Retail Technology Investments Hit $28.9 Billion in Q1

May 13, 2021

CB Insights’ lastest funding report showed that retail technology investment has experienced its strongest momentum in five years, soaring to $28.9 billion from $18 billion in the fourth quarter of 2020.

Laura Kennedy, senior lead analyst at CB Insights and author of the report, told WWD the jump was surprising, and “was due to the fact that there were so many mega-rounds of funding during the quarter.”

Kennedy said “there’s a lot of money in Silicon Valley right now, and investors are spending it.”

The retail tech investments include funding e-commerce companies, on-demand delivery (and the so-called “dark convenience store model”) providers and makers of in-store technology — especially cashier-less systems.

Kennedy told WWD that retail technology investment is shifting toward a post-pandemic world. “Investment is flowing to omnichannel priorities to enhance the store and connect inventories across platforms,” the report stated. “Retailers are looking to tech to digitize the store, create more personalized and engaging online experiences, and speed up fulfillment. Sustainability is also top of mind following a year that bolstered the importance of environmental resilience.”

CB Insights said investment deals were up 7 percent in the first quarter compared to the same period last year. Year-over-year, funding tripled.

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“E-commerce companies continue to win the highest valuations,” the report noted. “In first quarter 2021, 14 new retail tech unicorns were born, largely in the e-commerce sector. Three of the five with the highest valuations — all above $1 billion — streamline online ordering and fulfillment via marketplace platforms or faster delivery.”

These investments come at a critical time as brands and retailers manage extremely lean inventory levels, and deal with higher shipping costs, supply chain delays and an overworked fulfillment ecosystem.

Kennedy said online delivery and marketplaces were the drivers in the top mega-rounds and key to the quarter’s M&A activity. Kennedy said that in the first quarter, there were 73 mega-rounds (with deals worth more than $100 million), which is up from 33 in the fourth quarter of 2020. “Funding to online grocery platforms continued to accelerate; in particular, grocery delivery in Asia garnered acquisition interest from big tech companies,” the report stated. “Amazon third-party brand builders and headless commerce tech companies were also M&A targets.”

CB Insights said another focus area of investment was cashier-less checkout and workforce management solutions. “Retailers will continue to look for efficiencies across store operations,” the report noted. “In-store tech funding doubled quarter-over-quarter…to $2.2 billion, and nearly quadrupled versus the same period in 2020. Deals increased 6 percent versus last quarter.”

With inventory and fulfillment, the report said merchants and brands “remain focused on tech that will strengthen and streamline their supply chains” and stated that funding is “flowing to supply chain visibility tools, as well as tech to make fulfillment faster and more efficient, like on-demand warehousing and micro-fulfillment.”

Investments in supply chain and logistics tech was $8.6 billion in the quarter, which was about the same as the fourth quarter of 2020, but double the amount year-over-year. With on-demand delivery, funding jumped 50 percent in the first quarter to $6.1 billion as the number of deals rose 9 percent. “Platforms that connect brands and retailers to local delivery carriers will be in focus as consumers continue to expect fast order fulfillment,” CB Insights said.

Kennedy told WWD that tech investment in the dark convenience store model is also on fire. These are companies that support “ultra-fast” deliveries of essentials. Investments in this segment rose 120 percent quarter to quarter to $8.6 billion. She said while these services are geared toward consumables, in some markets, such as New York, ultra-fast delivery could be used for beauty products and apparel.