What’s the Story? 

The state of deployment of retail technology took two steps backward and one step forward in 2020: Retailers faced the sudden temporary closure of many of their stores, while at the same time having to transition into fire-fighting mode to accelerate the deployment of IT projects planned over several years and fortify supply chains. Thus far in 2021, challenges such as a fickle, fragmented consumer base, wide demand swings and an acceleration of e-commerce penetration are increasing the urgency with which retailers are looking for tools that help them engage with customers and manage demand and supply chains, while enhancing business efficiency. In this Market Outlook, we discuss the drivers, key players and themes that we are seeing in the global retail technology market and provide an outlook for 2021 and beyond.

Retail Technology Market Performance and Forecast

Retailers’ technology investments are generally categorized into two main categories: capital expenditures and IT services. Capital expenditures (capex) represent the purchase of physical items of property, plant and equipment. With the advent of cloud computing, retailers will require fewer of their own servers and equipment and the IT staff to maintain them, moving this spending to a recurring expense for cloud computing and other software as a service. Global Market Forecast We estimate that global spending on technology by retailers will total $216 billion in 2021, up 7% from the trough in 2020, before rebounding to exceed pre-pandemic levels in 2022. We estimate that retailers spend about 1.5% of revenues on technology globally, with spending on software and services set to account for nearly 89% of that proportion in 2021 and increase to nearly 91% in 2025.

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Figure 1. Global Spending on Technology by Retailers (USD Bil.) [caption id="attachment_123929" align="aligncenter" width="725"] Source: Euromonitor International Limited 2021 © All rights reserved/Coresight Research[/caption]   Key Market Segments Key segments within the global technology market are artificial intelligence (AI), cloud computing, supply chain software and three enterprise software categories: enterprise resource planning (ERP), human capital management (HCM) and customer relationship management (CRM). As shown in Figure 2, cloud computing is by far the largest segment by estimated spending in 2021 (data includes total spending, not just by retailers).

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Figure 2. Global Technology Market: Estimated Spending by Segment, 2021 (USD Bil.) [caption id="attachment_123930" align="aligncenter" width="725"] Cloud computing includes platform as a service, infrastructure as a service and hosted private-cloud services
Source: Apps Run The World/Omdia/Statista/Coresight Research [/caption]  

Market Drivers

There are several drivers behind retailers’ investment in technology. Retailers need to invest in technology to remain competitive online and support increases in digital demand, as well as to accommodate wide swings in demand and engage consumers via multiple channels. We discuss the drivers in detail below. Surge in E-Commerce Penetration E-commerce continues to increase its penetration of retail sales, having surged in 2020 as consumers turned to online shopping during lockdowns and to avoid physical stores. However, we forecast that e-commerce penetration in the US will see a slight retrenchment in 2021 as shoppers become more comfortable with returning to physical stores, followed by a resumption of growth in 2022 (see Figure 3).

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Figure 3. US E-Commerce Penetration (% of Total Retail Sales) [caption id="attachment_123931" align="aligncenter" width="725"] Source: US Census Bureau/Coresight Research[/caption]   There are several implications for retailers arising from the boom in e-commerce penetration:

• By virtue of being online, e-commerce retailers have collected customer data and are likely to leverage it in marketing and assortment planning.
• E-commerce share gains translate directly into increased revenues for online retailers, enabling them to invest at a faster rate than physical retailers.
• The surge in e-commerce penetration in 2020 means that all retailers that sell online will have to make investments to ensure that their order management, supply chain and fulfillment systems can keep up with increased order volumes.

Fickle and Fragmented Consumer Base Experiences Versus Shopping Prior to the pandemic, the retail industry suffered heightened competition from nonretail companies—as consumers, particularly younger generations, increasingly preferred experiences such as restaurant dining and travel to shopping. Retailers therefore began to make their offerings more experiential, offering entertainment and other events and services online and offline. Due to Covid-19 in 2020, many types of experiences became largely unavailable, leading consumers to switch spending to retail—such as from restaurants to grocery. However, we expect that recovery from the pandemic will see a return to spending on experiences. Consumer Fragmentation—Via Channels and Geographically The pandemic further fragmented consumers’ attention, which was already spread across multiple outlets—including physical stores and numerous social media channels. Due to Covid-19, many consumers have retreated away from large cities to suburbs and less-developed locations, working remotely and consuming entertainment online. Consumers are now harder for retailers to reach due to this fragmentation. There is little drawback to shoppers of switching between online platforms to shop (except for having to re-enter customer and payment information), so consumers can chase deals from one platform to the next. Demographic changes, in addition to nonessential stores being temporarily closed, resulted in wide swings in demand last year, as consumers were unable to visit restaurants and increasingly sought to purchase food and health items at grocers and mass merchants. At the same time, purchasing patterns were influenced by consumers spending more time in home, driving sales of exercise gear and cooking and entertainment products. We expect demand to swing again once consumers begin reverting to pre-pandemic behavior patterns.

