Exclusive new survey findings point to the priorities and investments retailers are planning for over the next 36 months. Forward-looking results

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1 Exclusive new survey findings point to the priorities and investments retailers are planning for over the next 36 months. Forward-looking results unveil the internal goals and external pressures driving retail decision strategies over the long term. This report will help retailers plan and prioritize around emerging trends from now through 2015.

2 2 RETAIL REDEFINED: INVESTING FOR SUCCESS THROUGH % 80.3% OF RETAILERS said implementing technology enhancements was the top strategy for addressing change through To win in today s challenging retail environment, merchants must keep their eyes on the ball, both internally and externally. The 2012 Retail Redefined: Balancing Internal and External Goals Through 2015 survey identified different, but vital, challenges that retailers recognize as impacting revenue, market share and competitive viability. They are committing key resources to addressing these challenges through strategic shifts and technology investments. Improving both profitability and cross-channel business processes are driving strategic shifts and technology investments internally, while changing consumer expectations and heightened competition are identified as the two key focus areas driving external changes. As retailers face more intense competition to attract and retain customers, they are working to find new, unique and innovative ways to improve how they interact with customers through enhancements to customer relationship management (CRM) and emphasizing the collection and analysis of customer feedback. Retailers also are investing heavily in either establishing or enhancing their mobile retail channel and optimizing business intelligence to help position their businesses for success. To pinpoint these long-term priorities and strategies, the Retail Redefined survey elicited responses from more than 100 industry leaders in a range of retail verticals and revenue levels.

3 3 Notable Survey Findings: 38.9% of respondents said changing consumer expectations topped the list of their most difficult external challenges. 51.9% of saw profitability pressure as the greatest internal challenge. 36.1% of mobility and 27.0% of business intelligence optimization were the top two technology implementations believed best for refocusing retail companies. 70.9% said they will increase their focus on online marketing and selling to address critical internal and external challenges. 5.1% only, reported that they will decrease brick-and-mortar locations, making this strategy the least prevalent for battling market challenges. 32.1% of respondents indicated CRM their number-one investment focus, with inventory management 19.6% and financial reporting (ERP) 18.4% ranking second and third. Sponsored by Junction Solutions and presented by Retail TouchPoints, this white paper summarizes the challenges as well as the specific response strategies planned by retailers, including the key technology and channel investments. Insight from an array of retail organizations, from grocery and Big Box to convenience stores and specialty hard goods and soft goods, represents a healthy industry cross section. Companies include those earning more than $1 billion annually (43.6%), those reporting less than $50 million (29.1%) and many in between all revealing how they plan to redefine themselves as they balance their goals and challenges through 2015.

4 4 Profitability Pressure Ranked 1st or 2nd by 59.6% OF RESPONDENTS PROFITABILITY, CROSS-CHANNEL CHALLENGES TOP LIST OF INTERNAL PRIORITIES It s no surprise that increasing profitability is the greatest internal challenge facing retailers today, especially in light of a volatile, highly competitive multichannel retail marketplace. Respondents were asked to rank five internal goals that present the greatest challenge in the next 12 to 36 months. Profitability pressures ranked first or second by 59.6% of respondents. Productivity improvements (44.7%) and improving crosschannel business processes (40.2%) also present significant challenges. Approximately one third (33%) flagged productivity improvements (increasing efficiencies and decreasing expenditures) as a key challenge, along with the need for better business intelligence (28.7%).

5 5 Changing consumer expectations topped the list of retailers greatest external challenges 38.9% OF RETAILERS ranked it highest. CHANNEL SHIFTS IMPACT EXTERNAL CHALLENGES Changing consumer shopping behaviors and higher consumer expectations are requiring changes from retailers. The survey results reflect this. Changing consumer expectations topped the list of retailers greatest external challenges, with 38.9% of retailers ranking it highest. Today s shoppers are less brand loyal, as they jump from retailer to retailer to find the best deal. So, not surprisingly, 28.7% of respondents flagged heightened competition as their top external challenge. Changes in consumer behavior also are reflected in 25.5% of retailers identifying the move from in-store to online spending by consumers as a significant external challenge. While mobile technology is growing in importance, many retailers are still in the beginning stages of developing and implementing a mobile strategy. This could be the reason mobile technology ranked low on the list of top external challenges, with just 5.7% of respondents ranking it as the greatest challenge. Changing consumer expectations Heightened competition Shifting market dynamics Data security

6 6 RETAILERS FOCUS ON TECHNOLOGY IMPROVEMENTS, ONLINE RETAIL AND CUSTOMER FEEDBACK In order to address internal and external challenges, the vast majority of retailers (80.3%) cited investing in and implementing technology enhancements. They also are increasing their focus on online marketing and selling (70.9%) to respond to consumer cross-channel or multichannel shopping behavior. Though retailers are enhancing their online retail focus, they continue to be committed to the brick-andmortar space. Only 5.1% of respondents expect to decrease brick-and-mortar locations, making this the least prevalent method for battling market challenges. In fact, one third (33.3%) said they will actually increase their stock of brick-and-mortar sites during the next 12 to 36 months. Attracting and retaining customers remains important as well, with 65.8% of retailers citing collecting and analyzing customer feedback as a priority to address their marketplace challenges. By proactively acquiring and analyzing customer feedback, retailers get a well-rounded perspective and are better able to be responsive to their customers. They also gain visibility into what their customers respond to positively and negatively to be able to adapt quickly as needed.

