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LIGHTSPEED’S ANNUAL I N D E P E N D E N T R E TA I L TECHNOLOGY ADOPTION R E P O R T 2016

TA B L E O F C O N T E N T S 1

Introduction

2

Top Findings

3-4

Chapter 1: Who, What, Where & How Much

5

Chapter 2: Shifting Budget Priorities — The Independent Retailer Bets Big on Tech

6

Chapter 3: Big Data: From Buzzword to Retailers’ Secret Weapon

7-8

Chapter 4: eCommerce + Brick & Mortar = Success

9

Chapter 5: The Customer Really is Number One — and Retailers are Listening

10-11

Chapter 6: EMV — It’s Time for US Retailers to Get Smart

12 Conclusion 13

About Lightspeed

14-15

Other Retail Resources

INTRODUCTION In an increasingly competitive retail landscape, retailers are looking for ways to innovate and shift budget priorities to stay ahead. In a sea of new technologies and omnichannel challenges, one thing remains clear: retailers are optimistic about growth and ready to invest in the technologies their customers demand. Lightspeed conducted a survey of more than 1500 independent retailers to find out which technologies have made the biggest impact, and what retailers plan to spend more time and resources on in the coming year, laying out a roadmap for the future of retail success.

1

TOP FINDINGS Retailers are optimistic: 84% of retailers think revenue will be up this year and 42% plan to invest more in tech in the next year. Compared to last year, twice as many retailers are currently investing in technology that uses data analytics and software to make smarter buying decisions. Half of retailers (50%) predict that using data to make smarter buying decisions or to drive more personalized marketing will be their biggest source of increased revenue in the coming year. Half of retailers have online stores (50%) which is up from 38% last year — a 23% increase. More than a quarter (27%) expect revenue from their online store to increase by more than 20% by the end of next year. Only 25% of retailers currently have a loyalty or rewards program, but an additional 30% plan to implement one by the end of 2016. Only 5% of retailers have fallen victim to a security breach, yet 75% are worried it will happen to them. U.S. retailers aren’t ready for the EMV deadline, with the largest segment (25%) attributing this to lack of understanding of the technology and rules. When it comes to contactless payment, Apple Pay rules. By the end of 2016, 34% of retailers plan to accept it; 25% plan to accept Android Pay and 23% plan to accept Samsung Pay.

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CHAPTER 1 W H O, W H AT, W H E R E & H O W M U C H Between April 7 and 20, 2015, Lightspeed polled more than 1500 small to mid-sized retailers about their retail technology buying habits. Here’s a snapshot of who they are:

What they sell

Number of locations 18%

Apparel & Footwear

10%

69%

4+ locations

16%

1 location

Bike & Sports

8%

Books/Toys/Gifts

7%

Electronics & Computers

6%

Home & Garden

46%

Other

4% Pet

21%

5%

2-3 locations

Jewelery & Accessories

Their revenue (USD) 14%

< $100,000

29%

$100,000-$500,000 20%

$500,000-$1 Million

23%

$1 Million-$5 Million > $5 Million

5% 3

Where they are located

4% Europe 18%

Canada

69%

United States

5%

4% Other

How they use technology

Australia/New Zealand

What is their business outlook? *Expected revenue change for the coming year

19%

Mobile POS device to check customers out on store floor

42%

Sales data or analytics software utilizing data to make smarter buying decisions

31%

eCommerce software: tools to help manage inventory & sell in both online & physical stores

22%

Mobile POS device for inventory lookups on the store floor

22%

Using data to drive more personalized marketing

16%

Check-out system with customer facing display

7%

Store-branded mobile app

3%

In-store beacons

57%

13%

27%

2%

Increase somewhat

Increase substantially

Stay about the same

Decrease somewhat

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CHAPTER 2 SHIFTING BUDGET PRIORITIES — THE I N D E P E N D E N T R E TA I L E R B E T S B I G O N T E C H Overall, retailers’ technology budgets are modest, but the demands of increasingly tech-savvy consumers are motivating retailers to rethink their spending priorities. The independent retailer is alive and well, and they plan to invest more profits into technology that will further the growth of their stores.

