ChannelTrends: The Good, Bad and Ugly of Retail IT Specializations

storetech“Vertical” has always been a vague but trendy catchphrase for the channel. When business is booming for providers, industry pundits often point to specialized markets as the next frontier — a new, more profitable way to conquer the competition. Inversely, when conditions worsen, the discussion often shifts to building new verticals to get more entrenched with existing customers and differentiate.

But every provider should take a “look and see” approach when investigating practice options. A standard SWOT (strengths, weaknesses, opportunities and threats) assessment can ensure potential problems are identified before making substantial investments. Of course, every vertical offers its opportunities, as well as its challenges, and the retail market is a great example.

The Good
Technology has become an essential component of retail establishments. Credit cards and other electronic payment methods have displaced cash in most places. Tablets and network-connected cash registers have replaced manual processes and traditional equipment. Physical security and digital signage continue to grow in complexity, and inventory control and accounting systems are becoming a standard part of a retailers’ IT infrastructure.

Then there’s the cloud. Many of these small to mid-size businesses want to take advantage of virtual technologies, and all the benefits they offer, but lack the skills to make implement and integrate them.

Outsourced IT is a tremendous value for retailers. Few have the resources or experience to design, procure, set up, and support all these increasingly important systems; nor do they want to take on the expense of hiring and training all the people required to do it. That spells opportunity for MSPs.

Who else could offer all those upfront capabilities, as well as the monitoring, security, remediation and help desk services required to keep these technologies operational and on the leading (in some cases, bleeding) edge?

Automation may be the opening many IT service providers need in this market. With expenses rising at an alarming rate, much faster than revenue in many cases, some retailers are turning to technology just to survive. Others see it as an opportunity to differentiate and increase profits.                

Global strategist firm L.E.K identified labor costs as the single largest expense (other than cost of goods sold) for the top 10 U.S. retailers, equaling approximately 14% of their payables in 2016. And that share is growing quickly.

That trend is fortifying the business case for automation in retail, which has consistently gained traction over the past decade thanks to other benefits such as reduced error rates and faster payment. Improved customer satisfaction is also a factor, with the younger generation favoring self-check outs and automated fulfillment processes (think conveyor belts or delivery chutes) over human interaction. Not everyone likes to deal with lines and other people, regardless of age.    

Retails adoption of automation, cloud services and an increasing number of complementary technologies (i.e. digital signage, kiosks, mobile apps) also increases the need for advanced IT security support. Most retailers are forced to follow Payment Card Industry (PCI) standards as well as a host of other industry, federal, state, and local data protection rules and regulations. Failure to comply with any of these measures could mean millions in fines, not to mention the resulting lawsuits and PR nightmares from a data breach. Just look at recent attacks on Target, Home Depot and other retailers if you need an example.       

This is all good news for MSPs and related IT specialists.  

The Bad
On the negative side of the equation, some retailers focus more on upfront costs than on long-term ROI. Margins for grocery stores and others who sell somewhat commoditized offerings are typically low, in some cases just 3-5%. As you’d expect, cash flow for those companies can be tight and the owners are often tough negotiators. MSPs have to know what they’re getting into, carefully researching the business and the potential opportunities.

Those well-versed in the strategic benefits of their technology solutions for retailers usually fare better than those focused more on price — and speeds and feeds. If prospective clients need to cut expenses and improve efficiencies, they might also be put off by those pitching the latest features that come at a premium.

The Ugly
Competition in this space can be fierce. Large manufacturers and integrators have studied, nurtured and supported retailers with specialized suites of applications for years. They may have long-term relationships with the highest potential retail prospects in your community. If currently satisfied with the technologies and services they are receiving, and their current compliance requirements are being addressed, getting them to switch providers will be a tough sell.

MSPs need to be fully aware of what they’re up against entering this market. Some retailers will offer little to no profit potential, often demanding more valued time and support than they’re willing to pay for. Billing and payment issues can be quite challenging in this space, which means the cost of doing business with those clients may negatively affect cash flow…which is why automatic payment options should be part of the discussions.   

 While the opportunities for retail IT support in some regionals may be substantial, the costs associated with building and marketing a new practice (and other barriers to entry) must be carefully considered before making the leap. If prospects are focused on costs, create bundled or tiered solutions that address their general needs. Keep expenses low by staffing these practices with less tenured (and costly) team members, and leverage others when needed.

The end goal for MSPs entering the retail vertical? Keep clients happy and find new solutions for the issues they’re experiencing (and gain an increasing share of their IT budgets). Both are critical to make these practices successful and profitable.

Brian Sherman is Chief Content Officer at GetChanneled, a channel business development and marketing firm. He served previously as chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at Bsherman@getchanneled.com.