7 7 36.1% 36.1% OF RETAILERS believe mobility is the most significant technology enhancement for redefining/ refocusing their businesses over the next few years. MOBILITY & BUSINESS INTELLIGENCE HELP REDEFINE THE FUTURE OF RETAIL TECHNOLOGY Technology enhancements took center stage by far (80.3%) as the preferred method of facing both internal and external challenges. But specifically which tools do industry leaders believe will best redefine/refocus their businesses over the next 36 months? Retailers were asked to consider five key technology enhancements, then rank their significance. Mobility (36.1%) and business intelligence (27.0%) ranked the highest among technology investments during the next three years, slated to help redefine or refocus the retailers businesses. This aligns with other survey results that indicate that retailers see growth in the mobile channel and are trying to better focus on internal data, such as customer or inventory information. Cloud Computing/SaaS (24.7%) and digital technology (24.3%) ranked next highest, after mobility and business intelligence, as investments that could help propel a retailer forward. Surprisingly, with fraudsters getting more creative and tech savvy and with identity theft, shoplifting, internal threats and other security breaches remaining at significant levels more than one third (36.4%) said they believed security solutions was the least significant technology enhancement for refocusing their businesses for tomorrow s internal and external challenges. This aligns with the low prioritization of data security concerns as a perceived major internal or external challenge. 27.0% believe business intelligence optimization was most significant for addressing internal and external challenges. 24.7% ranked cloud computing/ SaaS, and digital technology (24.3%), among the best enhancement options. 36.4% cited security solutions as the least significant technology investment that would redefine or refocus their businesses in the next three years.

8 8 CRM was the clear leader in top technology investments, ranked #1 by 32.1% OF RESPONDENTS CRM AND INVENTORY MANAGEMENT LEAD RETAILERS TOP INVESTMENT STRATEGIES Where do retailers plan to invest to meet internal goals and challenges? Given that the top challenges cited earlier in the survey were profitability pressures and the need for cross-channel retail process improvement, the responses to this question seemed to fall in line. Respondents were asked to rank six key technology investments in terms of their ability to enable the retailer to address internal challenges during the next 12 to 36 months. CRM led the list with 32.1% of respondents giving it the highest priority ranking. Inventory management, at 19.6%, and Financial Reporting (ERP), with 18.4%, were the second and third technologies given the highest priority ranking. Retailers also seem to look to technology to help manage complex and dynamic inventory and order management needs. Both warehouse management (11.0%) and direct store delivery (11.8%) were cited as high priority technology investments. Workforce management (10.6%) ranked the lowest priority. PERCEIVED BENEFITS OF TECHNOLOGY INVESTMENTS Critical business benefits of technology investments include scalability, flexibility, productivity and efficiency. Retailers were asked to rank specific technologies based on their perceived benefits. In terms of scalability, Financial Reporting (ERP) was seen as the most scalable of the technology investments (23.1%), followed by CRM (23.0%) and Direct Store Delivery (15.9%). When it came to flexibility, CRM was the clear leader (34.5%), followed by Direct Store Delivery (31.8%) and Inventory Management (17.2%). Workforce management was seen as having the greatest productivity benefit (63.2%), followed by warehouse management (32.4%) and financial reporting (ERP) 26.9%. Retailers looked to the back of the house when it came to identifying the most efficient technology: Inventory management (40.5%) closely followed by Warehouse Management (40.0%) and Financial Reporting (ERP) (38.9%).

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10 10 MOBILE & INVENTORY MANAGEMENT DELIVER ON CONSUMER EXPECTATIONS Retailers reported that changing consumer expectations was a primary external challenge. The 2012 Retail Redefined survey asked industry leaders which improvements will best address this shift. The results indicated three clear winners, almost equal in their rankings as best able to help retailers manage this challenge. These were an increased focus on mobile technology (22.2%), enhancing inventory assortment (21.7%), and shifting focus from brick-and-mortar to online/mobile channels (20.0%). While respondents ranked cloud computing/saas as a desirable technology enhancement overall, they rated it last on its specific impact on addressing shifting consumer needs. Data security again surfaced as a low priority: As many as 28.9% placed data security as the least pressing of six external challenges. In keeping with this result, here 26% rated it as their second to last most important improvement for meeting consumer expectations. In fact, a total of 70% of respondents placed data security in the bottom three ranking categories of least importance to tackling consumer expectations.

