Last year the turnovers and profits of retailers soared on the back of the inflationary price surge provided by the rand's collapse in late 2001. With SA's big retail groups reporting turnover growth of more than 25% in the six months to December, it was the closest thing to boom conditions the industry has experienced in a decade.
It provided welcome relief after years of subnormal growth, but failed to spark enthusiasm among retail groups for renewed lavish spending on technology. "It was, in fact, the most difficult year we have ever experienced," says John Bright, CEO of retail software development and service group UCS.
Given that UCS has been involved in the retail sector for 25 years, this paints a pretty gloomy picture. "The business world has changed, perhaps permanently, and the technology industry must learn to live with this," says Bright.
"In the pre-Y2K days, everyone wanted the latest technology. Now it must be really vital before companies are prepared to spend." This is even more relevant in the retail sector, where large numbers of stores are involved, he says.
"Retailers' budgets are pretty fixed and, with a few exceptions, there are no big projects under way in SA," says Tony Nugent, client services director of Affinity Logic, a retail infrastructure and consulting company in the Datatec group. Like companies in most other sectors, retail groups are "squeezing out value from existing systems".
But it would be incorrect to say that nothing is happening in the retail technology arena, says Nugent.
Discussions with the retail groups in 2002 showed a "back-to-basics approach" in the application of technology in core merchandising operations. Much of this is being driven by the upgrading of enterprise resource planning (ERP) systems in which many retailers invested heavily during the past three to four years, he says.
"Many of these ERP systems are not working as well as expected," says Nugent. Retailers don't trust information they get from the systems and for many reliability is still a long way off, he says.
Retailers such as Truworths, Makro and Edcon have got their ERP systems working well, says Nugent. They are now in a position to begin optimising information to improve efficiencies in the key areas of stock replenishment and supply chain management.
Tough times are also creating opportunities in what has become a consolidating, survival of the fittest tech industry, says Bright. "We conserved our cash during the boom times and are well positioned to make selective acquisitions and expand our market footprint."
During 2002, acquisitions by UCS included Virtual Systems Technology (VSI) from Softline and 93% of Ultimate Connection from the Connection Group.
Bright says VSI added "significant" muscle in the corporate retail sector, a market in which UCS's Linux-based Universal software systems already boasted an almost 4 000 store usage by 25 chain-store clients including The JD Group, Pep Stores, Beares and Lewis.
Ultimate Connection brought with it Active Retail, a partner with Foschini in the development of a state-of-the-art, Microsoft-based, point-of-sales (POS) system and the first SA-developed soft ware to win a global award from Microsoft. Now renamed UCS Software, Active Retail achieved top honours in the Special Award category for software innovation at the 2002 European Retail Applications Developer Awards.
Having a Microsoft platform in UCS's product line-up makes sense. Globally, Microsoft is making strong inroads into the retail technology market with systems such as its OPOS, ActiveStore and .Net in which standardisation plays a key role.
Standardisation has produced big cost savings and, with retailers highly cost conscious, "plays into our hands", says Microsoft SA solutions sales manager Stephen Green.
"We won some nice business in SA in 2002," says Green. One of the major coups was Edcon's adoption of Microsoft to drive its customer relationship management, a function previously entrusted to an Oracle system.
They have not yet eased their grip on the spending reins, Green says, but "we see a lot of good activity among many big retail players. I believe many will soon be going into their next big buying cycle." This cycle will be driven by necessity as "many existing systems are now obsolete". Many are not working well and in some instances hardware spares have become difficult to obtain, he adds.
Nugent echoes Green's view. "Systems typically have a seven to 10 year life cycle and many have already reached this stage. I see major investment coming." If a trigger is required to set this in motion, there is general agreement among industry participants that it will be the introduction of the EMV smart card payment system in 2004.