Competitive Landscape 

The thriving technology landscape comprises established leaders and a host of innovators. Below, we highlight the leaders in several key segments: cloud computing, enterprise software, supply chain software, AI software and retail hardware. Major technology providers—including Google, IBM, Microsoft, Oracle, SAP and Salesforce—feature heavily in the market as they offer platforms in key categories such as cloud computing and enterprise software. Amazon is both a retailer and a cloud computing provider by virtue of its Amazon Web Services (AWS) division. Cloud Computing The global cloud computing services market includes primarily US and Chinese vendors, whose market share in the fourth quarter of 2020 is detailed in the figure below.

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Figure 4. Cloud Computing Market Share by Vendor, 4Q20 [caption id="attachment_123932" align="aligncenter" width="725"] Source: Synergy Research Group[/caption]   Not included in the above figure is Snowflake, a US cloud-based data-warehousing company that completed an initial public offering in September 2020. The company offers a platform called Data Cloud that interoperates with data on the Amazon, Google and Microsoft platforms. For more information on cloud computing, please read our Introduction to Retail Tech report. Enterprise Software Enterprise software is a very broad category, encompassing infrastructure, platforms and applications. ERP Software  ERP software is the central nervous system of an enterprise, interconnecting the supply chain, commerce, inventory, warehousing, fulfillment, analytics and finance. Initially focused on manufacturing, ERP has added functions to address nearly every aspect of business, including human resource management and CRM. In 2019, the top 10 vendors accounted for about one-third of the market, according to Apps Run The World. The top three ERP vendors (and their market share) in this highly fragmented market are as follows:

• SAP—6.5%
• Oracle—4.0%
• Intuit—3.0%

Other notable vendors in the top 10 include Microsoft and Infor. CRM Software  CRM software helps enterprises manage their relationships and interactions with customers and potential customers. CRM functions include sales force automation, marketing automation and service automation. Salesforce is the dominant leader in this market. The top three vendors and their market share (as of 2019) are as follows, according to Apps Run The World:

• Salesforce—31%
• Adobe—8%
• Oracle—5%

Other leading CRM vendors include Hubspot, Microsoft, SAP and Zendesk. HCM Sofware HCM software supports companies in managing the complexity of the modern workforce and automating much of the paperwork associated with employee onboarding and development. Its functions include recruiting, onboarding and performance management; core HR functions such as administration, compensation and payroll and benefits; and workforce management and training, including e-learning. The top three HCM vendors as of 2019 (and their market share) are as follows, according to Apps Run The World:

• Workday—8%
• SAP—7%
• Microsoft—6%

Other leading vendors include ADP, Ceridian, Cornerstone OnDemand, Kronos, Oracle and Ultimate Software. Supply Chain Software The supply chain represents the circulatory system of a retailer, from sourcing to distribution, and feeds information about demand and consumer purchasing patterns back into the organization to guide future orders from the factory. A modern, technology-powered supply chain is bidirectional, encompassing the following functions:

• Product design
• Manufacturing/sourcing
• Transportation/warehousing
• In-store operations
• Sales
• Delivery
• CRM
• Demand forecasting

Global ERP and software vendors offering supply chain software include IBM, Microsoft, Oracle and SAP. Independent ERP and software vendors offering supply chain software include Aptos, Blue Yonder, Epicor, Infor, Manhattan Associates and SPS Commerce. There are also several innovators offering supply chain solutions. For more information, please see our separate report on supply chain software. AI Platforms and Software AI is a broad category, spanning infrastructure, tools, applications and hardware.

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Figure 5. AI Technology Pyramid [caption id="attachment_123933" align="aligncenter" width="725"] Source: Coresight Research[/caption]   Applications. AI applications include intelligent digital assistants for consumers, offered by Alibaba, Amazon, Google and many other technology providers. There is a rich landscape of enterprise application vendors using AI, including Adobe (Sensei), Blue Yonder, Infor (Coleman), Salesforce (Einstein) and Zebra Technologies, in addition to other companies that use machine learning (ML, which has several applications in demand forecasting and supply chain management) and image processing. Tools and Infrastructure. Cloud computing services such as Alibaba Cloud, Amazon AWS, Google Cloud, Huawei Cloud, IBM Cloud, Microsoft Azure and Oracle Cloud offer AI software infrastructure and applications. Chips and Components. Nvidia has adapted its graphics-processing chips for AI applications, and most major global technology vendors are developing their own AI chips—including Alibaba, Amazon, AMD, Apple, Facebook, Google, IBM, Intel, Microsoft and Samsung (and many other companies). Retail Hardware There is a variety of in-store hardware in retail that is used to communicate with, serve and collect data on consumers and items within the store. Deploying sensors and devices is becoming increasingly important for retailers, as they need to gather data on customer behavior to inform their engagement and assortment strategies. Data capture enhances forecasting, while automated machines help solve labor issues and increase efficiencies in stocking and other store operations. In-store hardware items include the following:

