While there has been a slowdown in the growth of the global retail industry as a whole, the unprecedented growth rates in e-retailing have encouraged stores to refine their multi-channel strategies.
Multi-channel retailing is not a new concept. Virtually all leading retailers have responded to the demand for e-retailing by offering online purchasing. However, where the battle is now being fought is over the customer experience while online – retailers wanting to gain competitive advantage must offer an experience and service that meets customers’ increasingly high expectations. Key to this is having a fully-integrated IT architecture supporting the different channels.
Despite accounting for only 8.6% of global retail spend in 2006, e-retailing is forecast to reach 12.9% by 2012. As well as driving sales, however, the importance of the online channel is vital for pushing online browsers to the store, with 46% of browsers going on to make a purchase in the store.
Today, retail customers want the ability to order online and either collect in-store or have goods delivered to a specified location. Returns must also be possible at the closest store. Such services depend on effective integration between channels, and retailers adopting these strategies are setting the bar increasingly higher for competitors.
SOA meets the needs of multi-channel retailing
Multiple channels bring with them increased complexity to IT infrastructure, and retailers using traditional integration architecture are quickly running into problems in fulfilling demand, gaining cross-channel visibility, and retaining the necessary flexibility for growth. The latest evolution in integration however, service-oriented architecture (SOA), offers an IT framework where the demands of multi-channel retailing can be met.
The highly competitive retail industry tends to suffer from thin margins and, in turn, a certain degree of IT inertia. Legacy retail systems are often integrated via a point-to-point or hub-and-spoke approach which struggles to cope with the increased requirements placed on it when the retailer adopts a multi-channel approach.
SOA, however, has allowed multi-channel retailers to meet these requirements by enabling applications to act as shared services that can comprise given business processes. The use of open standards also gives SOA a cost advantage over other enterprise application integration (EAI) approaches.
Growth of SOA in retail sector dependent on SMBs
The adoption levels of SOA vary significantly between industries. While the retail industry is more or less on par with SOA uptake (with 11% having deployed and 16% trialing SOA in 2006) there are large regional variations, with western countries being the primary adopters.
Currently, SOA adoption is the domain of larger retailers. Globally, they accounted for 86% of the $1.2 billion SOA market in retail in 2006. However, while the majority of large retailers worldwide are expected to have moved to an SOA approach to integration by 2012, the uptake among small and medium sized businesses (SMBs) will be more modest. Uptake among these retailers is expected to rise to 18% by 2012, assuming vendors give suitable attention to the SMB retail market.
Nevertheless, the steady growth in SOA penetration among SMBs means that, by 2012, SMBs will contribute to roughly half the SOA market size in retail. Despite deploying cheaper, more off-the-shelf SOA solutions, the industry-specific phenomenon that retail is comprised mainly of SMBs means that small increases in penetration among SMBs translates to large increases in the SOA market size.
The growth of multi-channel retailing is providing retailers with the necessary impetus to review their integration architecture, and many have learned the lessons from their peers that SOA offers the most effective approach to meet their needs. However, vendors banking on SOA growth in retail will be disappointed unless they can better position SOA to meet the needs of the SMB market.
