Key takeaways

Funding

• Funding hit a low, as investments shifted toward Digital Retail Enhancement Platforms: The Retail Tech sector continued to experience a subdued funding environment, with this quarter marking the lowest funding levels since 2020. Overall funding declined by nearly 96% YoY (down 86% QoQ) to just USD 24.8 million across three rounds, compared with USD 613 million in 13 rounds during Q3 2023. However, the Digital Retail Enhancements Platforms sector maintained funding levels from the previous quarter. Investments were primarily focused on Crisp, which secured funding to enhance its competitive optimization solutions. Overall, funding for Ecommerce Platforms seemed to have leveled off, contributing to the subdued funding environment observed since the beginning of the year. Investor interest appeared to be shifting toward early-stage investments in newer technologies that enhance customer experience and operational efficiency, driven by the rise of hyper-personalization and continued retail labor shortages.

Partnerships

• Incumbents led with sales partnerships to automate stores via smart carts and self-checkouts: Sales partnerships stood out as the bulk (77.3%) of all Retail Tech collaborations this quarter, driven by incumbents like Amazon, Ocado, and A2Z. Most partnerships were in the Automated Stores sector, led by incumbents that continued to deploy smart carts, while incumbents and startups deployed self-checkout solutions. The ongoing adoption of smart carts, primarily driven by incumbents, reflected trends from the first half of the year. Given the growing disinterest in self-checkout systems among certain retailers, it appears that industry incumbents are shifting their focus toward the accelerated deployment of smart carts, which are increasingly favored by consumers and pose fewer theft-related concerns.  In the Retail Industry Robot sector, startups and incumbents focused on enhancing and deploying inventory robots and micro-fulfillment centers, signaling a rise in commercialization.

Product updates

• Limited product launches with key updates in Automated Stores centered around Amazon: Product updates this quarter were lower than in the first half of the year and primarily driven by Amazon's advancements in self-checkout technology across its Amazon Go stores. While Amazon remains confident in its self-checkout solution, many retailers are phasing out checkout-free systems based on customer feedback and retail shrinkage concerns. This suggests that the shift toward full automation is not one-size-fits-all, leading retailers to adapt their strategies accordingly. Meanwhile, GenAI integration continues in retail, particularly to develop AI-powered shopping assistants. Amazon's Rufus, along with L'Oréal and Walmart, are among the growing adopters of this tech. This shift suggests that while self-checkout automation faces challenges, AI-driven solutions aimed at personalization and operational efficiency are gaining ground. In the long term, more retailers are likely to prioritize customer-centric AI technologies over fully automated systems, balancing innovation with practical considerations.

M&A

• Scandit acquired MarketLab to advance its retail shelf management and analytics solution: M&A activity in Retail Tech has remained low, with only one deal this quarter, matching the single activity from the first half of the year. Both deals occurred in the Automated Stores sector, highlighting a trend toward consolidating expertise to enhance store automation solutions. While Cantaloupe's deal in 1H 2024 focused on expanding its self-checkout technology, Scandit's acquisition this quarter is aimed at improving automated shelving technology.

Outlook 

• AI-based smart carts to be preferred over self-checkout systems: The retail industry is moving toward advanced automation, with smart carts emerging as a key solution, while self-checkout systems may slow down, particularly in larger retail chains. Concerns over theft and customer experience are prompting retailers to phase out self-checkouts. Instead, established players and disruptors are investing in and actively working to enhance the functionality of smart carts and accelerate global deployment. A key trend to look out for is the AI integration in smart carts. Retailers are prioritizing AI-enabled carts that provide personalized recommendations while integrating seamless payment options. As smart carts become more sophisticated in these areas, they are likely to solidify their position as a preferred automation solution, while self-checkouts decline.

• Growing demand for micro-fulfillment centers and inventory management robots: As retailers face rising consumer expectations for fast delivery and convenient shopping experiences, micro-fulfillment centers (MFCs) present an effective solution. Integrating inventory robots further boosts operational efficiency. We continued to see major international retailers such as Kroger, Coles, HEB, and Northeast Grocery adopting automated warehouses, fulfillment centers, and inventory management robots. Furthermore, tech advancements have made MFCs a cost-effective solution, making them more accessible to a broader range of retailers. This economic feasibility, combined with the ongoing trend of urbanization and the growth of ecommerce, is expected to drive further adoption across the retail industry. As more consumers shift toward online shopping, the demand for localized fulfillment solutions and management robots capable of efficiently handling high volumes of orders will continue to rise.

• Investor interest shifts to Digital Retail Enhancement Platforms: Digital Retail Enhancement Platforms are beginning to attract investor interest, with funding primarily directed toward players like Crisp, which has secured investments in recent quarters for its competitive optimization solutions. Further GenAI integrations in Digital Retail Enhancement Platforms are likely. Product updates in the GenAI space, with companies like L'Oréal, Amazon, and Walmart exploring the implementation of shopping assistants and virtual shopping technologies to improve the customer experience, suggest that Digital Retail Enhancement Platforms supporting such technology could attract even more investor attention. The integration of GenAI into these solutions is likely to become more prevalent in the coming quarters, facilitating personalized customer engagement and delivering valuable consumer insights, enabling retailers to create immersive shopping experiences that drive customer loyalty and boost sales.