ISG Provider Lens™ Retail Software and Services - U.S. 2021 - Platform Migration Services
The Covid-19 Pandemic Accelerates the E-Commerce Adoption
In the U.S., e-commerce transactions contributed to around 12 percent of all retail revenue in 2019. During the start of the pandemic in 2020, the market witnessed a sharp spike in e-commerce activities with staggering differences between essentials and non-essential commodities, and now in 2021, as we return to normalcy, e-commerce is expected to contribute about a fifth of overall retail revenue. This sudden change in market composition has had ramifications at multiple levels, including omnichannel transactions, digital storefront, store locations and layouts, and supply chain functioning.
- Omnichannel transactions outgrew every other channel. The penetration of buy-online-pick-up-in-store (BOPIS) increased to more than 75 percent in the U.S. On the other hand, curbside pickup, which was at a meager 4 percent during 2019, is now being offered by 58 percent of retailers, making the task of attracting and retaining customers a shared objective of the offline and online channels. This has resulted in vendors and providers designing and weaving solutions that can provide a single view of the inventory across sales channels and stores, enhancing the current commerce platform with BOPIS functionality and enabling quick pickup (a notification going to the store workforce once the customer arrives) and easily integrated return options.
- The website CX has moved up a gear. Product search and selection have been significantly simplified through the visual search feature, digital stylists and chatbot recommendations. Social has become a direct commerce channel. Currently, in-app checkout of shoppable posts is possible through Instagram's checkout feature with more than 20 leading brands and retailers already on board, including Uniqlo, Nike and H&M.
- Store locations, layout and function are changing. Retailers are reducing the large-format mall footprint (25 percent of existing malls are expected to close by 2022). A significant swath of downtown standalone stores is morphing into hi-tech experience centers, and there are more (pop-ups or small formats) shops opened near residential areas. Some of the stores with low volumes or dark stores are also acting as micro-fulfillment centers. Retailers have started setting up no-inventory local stores (near residential areas), facilitating online returns and in-store pickups.
- Supply chain functioning. Retailers are still facing multiple challenges, including lack of visibility into supplier inventory, inability to accurately forecast local consumer demand and employee absenteeism caused by illness or staggered working setups. They are also struggling to ramp up transport capacity to meet the sharp increase in online demand, flex in response to a disproportionate and skewed demand (non-discretionary vs discretionary items), and make up for a shortage of raw materials, ingredients and components caused by delays in international shipments. Therefore, functional silos need to evolve into an interconnected dynamic network, thereby enabling a greater degree of collaboration, eliminating inefficiencies, generating real-time data for holistic decision-making, and infusing a greater degree of transparency across functions.
This inaugural report on the retail software and services industry examines some key software and services areas, where there are enough vendor and provider activities and developments taking place to enhance existing and add new solutions to retailers’ repertoire, thereby enabling them to combat the new dynamics originating from the COVID-19 pandemic.
E-Commerce Platforms
In this quadrant, ISG has evaluated leading e-commerce software vendors in the U.S. region. There are several similarities in terms of the product roadmap of these vendors. Many are offering cloud-based offerings with the underlying proposition of headless commerce and microservices, allowing a greater degree of customization, configuration and quick time to market. Vendors are taking an API- and mobile-first approach to platform building. Also, many new and out-of-the-box functionalities are being offered such as promotions, recommendation engines, progressive web applications (PWAs) and loyalty programs. A significant amount of effort and investments are going into using machine learning (ML) to obtain a 360-degree view of the customer.
Adobe (Magento), Oracle, SAP and Salesforce are positioned as leaders in this quadrant.
Merchandise Planning And Management
In this quadrant, ISG has evaluated leading software vendors offering merchandise planning and management solutions. Retail planning plays a pivotal role in ensuring that the cross-channel demand is aligned with a retailer’s supply chain. In 2020, as the pandemic started spreading its tentacles far and wide, retailers started facing challenges associated with the planning for skewed and unforeseen demand. This was mainly because the historic demand analysis became ineffectual and the real-time demand for inventory was vigorously fluctuating without rationale patterns that could have been based on seasonality, consumption habits and geography. The retailers that performed well and benefited were the ones that had their merchandise systems integrated with other supply chain systems. For example, SAP S/4HANA Retail for merchandise management enterprise resource planning (ERP) acts as the core for both the Merchandise module and the Supplier module, thereby ensuring that there is a common data stream for the retailer to have greater real-time visibility and adapt to the supplydemand see-saw.
Oracle, RELEX, SAP and SAS emerged as leaders and Logility is selected as the Rising Star in this quadrant.
Retail Transformation Services
This quadrant focuses on established and prominent IT service providers undertaking retail transformation work. Investments are being made in integrating omnichannel, managing merchandise and enhancing the customer experience (CX) in digital stores. Moreover, retailers are experimenting with technologies such as algorithmic retailing, artificial intelligence (AI) and the Internet of Things (IoT) for better inventory tracking, workforce enablement, shrinkage prevention and operational planning. Generally, for service providers, a retail transformation engagement necessitates applying a combination of various technologies at different nodes to achieve a significant and measurable business impact and simultaneously can provide a distinct advantage to the retailer, which its current business model is failing to achieve. IT service providers are working on a variety of areas across the retail spectrum to achieve scalable and hyperpersonalized e-commerce, a great store CX, store operations management, workforce enablement, agile supply chain and an automated back office. Unlocking the potential of (physical) stores and integrating them with the e-commerce platform is currently the biggest digital transformation opportunity for every service provider.
Capgemini, Cognizant, HCL, Infosys, TCS and Wipro are positioned as Leaders and UST as a Rising star in this quadrant.
Platform Migration Services
Providers that offer migration and replatforming services to retailers are evaluated in this quadrant. There are three visible trends in this space:
- At the infrastructure level, retailers are moving from traditional hosting to one of the cloud hyperscalers – AWS being a front-runner followed by Microsoft Azure in the majority of cases.
- At a platform level, retailers are trying to migrate from on-premises versions to Software-as-a-Service (SaaS)-based platforms. Regular updates, server-side maintenance being taken care of by the vendor, consumption-based pricing, and ability to scale up and scale down in real time are some of the primary reasons behind this move. A lot of cross-movement is happening across technology ecosystems. For example, retailers are moving from Oracle ATG on-premises to Salesforce Commerce Cloud, although Oracle has come up with its own commerce cloud solution.
- A few large retailers are moving away from packaged technology offerings and investing in developing their own microservices-enabled platforms. Not getting entangled in a technology ecosystem, shaping the product from scratch to match their business model and having complete control of the environment seem to be some of the driving factors.
Capgemini, Cognizant, Infosys, and Wipro are positioned as leaders in this quadrant.
Managed Services
Managed services providers undergird the retailer IT environment. Managed services are often underestimated and downplayed, whereas there’s a tremendous level of innovation and improvisation happening in this space. It is no longer restricted to vanilla infrastructure, app, and network management, rather it has morphed into a space where retailers are relying on service providers to enable digital experience monitoring, AIOps, and intelligent automation. Moreover, the primary managed service provider is often the preferred partner to kick-start the retail transformation journey. In the same vein, many leading providers have developed retail exclusive platforms, frameworks, and accelerators to manage and modernize different retail cross-channel touchpoints.
Capgemini, Cognizant, HCL, Infosys, TCS, Wipro emerged as the leaders.
Access to the full report requires a subscription to ISG Research. Please contact us for subscription inquiries.