The way retail works with technology right now is far more complicated than it should be.
If you go to any retail-related conference, the exhibit floor has hundreds, sometimes thousands, of technology companies offering their services to retailers and brands. When you talk to the exhibitors, they all have a compelling case for the value they bring.
The combination of all the technologies that companies use to run their businesses is called the "tech stack." The problem for retailers right now is that it's impossible for a single company to research, understand, utilize and manage all the services on offer. More important, when you have software from multiple providers they interact in unexpected ways. That inevitably causes problems that are hard to fix and everyone in the stack blames the other guy.
Exhibitors at retail trade show The Lead in July 2022.
Why This Is Important Right Now
Historically, retailers were organized by channels with one discrete organization for physical stores and another for online. But now, as Oscar Sachs, CEO and Founder of retail tech company Salesfloor told me, "consumers want to interact with brands across channels," in one unified experience. That means retailers have to change.
The only way for retailers to integrate their channels is through technology. That's what allows a store to accept returns of products you bought online and many other services.
Having hundreds of vendors in a tech stack creates problems. Retailers now need to access outside vendors to get the technology they need but the more capability they get, the more complicated and prone to breakdowns the system becomes.
Neil Capel, Founder and CEO of Solve.io, told me that his business is solving the conflict in customer information that arises from having multiple vendors collecting it. When you have a vendor who's business is correcting the way other vendors work, you know there's a big problem.
What Solutions Look Like
You've already started to see solutions both successful and not. When you check out online, you're now seeing different ways to pay and not just paypal, but an instant loan for a buy-now-pay-later solution. That integration, when it works, is what doing it right looks like.
You've probably experienced it not working too. When you buy online and try to return in-store, the time you spend waiting for the store associate to figure it out is a symptom of the tech stack not working as it should.
Sachs of Salesfloor has one kind of solution: last November he acquired another related technology company and integrated the two. Now when Salesfloor goes to customers, it has one package to offer which makes it easier for retailers to buy and less prone to bad surprises.
Omair Tariq, CEO of Cart.com, told me his company has made 11 acquisitions in the last two years. Tariq says that the beauty of Cart.com's strategy isn't just that it's easier to market everything in one package. Tariq says that after Cart.com makes an acquisition, it integrates the technologies so the fear of having different programs interact in unpredictable ways is eliminated and that makes Cart.com more competitive.
Cart.com's strategy is not small. It has raised over $400 million, has over 6,000 customers and 1,400 employees globally supporting customer sales revenues of many billions.
If Cart.com, Salesfloor and others succeed at making numerous acquisitions, then success in retail technology will depend on having capital for acquisitions and skills to integrate technologies. It also means that scale is important for success in retail technology.
A well-established strategy in the private equity business is called a "rollup" in which various companies in related businesses are acquired and put into the same entity. In a rollup, the companies may get integrated but they don’t necessarily, they may operate independently even after being acquired. Keeping them separate reduces the risk that there will be conflicts that harm the businesses. Cart.com, Salesfloor and others are also doing a rollup but theirs has to integrate the companies and the technology and that adds risk.
Rollups are not the only way to solve the problem of a too-complicated tech stack, according to Melissa Minkow, Director of Retail Technology at digital consultancy CI&T. Minkow talks about what CI&T calls "app modernization" in which each of the technologies in the stack are made more flexible so that, to put it in kindergarten terms, they get along with the other children in the class and don't cause disruption.
Minkow says there's a great irony in that "retailers want a seamless experience for their customers, but they don't have a seamless internal experience for their technologists to innovate with. And that is a key technology question for retailers now: Can they make their insider experience as smooth as they are trying to make their customer experience?
These aren't the only solutions to an overcomplicated retail tech stack, the important thing is that a solution has to be found to integrate all the channels and tasks that retailers must do now. Technology was always important for retail but now that consumers are demanding channel integration, a problem that can only be solved with technology, it is more important than ever.
When the tools for channel integration work together like parts in a race car, it is much more likely that the channel integration can be successful. When repairs are made to a jalopy, it can be improved but it will always be limited by what it is.
