in terms of their value.”
He suggests adopting a two-speed approach to IT: “There are things in business that you can afford to go slow with while with others you need velocity to drive things forward. The closer the technology stack is to the customer then the more ability there will be to change things quickly.”
As for things further back in the value chain, such as finance and HR, he says they can be outsourced to a third party. Shop Direct also outsources all its IT services to IBM. “These things don’t ultimately drive value,” says Wolfe, adding that moving things out to third parties “gives you the head room” to concentrate on the things that matter the most to the business.
Although the company uses Oracle as its core e-commerce platform, he says it is imperative that there is also the ability to operate with full flexibility and the provision to plug and play with various third-party systems through open systems and microservices.
Durbridge says having such flexibility is essential today because it enables a retailer to see what is “in the market and simply plug it in”. He adds: “Technology moves so fast that retailers need to be able to tap into these new technologies.”
The alterative, says Durbridge, is for retailers to accept what their ERP platform can do. The risk here is “you potentially end up on the same [customisation and bolt-on] cycle towards legacy systems again”, he warns.
Although implementing the likes of SAP and Oracle for the underlying ERP invariably has potential limitations, Durbridge acknowledges that the less entrepreneurial nature of large retailers, with their governance constraints and slower decision-making structures, are likely to be more at home with the one-stop-shop proposition delivered by the large software suppliers.
The advent of SaaS
However, things are never quite so black and white, according to Niall McGovern, product manager at software provider K3 Retail.
“The world of ERPs and business systems is now much more modular,” he says. “The advent of software-as-a-service [SaaS] has helped retailers to subscribe to vertical systems that link to their ERP. They do not need to again fall back into the old trap of customising.”
The systems that can now be taken out of the box from ERP suppliers have a more comprehensive array of functionality, which McGovern says gives retailers less reason to customise. To further promote this scenario, he says K3 continues to develop “bits for the box” that are then available to retailers using Microsoft’s Dynamics solution (K3 is a partner with the IT firm).
“We’re focused on building out-of-the-box solutions so we say to retailers ‘do not customise’,” says McGovern. “Only if they require something really niche should retailers customise.”
This was the case with Ocado, which initially tried to knit together a patchwork quilt of systems from various providers before a change of tack.
“Ocado made a pivot early on to build all its software technology in-house because our disruptive business model, based around centralised fulfilment, meant that there was no off-the-shelf template or solution available,” says Ocado CTO Paul Clarke. “We could not have built our own retail businesses to where they are now without doing it ourselves, let alone have created our Ocado Smart Platform offering for other bricks and mortar retailers around the world.
“We are at the intersection of hardware and software with an unusual platform offering [that we sell], which is like a SaaS product but with hardware bundled in,” he adds. “We have always built all the software ourselves but previously we bought in the warehouse automation hardware. Now with our swarm robotics solution we are building the hardware too.”
One eye on the future
While other retailers are not at the cutting edge of technology like Ocado, there is a general recognition that they are no longer buying systems solely for present functionality requirements but they also have one eye firmly on their likely needs in the future. They want a future-proofed system and this has undoubtedly helped drive the gradual adoption of a more modular plug-and-play approach by ERP providers.
Riseley says: “For lots of ERP systems [purchases] retailers are now buying the future. In three years’ time when the world of retail will have changed, their systems will need to be relevant for that new environment.”
Digital native retailers have typically built their businesses for the future with their out-of-the-box approach, and one of the benefits this invariably delivers is an integrated multichannel backbone. The key advantage that this delivers is a single view of stock across a retailer’s various channels. It also removes the silos that have built up within their legacy systems.
It is this single-view-of-stock capability that is a primary driver for retailers in taking the leap and beginning their digital transformation journeys that move them away from their restrictive legacy systems.
Having this single view of stock has been fundamental to the success of footwear retailer Schuh. Uniquely, it has enabled it to run a bespoke system that has been built in-house.
Schuh director of e-commerce and customer experience Sean McKee says: “We’ve been fortunate in having called [some years ago] the single view of stock as the very basics of retail. It is now the lingua franca of digital retail. We had this in place [years ago] and so we have had no need for a digital transformation.”
However, this is not to say there are not legacy issues to deal with at Schuh. “There will always be legacy in all businesses,” says McKee. “We have issues such as the KPIs we use, and our reports. There can also be issues with the legacy mindsets of people.”
For Durbridge, the mindsets and cultures in organisations are a real concern. Over the years there has been a build-up in the level of mistrust of technology – based on the headache of constant customisation – and this is arguably a bigger issue to deal with today than replacing the actual legacy systems, he suggests.
Regardless of whether this is true or not, nobody said the clearance of legacy systems was ever going to be easy. But it is an inevitability that all retailers will have to deal with it at some point if they are to join the digital natives.