Technology budgets

For retailers that are changing their in-store budget, the number one reason? 64%

83%

Keeping up with consumer demands

Have an in-store technology budget of less than $200 a month

20%

Other

42%

Say their budget will increase in the next 12 months

16%

Amazon or local, similarly sized retailers

Where are they spending their budgets?

35%

Plan to invest in datasupported marketing by the end of 2016

25%

Plan to implement a mobile POS for on-the-floor customer checkout in the next 18 months

27%

Will invest in a mobile POS for faster inventory lookups on the store floor

19%

Want to introduce a branded mobile app by the end of 2016

34%

Expressed some likelihood to introduce in-store beacons at some point. Up 62% from last year

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CHAPTER 3 B I G D ATA : F R O M B U Z Z W O R D T O R E TA I L E R S ’ S E C R E T W E A P O N Big data may be the buzzword of the decade, but 2015 is the year independent retailers really get smart about putting that data to use. They’re also willing to walk the talk: when comparing year over year data, it’s clear retailers put into effect the budget priorities they set out in 2014.

Data analytics to make smarter buying decisions

48%

2014

23%

26%

2015

42%

42% have this in place and an additional 26% plan to add it by the end of 2016

Up 45% from 2014!

In 2014 only 23% of retailers had this technology in place and 48% planned to add it

It’s working! 54% 50% 54% of retailers say that using sales data software to make smarter buying decisions has had the most impact on increasing sales revenue - more any other technology 50% predict that using data to make smarter buying decisions or to drive more personalized marketing will be their biggest source of increased revenue in the coming year

Driving more personalized marketing This year retailers are turning their focus externally, using data to drive more personalized marketing

22% 35% 18%

22% already use data for personalized marketing 35% plan to implement by the end of next year, more than any other category 18% predict data personalization will be their #1 driver of increased revenue

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CHAPTER 4 E C O M M E R C E + B R I C K & M O R TA R = SUCCESS The independent retailer is doing a-okay: investments in both brick and mortar and eCommerce are planned to increase this year. Retailers are going online to increase their reputation and visibility first, but are increasingly optimistic about eCommerce being a key revenue driver in the coming year, and the majority predict their total revenue will increase this year.

What’s holding back independent retailers?

The Omnichannel Picture

46%

20%

50% 22%

Have an online store today. An increase of versus 2014

23%

Lack of business or customer demand

Too time consuming and complex to maintain

Plan to open an online store by the end of 2016

8%

Too expensive to implement and keep up

eCommerce still a low revenue driver for independent retailers

10% 61%

say 0% of revenue comes from eCommerce

17%

say 11-30% of revenue comes from eCommerce

5%

say 31-50% of revenue comes from eCommerce

7%

say > 50% of revenue comes from eCommerce

say 1-10% of revenue comes from eCommerce

The vast majority of respondants —( 71%) report that 10% or less of their revenue comes from online channels, but they remain optimistic. This is flat with 2014.

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Retailers are optimistic about eCommerce

Expected online revenue change in next year:

84% of retailers expect revenue to be better this year than last year. When asked what will be the biggest source of increased revenue for their stores in the coming year, 39% said more online sales — outranking inventory changes or a new marketing approach.

34%

Expect to increase by > 1- 10%

25%

Expect to increase by > 11- 20% Expect to increase by > 20+%

More than half of retailers expect online revenue to increase by 11% or more in the coming year.

27% 14%

Adding fuel to the revenue fire 61% of retailers with an online store plan to increase their eCommerce budget. The number one reason?