• Communication devices, such as beacons
• Customer-, traffic- and mood-tracking sensors
• Electronic shelf labels
• Smart displays and magic mirrors
• Inventory control, tracking, and loss prevention
• Point-of-sale and self-checkout terminals
• Store-associate mobile devices
• Robots for assisting customers, tracking inventory, dispensing purchases, store cleaning and store security

Retail Innovators

There is a healthy group of innovators developing solutions within the category of retail technology. Our Coresight Labs database includes more than 5,000 of the most innovative companies focusing on creating retail-focused and technology solutions. Coresight Research has published several Retail-Tech Innovator Landscapes on individual technology categories and geographies. In Figure 6, we summarize selected retail-tech innovators in the global market.

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Figure 6. Selected Retail-Tech Innovators [wpdatatable id=775 table_view=regular]

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Source: Coresight Research

Themes We Are Watching

The key technology themes in 2021 include digitalization/the move to the cloud, data and analytics, and supply chain management. Digitalization/The Move to Cloud Computing Digitalization refers to converting information into a digital format so that it can be manipulated by digital tools. This is an essential step before retailers can employ analytical tools and AI/ML. Moving to the cloud offers enormous benefits to retailers and enterprises overall, including the following:

• Eliminating the need to purchase IT hardware, such as servers
• Enabling IT staff to shift from maintenance to development
• Offering the ability to scale on demand
• Enabling more frequent software updates
• Providing the ability to develop new types of applications that leverage cloud computing

Data and Analytics Retailers possess an enormous amount of internal data on their products, their customers and customer behavior, in addition to external data such as weather, local events and information from product reviews and social media postings. Retailers can use analytical tools and AI/ML to turn these data into accurate forecasts and actionable insights. For example, machine learning enables three types of analytics:

• Descriptive—What happened?
• Predictive—What will happen?
• Prescriptive—What should we do about it?

By leveraging these types of analytics, retailers can understand and predict their business better and take appropriate action to drive revenues and profits. Supply Chain Management The events of 2020 exposed the essential nature and limitations of retailers’ supply chains, as evidenced by product shortages and the efforts required to get them under control. The need for visibility and flexibility in the current environment remains important, because swings in demand and sourcing bottlenecks are likely to continue, particularly as demand for certain items surges on a regional basis. Two key elements of supply-chain effectiveness include:

• Resilience—The ability to return to the previous, pre-surge state
• Agility—The ability to adapt to new changes

5G Wireless The major 5G wireless networks in the US were turned on last year, and many handsets, including the iPhone 12, now can access the networks. The advantages of 5G over 4G for consumers include higher capacity, greater bandwidth, lower latency and lower power consumption. For retailers, increased capacity is the key feature, for it enables a larger number of items to be connected to the network. 5G technology offers more robust product-tracking capabilities, from the factory to the transportation vehicles to the physical store, enabling true end-to-end supply chain visibility. For more information, please see our report, 5G Wireless in the Supply Chain.

What We Think

We think that retail technology has become even more crucial in 2021, as retailers need to engage with customers wherever they are, maintain command of their supply chains and evolve to handle ever-increasing e-commerce volumes and customer fragmentation. Partnerships are becoming increasingly necessary, with single companies unable to stitch together solutions with multiple technologies that exceed their expertise. There are several possible endgames for innovators—partnerships and acquisitions (the most likely results) and going public. Large companies are reluctant to work with unknown startups that lack a solid track record, but once acquired by, or in partnership with, an established company, innovators become equipped and trusted to serve large, established customers. Implications for Brands/Retailers

• With an increasingly fragmented consumer base, brands and retailers can use technologies such as AI to understand their customers better and develop strategies to reach them wherever they are.
• Retailers can make use of the many tools within supply chain software to optimize their businesses, improving allocation and assortment and identifying hidden cost-saving opportunities.
• Retailers can leverage many types of in-store technology to collect data on the activity of consumers within the physical store, as well as to inform inventory management.

Implications for Real Estate Firms

• Retail real estate firms can implement technology to increase engagement with stores and shoppers.
• Landlords can provide leading-edge technology infrastructure to make it easier for retailers and brands to reach and delight consumers.

Implications for Technology Vendors

• The developments of 2020 have placed renewed emphasis on retail technology, primarily within the supply chain, which vendors can leverage to promote the importance of their solutions moving forward.
• Technology segments such as AI are in their infancy and offer numerous opportunities for the development of new tools and applications.
• Vendors who are more able to make technology invisible to retailers—offering solutions rather than products—are more likely to increase adoption and deployment.