Technology: Making The Investment

CFOs urged to look beyond immediate cost reductions

By Dan Berthiaume

Chief financial officers are increasingly playing a critical — and, in some cases, leading — role in approving retail technology investments. But they frequently exhibit tunnel vision when analyzing the full impact that a potential technology implementation can have on the enterprise, according to Ken Morris, managing partner, Cambridge Retail Advisors.

“CFOs typically look at things from a cost reduction perspective,” said Morris. “They pay for an IT project by cutting money in other areas, instead of looking at how it might increase sales, because they never believe sales reports. And that’s a problem.”

Instead of strictly evaluating IT expenditures based on short-term cost reductions (which he acknowledged is often a primary focus of corporate boards and Wall Street investors), Morris advised retail CFOs also to examine the

Tech Investment Drivers

longer-term value that IT projects can produce.He called out two deployments in particular: shifting infrastructure to the cloud and RFID tracking efforts.

“Retailers need to invest in infrastructure to truly be competitive and that means putting things in the cloud, which enables a real-time retail scenario where you can see your inventory in real time,” he said. “You can also see your sales in real time, and not a day later.”

RFID tracking technology typically does not have an immediate cost reduction associated with its implementation — and RFID tags cost more than traditional security tags. But the technology can give retailers a handle on the burgeoning problem of returns fraud, noted Morris.

“You can truly protect your merchandise with serialized inventory,” said Morris.

Other technologies with a longerterm ROI model that Morris advises

According to a new study from analyst firm IHL Group, “Building an Insurmountable Lead – How Technology is Separating Leading Retailers from Competitors,” three specific needs are driving retail technology purchases for 2023: retail CFOs to carefully evaluate include self-checkout and in-store robotics and automation.

1Reducing margin loss associated with online transactions for store fulfillment.

According to IHL analysis, this area has seen up to 800% growth as a percentage of revenue since 2019 depending on the segment.

2Reducing the amount of labor required to operate stores. Amid challenges in staffing, retailers are trying to do more with fewer workers. This is driving investments in labor-replacing technologies and solutions that made associates more efficient, such as self-checkout, scan-and-go, electronic shelf labels and automated micro-fulfillment centers.

3Deploying security technologies to reduce impact of theft. IHL data indicates retailers are investing in anti-theft solutions including physical security, predictive and prescriptive analytics, and computer vision to identify threats.

“Self-checkout reduces labor costs,” said Morris. “For a lot of retailers, only three-quarters of available store-level jobs are filled because they can’t find employees in certain markets. [The solution is] to automate some in-store workflows, which means investments in self-checkout, assisted checkout and robotics.”

Morris acknowledged that for the CFOs of public retailers, strong pressure from Wall Street investors and corporate boards to produce quarterly growth provides incentive to focus on shortterm profits. However, he urged CFOs, investors and board members always to evaluate the long-range benefits of technology investments.

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