11 11 CHANNEL INVESTMENT VERSUS EXPECTED GROWTH For the most part, retailers channel investments align with the expected growth over the next three years, although the tables are turning slightly for the percentage of brick-and-mortar revenue vs. online sales. To date, brick-and-mortar continues to dominate retailing, as 90.6% of respondents have store locations, compared to 62.4% with online stores and 23.1% with call centers and mobile stores. Just 14.5% currently are selling via social commerce. Over the next three years, more than half (50.5%) of respondents are committing to brick-and-mortar investments as their number-one priority, and 29.1% are making online stores the primary investment focus. Retailers are obviously still on the fence regarding social commerce, with only 1.3% identifying it as the channel slated to receive the greatest investment. While brick-and-mortar stores continue to bring in the vast majority of revenue for retailers, its numbers are on a slight decline. Today, brick-and-mortar revenue accounts for more than half of total revenue for more than 85% of respondents. By 2015, 80% of respondents expect brick-and-mortar to command more than half of revenue. Online retail is gaining ground. Though today 10% of respondents report more than half of their revenue from online sales, by 2015 that number will increase to 18%. Other channels are expected to gain ground during the next three years. Right now, an average 61% of respondents report 0% income being driven across mobile stores, social commerce stores and catalog/call centers combined. This could be, in part, due to a lack of existence of these channels today. However, it seems that will be changing. By 2015 only an average of 39% of retailers expect to see 0% of their revenue being driven across these three channels.

12 12 MOST CHANNELS WILL SEE REVENUE INCREASES Retailers were asked about their current and anticipated revenues from each of five channels. It s no surprise that three of the areas in which retailers will increase their investments (see Channel Investment chart) also are flagged for revenue improvements during the next 36 months. 35.8% of retailers said percentage of revenues driven from the online channel will jump to between 11% and 25%, up from between 1% and 10% for 45% of retailers now. 39.0% said percentage of revenues from mobile stores will jump to between 1% and 10%, up from 0% for 58.3% of retailers now. 46.3% said percentage of revenues from the social commerce channel will jump to between 1% and 10%, up from 0% for 68.5% of retailers now. The survey showed that catalog/call centers generate the lowest percentage of revenues, but those numbers will increase slightly. Though brick-and-mortar sites will get the most increase in investment (see Channel Investment chart), their revenue contribution percentage is expected to drop. This is likely due to expansion into new channels and shifting emphasis on other channels. Today, 20.5% of retailers cite 100% of revenue is driven through their brick-and-mortar stores. However, the percentage of retailers solely driving revenue through their physical stores is expected to drop to 11.7% in the next 36 months. In addition, 51.8% of retailers cite they derive 75% to 99% of their revenue from brick-and-mortar today. The percentage of retailers getting that percentage of revenue from their physical stores will drop to 44.1% over the next three years.

13 13 CONCLUSION Retailers are navigating their operations in dynamic times, infused with change and significant pressure to meet increasingly complex business challenges. They seek to make a range of improvements, especially those addressing profitability pressures, cross-channel business processes, changing consumer expectations and heightened competition. Customers carry more influence than ever before, and their growing expectations are impacting how retailers manage their strategic and technological planning. Retailers are now focusing on various improvements, particularly in the areas of mobile, online channels and inventory/assortment. As many as 80.3% of retailers said they plan on implementing technology enhancements that will enable them to enhance and expand their sales channels, more efficiently manage the customer relationship and provide them with the flexibility to adapt to changes in the marketplace. Armed with this white paper s insightful, forwardlooking findings and interpretations, retailers are equipped with a guide to planning and prioritizing around emerging trends, and will be best prepared for balancing internal and external goals through 2015.

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15 15 ABOUT JUNCTION SOLUTIONS www. junctionsolutions.com 9785 South Maroon Circle Suite 410 Englewood CO USA P. (877) F. (303) With offices throughout the U.S. and Canada, Junction Solutions provides vertical-specific on-premise and on-demand software applications and services that help organizations enhance operational performance, reduce costs, expand delivery channels and strengthen relationships. Built on Microsoft Dynamics AX and designed specifically for Multichannel Retail, Food & Beverage and Distribution companies, Junction Solutions innovative offerings focus on enterprise resource planning (ERP); supply chain management (SCM), including demand, order, warehouse, yard and distribution management; human capital management; merchandising; order entry management, call-center management, ecommerce engagement and fulfillment. The company was named 2010 Microsoft Dynamics Retail Partner of the Year, and has won numerous other industry awards. For more information, please visit ABOUT RETAIL TOUCHPOINTS State Rt. 17 South Suite 410 Hasbrouck Heights, NJ P. (201) Retail TouchPoints is an online publishing network for retail executives, with content focused on optimizing the customer experience across all channels. The Retail TouchPoints network is comprised of a weekly newsletter, category-specific blogs, special reports, web seminars, exclusive benchmark research, and a content-rich web site featuring daily news updates and multimedia interviews at The Retail TouchPoints team also interacts with social media communities via Facebook, Twitter and LinkedIn.