For retailers, 2006 will be a mixed year. Long-term technology investments, such as radio frequency identification (RFID), multi-channel retailing and digital signage, will finally make breakthroughs.

At the same time, strategic trends – such as putting the customer at the centre of new IT investments, and entry into overseas markets – will begin to emerge.

Analyst Gartner predicts retailers using RFID to improve on-shelf availability will begin to outperform rivals in customer satisfaction by the end of this year.

The number one issue for the shopper is out-of-stock merchandise – an inconvenience that causes 47 per cent of customers to shop elsewhere as a result. New RFID implementations must be linked to workforce management technologies to ensure that replenishment tasks are allocated and completed.

The level of interest in RFID will grow steadily from 2006 through 2009.

As many as 56 per cent of retailers say they will be using item-level RFID, and 69 per cent will be using pallet and case-level RFID. But market leaders are unlikely to share the findings from their RFID pilots.

Followers, therefore, should make plans for RFID now. Assess your replenishment processes, and take action to counter any advantage the market leaders will gain by using RFID to improve stock availability.

But be ready to make short-term store replenishment process improvements.

Gartner also predicts that a handful of retailers will finally achieve seamless multi-channel retailing this year, allowing them to outperform competitors that view channels as separate entities.

Customers are looking for pricing and promotion transparency across channels.

But most retailers still run their catalogue, ecommerce, and store as separate entities.

Gartner recently asked consumers how they would react to negative shopping experiences.
Consumers generally indicated that service breaches in one channel would change their shopping behaviour in others.

The shopping experience will be better with retailers who make channel integration an internal issue and invisible to customers. And the store of the future will be multi-channel.

Retailers will need to either change their organisational structure or adapt business processes to eliminate issues created by cross-channel conflicts, such as separate buying and marketing structures, which can create inefficiencies and inconsistency.

Gartner also predicts that, through 2006, a lack of focus on content management
systems will keep retailers from capitalising on technologies such as digital signage to enhance customer service.

A large percentage of consumers say digital signage has no effect on their shopping. But major retailers continue to invest in digital signage networks, particularly in the grocery sector.

Up to 28 per cent of companies are deploying, or will deploy, such signage by the end of the year, and another 33 per cent expect to do so after 2006.

But while shrinking costs for hardware, applications and networking technologies are lowering investment barriers, success will be constrained by a lack of focus on content management systems.

Many of the digital signage installations are advertising-driven business models that feature TV advertising repurposed to fit store displays, rather than content designed for the shop environment.

Retailers should prioritise content management systems ahead of digital signage projects, as this can help them focus on broader marketing initiatives.

Customer-centric strategies will be announced in the coming months, but not implemented effectively by 75 per cent of all retailers, despite significant investments to collect and retain customer information.

And the two biggest areas of the business – store operations and merchandising – remain product-focused.

Today’s retail software technology is not capable of providing retailers with the most customer-centric capabilities.

Retailers need to take action on customer data, allowing them to maintain one-to-one relationships. Such action will require most of today’s off-the-shelf retail systems to evolve further. Merchandise planning software, for example, will evolve to include customer data.

Retailers such as Tesco are showing how customer data can be used beyond marketing-led direct promotions to deliver a better store experience and to plan better merchandising.

John Davison is managing vice president and research director in Gartner Industry Advisory Services, Retail