7 minutes to read With insights from... Jack Fitzgerald Business Development Director - Retail jack.fitzgerald@zuhlke.com Retailers urgently need to overhaul their tech architecture to keep pace with the speed of change. Focusing on headline-grabbing technologies like artificial intelligence (AI) risks distracting from fundamental issues with existing IT environments like data silos, legacy systems, and security threats. And these are precisely the issues that hinder the ability to leverage the full potential of AI. The key IT systems are known as a business's ‘digital core’. They store crucial data, inform decisions, and are used every day across critical business processes. However, many retailers have ignored their digital core for too long, resulting in several challenges. Many lack a 360-degree view of customers and stock levels. This is in large part caused by having to deal with legacy systems and disconnected datasets that prevent retailers from offering the best possible service. At the same time, deploying new products simply adds more complexity to already creaking systems. So, while it’s always tempting to focus on the new, the truth is that realising the full potential of technologies like AI in retail is impossible without first modernising the core systems. To see the most impactful long-term benefits, it’s time to stop chasing the hype and get back to basics. Today, we’ll explore how you can do that and prepare for the future of retail by prioritising the digital core. What is digital transformation in retail? Retail digital transformation means using technology to radically improve operational efficiency, increase sales, and enhance the customer experience. In recent times, the retail sector has faced several challenges that have brought this into focus more than ever. The industry has shifted towards omnichannel as standard, fuelling higher customer expectations for service and experience. At the same time, a wide range of new technology products have come onto the market. Each seemingly meets every possible need of a modern retailer but, in reality, often adds to the increasing complexity behind the scenes. This combination of changing markets and new tech can blind us to the fact that the basics of retail remain relatively simple. Fundamentally, every retailer needs to achieve three things: Understand why people buy and what drives customer loyalty. Know who the best customers are, what they like, and what they don't. See where stock is, what is selling, through which channels, and why. But for various reasons, current IT systems don’t help achieve these essential business functions. In many cases, they actively hold retailers back. Does that sound familiar? What is preventing impactful retail transformation? Deep down, you probably understand that focusing on a solid technical foundation would allow you to improve internal efficiencies, enhance the customer service, and better prepare for the future. So why hasn’t your organisation invested in strengthening and modernising that foundation? In my experience, the reason might be because many retailers habitually overlook their digital core and simply patch or add new solutions instead, resulting in disorganised, unhelpful, and complicated systems. This happens simply because the drivers for change haven’t been strong enough yet. Dated systems work. They toil away behind the scenes. They allow retailers to continue ‘as is’...until they don’t. Now though, we are reaching the tipping point where complex IT systems prevent success rather than contribute to it. Specifically, there are three key things preventing retail transformation: 1. Legacy applications 1. Legacy applications The first issue is legacy systems. While some older technologies continue to work, many have become a burden. The modern world has outgrown dated retail systems, bringing a host of risks across cybersecurity, consumer data protection, business continuity, and regulatory compliance. Legacy tools are also expensive to maintain. This inefficiency has knock-on effects for staff who must use multiple applications to do their jobs. Finally, legacy products prevent retailers from taking advantage of the enormous scale, pricing, and flexibility benefits of cloud technologies. 2. Technical debt 2. Technical debt Complex IT systems carry a lot of technical debt. Retail IT environments, in particular, are often needlessly complicated — the result of using quick fixes, patches, workarounds, and bolted-on software rather than full-scale solutions. This technical debt brings significant maintenance costs. 3. Monolithic architecture 3. Monolithic architecture Finally, the result of years of neglect is a monolithic architecture that’s simply not prepared for the modern business world. This manifests in several ways: Data silos, where systems do not communicate. Repeated data, bringing duplicate work and the potential for errors. Conflicting data sources which impact efficiency, service levels and customer satisfaction. These issues create a fundamental lack of trust in data as the quality of the output suffers because of lagging indicators and inaccurate historical information. Vital functions like retail data analytics, buying, merchandising, and forecasting are all unreliable at best — and misleading at worst. Not to mention, if you don’t have your data practices in order, implementing innovations like AI or digital product passports becomes impossible. Why now? The cost of inaction Combined, the above issues severely limit opportunities versus more agile competitors. This is especially critical at a time when a UK retailer's average pre-tax profit margins have halved since 2016. This trend shows little sign of improving — at least in the short term. For many, the mounting cost of technology and the delay of ROI are significant contributors. With paper-thin margins, endless new tech, and outside factors squeezing retailers, we’re seeing the impact of flawed IT systems more than ever: Decreased service levels, reducing sales and missing out on upsell opportunities with customers leaving for competitors. Rising IT management costs for multiple systems and the associated security risks. A lack of preparedness for future technologies, shifting the competitive edge to more proactive rivals. You may have tolerated monolithic systems for years, but now that they finally pose an existential threat to your business, it’s time to act. So what can you do to improve things? The key to fixing retail core technologies The first step is to build a business case for investment in fixing the digital core. Only once this is in place can an organisation undergo true transformation. A strong core connects key information like customer data and inventory management, making retailers more competitive now — and better prepared for future innovation. To fix the core, you’ll need to focus on three key areas: Build data pipelines to link systems, overcome silos, and create a single source of truth. Modernise legacy systems to improve security posture, save on running and maintenance costs, and benefit from cloud technologies. Lower technical debt by removing complexity and bringing all business-critical functions into the same environment. These solid foundations will then support you both in business functions and when adopting modern technologies. If you get it right, the rewards on offer are substantial as you will: Gain a single view of customers and a real-time overview of stock. Have improved service and happier customers. Meet increasing regulatory needs around vital factors like sustainability reporting. Reduce security vulnerabilities. Be in a position of strength, ready to leverage new AI and data solutions effectively and quickly. Discover how we helped Co-Op Funeralcare accelerate its digital roadmap Read the case study Get future-ready Ongoing IT issues are now an existential threat for retailers. As such, you should tackle them as an urgent priority. The key is to step back and resist the array of shiny new tech. Allow digital technologies to mature while you modernise core systems and prepare your environment to realise the full potential of retail innovation. To get started, look for experienced partners to help you understand and then solve underlying tech issues and build a connected system, adopting continuous delivery methods to release value early and often. Once that core is in place, you’ll be well-positioned to embrace the latest technologies. At Zühlke, we’ve worked with retailers and consumer brands to modernise their essential systems. If you’re ready to build a bold case for change and fix your digital core, we’re here to help. Meet us at RetailJam to learn how to enable true digital transformation. Reach out to me directly if you’d like to attend the event as our VIP guest.