Expect will stay about the same

Cross-channel management still a major concern 39% Say cross-channel inventory management tools is in their top two technologies to help drive revenue

21% To meet customer demands

46% To increase company visibility

22% To stay competitive

31% Already use technology to manage inventory across their online and in-store channels 29% Plan to adopt cross-channel technology by the end of 2016 8

CHAPTER 5 T H E C U S T O M E R R E A L LY I S N U M B E R O N E — A N D R E TA I L E R S A R E L I S T E N I N G Across the board, when retailers were asked why they made various decisions about opening an online shop, increasing a budget or adopting new technology tools, their customers were the number one factor in these decisions. Smart retailers always put the customer first, but the numbers back up this customer-service truism: when it comes to adopting new technology or increasing budgets, the number one reason was anticipating or responding to customer needs, which ranked above the motivation to outperform competitors both big and small.

Elevating the customer’s in-store experience Of those that plan to increase their in-store budget, 65% of retailers know their consumers will demand technologies like mobile check-out stands or new ways to pay. Retailers are much less motivated by competition.

27%

25%

Plan to invest in a mobile POS that will let them quickly look up inventory while on the floor

Plan to invest in a mobile POS to check customers out faster on the store floor

Only 16% cite Amazon or local, similarly sized retailers as a top concern.

22%

Three of the top technologies retailers plan to implement by the end of 2016 directly relate to elevating the customer experience

Plan to invest in a check-out system with a customer facing display

Loyalty programs continue to grow

25%

Currently have a loyalty or rewards program

30%

Plan to implement one by the end of 2016

17%

Indicated that an increased focus on loyalty programs will be in their top 2 revenue drivers in the coming year 9

CHAPTER 6 E M V — I T ’ S T I M E F O R U S R E TA I L E R S TO GET SMART With the deadline fast approaching, there’s a surprising lack of urgency and education on the part of US retailers to get smart about EMV technology implementations. They’re worried about a security breach — but don’t seem to understand that an EMV technology implementation can keep them safe. This lack of understanding presents a significant barrier to adoption and may leave some retailers subject to costly fees if a security breach happens, or even losing customers that expect their favorite store to be Chip and PIN ready. Getting EMV ready US retailers that already implement EMV/Chip and PIN ready payment technology

18%

US retailers that indicated they either have no plans to implement EMV or were unsure of their plans

45%

Top reasons for not implementing EMV

25%

Lack of understanding of the new rules or how to accept EMV payments

18%

Blame the hassle or cost of switching their payments hardware as another reason to put this off

17%

Have never even heard of EMV

10

Misplaced worry Retailers may be worried about security hacks, yet are in no rush to implement EMV technology, which will protect their businesses from costly payments fraud.

5%

5%

Have experienced a security breach

75%

75%

Worried it will happen

Getting into the Mobile Payments Game Currently accept Apple Pay

9%

Plan to accept Apple Pay by the end of next year 40% 34%

23%

25%

Plan to accept Android Pay by the end of next year Plan to accept Samsung Pay by the end of next year No plans to ever accept Apple Pay *The number one reason is that customers aren’t asking for it (51%)

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CONCLUSION While EMV and mobile payments adoption may present an obstacle in the coming months, retailers have still shown they’re focused on modernizing and investing in the right technologies to keep their customers happy and make smarter, databacked decisions. The majority of independent retailers have modest budgets (82% of retailers have a technology budget of less than $200/month), so they are looking for affordable technologies to help them improve their stores and process and drive revenue now. In an open-ended section that asked retailers about their biggest concern for the next 12 months, attracting new customers and maintaining cash flow in the economy were consistent themes. Despite these concerns, retailers are putting their faith and budgets into technology. From increasing online investments, adopting new technology and investing in new data programs, retailers are putting money into solutions that help them make a more direct impact on their customer, anticipating their needs and ensuring an even better in-store and online experience.

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ABOUT LIGHTSPEED At Lightspeed, we build end-to-end commerce solutions that retailers can use to build, manage and grow their businesses by creating better shopping experiences. We do it by unifying point of sale, inventory management, customer management, and analytics across all channels, in-store and online. More than 22,000 businesses use Lightspeed’s tools to sell over $9 billion a year. Start your free trial at LightspeedPOS.com Questions? Call us at 1-866-932-1801 or 1-514-907-1801 Free Trial LightspeedPOS LightspeedPOS

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