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Should retailers acquire tech companies?

5 September 2019

By Drew Smith

Drew is the Director of Product Strategy at Upp and focuses on how technology can help brands and retailers deliver what their customers want.

Retail Trends Retail Technology

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With news this year that Nike purchased two small tech firms, and Nordstrom helping itself to two more, plus a wider trend of retailers and brands picking up tech companies through acquisitions, we ask: is this how retailers should be growing their digital teams and transforming to meet the needs of their customers?

Retailers know they need significant technological help – whether from inhouse teams or by partnering with vendors. Customer expectations mean that existing infrastructures aren’t good enough to deliver the kind of experience that wins business in the modern era of retail. That has led to the instantiation of in-house software development teams at major retailers as they seek to build the technology which can add value to customers' experiences, in-store and online.

However, recent years have seen retailers looking to jumpstart their tech proficiency in some areas by purchasing technology startups. Nike purchased Zodiac and Invertex - startups working on data analytics and 3D scanning for fit, respectively. Nordstrom followed suit, snagging BevyUp (which functions as a digital sales platform) and MessageYes, a tool allowing customers to text retailers and receive AI-driven recommendations.

At the scale of Nike, buying a small vendor that has a unique IP is intelligent – it denies competitors access to that IP and gives them exclusive abilities (until someone else can copy-cat the innovation). In this case, it explicitly supports their Consumer Direct Offensive strategy which includes enabling personalisation and product customisation at scale - which requires great customer data modelling and intelligent manufacturing and sizing capabilities.

For Nordstrom, purchasing messaging apps or selling platforms doesn't follow a clear strategy in the way that Nike's acquisitions have done. While there will certainly be differentiating factors at both businesses which lead Nordstrom to acquire the specific two startups it did, ultimately there are many other players in the space who can and do deliver the same outcome.

Bringing in teams as a mechanism to get culture change across a business is a risky one, if that is the strategy at Nordstrom. More likely, the agile and focused startup team will become bogged down in whichever internal issues incentivised Nordstrom to look externally in the first place.


tech acquisitions by industry-1

The data in our chart is from PwC, which shows that retailers are the most hungry acquirers of tech companies – illustrating the clear demand for digital acceleration and improved performance across channels. However, whether acquisition is the means by which to achieve these goals is highly context-dependent.

Partnering allows tech companies to move at their own speed and provide market-oriented value, rather than focusing explicitly on the history, structure and personalities of one business at one point in time. In the long term, this can make them more valuable to the retailer as their isolation from the pressure of short term requirements allows them to innovate.

Across markets, leaders are increasingly developing, partnering with or purchasing the technology capabilities that allow them to deliver objectives like personalisation and convenience. In some cases, the technology business has moved into a vertical industry - Amazon is arguably the greatest example of this. Whichever way they get there, retailers must have a customer-focused strategy in place before buying/building/partnering with the tech that can get them there. 

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