The retail industry is confronting a pressing annual technology investment deficit that could exceed £22 billion, creating a looming innovation void that not only jeopardizes retail performance but also threatens the long-term health and survival of the sector. This sobering alert comes from the KPMG/RetailNext Think Tank (RTT).
In their comprehensive whitepaper titled ‘Change Or Fail: Why Retailers Must Prioritize Innovation,’ the RTT underscores the necessity for omnichannel retailers to allocate 4-8% of their annual revenue to technology investments. However, the reality is that most retailers currently allocate only 1.5-3% of their revenue, resulting in a substantial 5% investment gap relative to their annual turnover.
With retail sector revenues estimated at £441 billion in 2022, according to RetailEconomics, the RTT projects that this yawning technology investment gap could potentially surpass £22 billion annually. This acute underinvestment leaves retailers critically under-equipped to infuse the innovation required to fortify their businesses and ensure enduring prosperity and sustainability.
Moreover, the RTT raises the alarm that this persistent lack of investment in technology coincides with growing doubts about the overall health of the retail industry. While Q3 footfall data, a crucial barometer of High Street vitality, exhibited resilience with a year-on-year increase of +0.7%, the RTT Retail Health Index foresees a continued sector health decline for the seventh consecutive quarter. The index is expected to dip -1 point in Q4, reaching 68 points— a -7 point decrease compared to Q2 2020 when the UK entered lockdown and non-essential retail faced mandated closures.
The whitepaper highlights the paradox that, despite the retail industry’s continuous and rapid evolution, many retailers lag behind in adapting to the changing landscape. Evident examples of this lag include the insolvency of Wilko, the fall of Debenhams, the demise of Topshop/Arcadia Group, Made.com, and Joules.
The RTT paper underscores that the retail market is now in a nearly permanent state of flux, and retailers who fail to adapt in terms of their corporate culture, workforce roles, contractual agreements, and technological investments are at risk of being phased out.
The RTT’s prognosis suggests that the retail industry may witness more high-profile failures in the coming years.
Paul Martin, UK Head of Retail at KPMG and co-chair of the RTT, underscores the critical nature of innovation for the sector’s survival and prosperity. He emphasizes that innovation is not restricted to technology and data but encompasses a broader spectrum of strategic innovation.
Gary Whittemore, co-chair of the RTT and Head of Sales EMEA & APAC at RetailNext, emphasizes that innovation must be ingrained in an organization’s culture, starting from its highest echelons. He identifies common roadblocks to innovation, including internal politics, siloed thinking, management bottlenecks, and inadequate investment in human resources and technology.
Retailers must commit to innovation across both skills and technology to better understand their customers’ shopping behaviors across various channels. Notably, in challenging times, multichannel retailers tend to outperform pure-play counterparts.
In conclusion, innovation stands as the lifeblood of the retail sector, and any failure to embrace it places the future of retail businesses in jeopardy.
