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The action or process of combining a number of things into a single more effective or coherent whole.
At any retail trade show or conference, the exhibit floor has hundreds and sometimes thousands of technology companies. Almost all of them have something of real value to retailers.
The problem is that there are so many vendors, no retailer has enough resources to evaluate and implement all the technology that’s on offer. And if a retailer could ever do it, implementing many different technologies into their “tech stack,” the combination of software that’s used to run a business, it could create so many unexpected technology conflicts that it could damage or shut down the system. Tech people even have a name for it, “Frankenstack.”
Why Now?
Consolidation usually happens when an industry is no longer growing. That's when the only way to gain market share is by taking it from someone else and that’s the hardest way to grow
It's easier then to just buy your competitor, get access to their entire customer base, and probably cut out some redundant costs as well.
Retail technology is not at that mature stage by any measure. Quite the contrary, the market is large, growing and highly innovative.
But retail technology suffers from a large and fragmented range of suppliers. Those crowded conference exhibit floors are a sign that there are too many companies vying for the attention of customers and it has driven marketing costs sky high.
That has extended the time that retail technology companies need to become successful. That means they need more capital than they would if there weren’t so many competitors and it lowers returns for investors.
So despite the early stage, high growth and large size of the retail technology business, consolidation must come because marketing costs are so high and it affects everyone in retail technology.
The Next Signal
It isn't just exhibit floors, there are other signs that consolidation is coming.
The next indication will be visible in January. That’s when the National Retail Federation puts on the biggest retail trade show of the year at the Javits Center in New York. It’s even called The Big Show and the clue is two of the smaller sections of the show, the Innovators Showcase and the Startup Hub.
I have seen the presentations of these companies and there is a common theme among many of them. They are trying to combine tasks, to do the work of what would have been several companies so that they can offer more one-stop shopping to their potential customers.
It's like they anticipated that they have to merge even before they started. Anything to spread marketing costs over more sales to reduce the cost of getting every dollar of revenue.
Implementing multiple tasks simultaneously also reduces the risk to retailers of problems in their tech stack. It's a way to get many of the benefits of consolidation without actually having to combine. But it's yet one more sign that consolidation is necessary.
(The names and a very brief description of the companies I’m referring to is underneath this article.)
What’s Driving All This Technology And Consolidation
When physical stores run well, consumers have a great and fun experience. When consumers shop online, their shopping behavior gives retailers an enormous amount of data on their interests and preferences that helps retailers to work more efficiently.
Retailers know that if they could give each of those two channels the strengths of the other, consumers would be happier, they'd spend more and retailers would make more money. That's what retail technology is trying to accomplish.
Retailers all know they have to get there and that's why they are always shopping for new technology.
But wait, there’s more. Artificial intelligence is key to many of those new technologies and AI itself is still being created and new ways to use it are being developed every day.
But it will take many years for all these changes to happen.
Business Failures, Buyers and Sellers
The large number of competitors in retail technology mean that a rationalization or “shakeout” is coming.
Some of that will happen as startups fail.But a big part of it will happen with acquisitions and combinations.
The marketing inefficiency of so many companies trying to sell to the same universe of retailers and the risk of combining numerous technologies into one system makes it inevitable. And the exhibit floors of trade shows have to get simpler so that retailers can take it all in.
Almost every surviving company in retail technology will have to decide whether it’s going to be an acquiror or be acquired.
How will companies decide whether to be acquired or to acquire others? It will be a combination of several factors:
Business performance
Availability of capital
Desire for liquidity on the part of shareholders
Attractiveness as an acquisition
How much risk management and shareholders are willing to take on
There are no simple answers.
But there are some questions:
Have they already reached the valuation they hoped for when they invested?
Are there likely acquisition targets? Are there likely acquirors?
Do they have the confidence in their counterparty to continue to build the business?
Are they willing to take on more risk in the business?
One thing is certain: in the future, the convention halls where retail technology companies exhibit will have fewer exhibitors.
The Companies
Here are the companies that are exhibiting at The Big Show in January that are taking on more tasks simultaneously than we have seen in the past:
AdSpout - Delivers personalized advertising in stores on tablets and TVs, allowing the highest bidder to advertise and delivering attribution information to retailers and advertisers.
Alpha - Provides clienteling software to luxury merchants including Harrod’s, The Row and others with average incremental revenue of $15 thousand per month per sales associate with 45% outreach conversion.
Arteli - Helps physical stores to optimize assortment, inventory and physical space.
Dataviva - One system that provides new item forecasting, inventory optimization, inventory planning workflow, price and promotion planning.
Digiphy - Uses personalized messaging to reach consumers, applying local labeling requirements, capturing first-party data for segmentation and re-marketing.
Gumband - Measures the success of in-store experiences, updates in-store content remotely, conducts maintenance and debugging of in-store content.
Intuendi - Ensures that clients have the right product in stock at the right time and place. Manages internal forecasts, organizes intelligence, predicts demand and synchronizes financials, sales targets, supply planning and operations reducing stockouts and markdowns.
MT Lab - Boosts customer experience with AI chat for product discovery, maps to navigate in-store, personalized offers in real-time and location-based, provides skip-the-line payment options.
Paperweight AI - In-store shelf sensors that allow better inventory management, reduce theft and automated checkout.
Profitmind - Conducts analysis to identify opportunities for retail improvement, recommend needed action, execute actions remotely and monitor results.
Qooly - Combines product information management, order management, inventory management and customer information into one system.
QUBI - One system that enables marketing campaigns, gamification, augmented reality, payments and digital wallets.
SensePass - Enables digital checkout in-store or online on any platform including any buy-now-pay-later provider, any credit card, any e-pay solution (Zelle, Venmo, WeChat, etc.)
Shelfperks - Offers chat support, predictive analytics for inventory management, customized consumer recommendations, targeted marketing campaigns, video analysis to track store performance.