Can IoT save retail?

Retail environments have undergone significant change over the past two decades due to the introduction of information technologies, including the rise of online shopping. The Internet of Things has the potential to cause even greater disruption, but IoT can also provide traditional retailers with the tools to compete—and coexist—with the online retail world as “omni-channel” shopping erases the distinction between online and offline shops. it is estimated that the use of IoT could have an economic impact of $410 billion to $1.2 trillion per year in 2025.

IoT adoption in the retail setting will depend not only on the evolution of technology (lowercost sensors, for example) but also the development of new business processes. IoT systems require modern store formats and investments in data systems and electronic payment systems. This is not an issue in advanced economies, but it could hold back IoT adoption in developing economies. Tiny independent “mom and pop” shops account for the majority of retail trade in places such as Mexico and India and provide employment for millions of low-skill workers. Some countries have adopted policies to protect these players from more efficient modern stores.

Historically, many retail companies have been slow to adopt technology due to industry fragmentation, lack of scale, and limited margins in the industry. In recent years, however, adoption of payments, security, and inventory control systems has accelerated, even among smaller companies (in advanced economies). By adopting Internet of Things technologies, retailers can improve their economics by reducing shrinkage (losses due to theft by customers and employees), lowering inventory costs, raising productivity, and improving the customer experience.

There are several applications of IoT technology that can improve the performance of retail operations, such as inventory optimization, automated checkout, customer tracking, and mobile payments etc. I have described below two such applications that I believe can have a strong impact in the near future:

 

1. Automated checkout
Checkout is one of the most labor-intensive processes in retail and a frequent source of frustration for customers, who must wait in line and go through complex, multistep transactions to make payments. While self-checkout systems have been introduced in some retail environments, most offer only limited improvement over the traditional cashier system and its card- or cash-based transaction process. The Internet of Things has the potential to completely automate checkout by scanning the contents of shopping carts and automatically charging the sale to the customer’s mobile payments account, allowing a consumer to walk out of a store without pausing. The system would read the electronic tags on the items in the cart and a checkout system would add up the prices of the items and relay the information to a wireless payment system that would debit the customer’s smartphone as it passes. This would lead to lower costs for the store as well as time savings for the consumer.

2. Real-time in-store promotions
With beacons that connect to mobile phones to track customers within the store, retailers can launch custom promotions in real time. Once the customer is identified by his or her phone, algorithms can combine historical information about the customer’s preferences and lifestyle with current in-store location data to create unique offers. Over time, these systems can develop customer profiles that include not only data about what they have purchased, but also what they are willing to pay. Real-time advertisements and promotions based on this information can increase spending per customer, giving the advertiser a higher return on investment and raising productivity. In a theater or sports arena, patrons selected by particular criteria (such as frequent attendance) could be offered last-minute upgrades to unsold premium seats at discount prices.

In conclusion, I can say that there are also some technical issues to resolve before IoT can produce the benefits we describe. Inexpensive hardware (tags that can be used on even the cheapest items, for example) is important for making IoT economically attractive. And advances are needed in data analytics to take full advantage of the potential to combine IoT data with other data to provide custom offers, improve store layouts, and adjust staffing. Finally, IoT will not work for retailers or be accepted by consumers without rigorous safeguards to protect data and consumer privacy. Retailers and technology vendors will need to address this issue, which may also require action by policy makers.

 

References:

Pandey, A. (n.d.). The Impact of IoT on the Retail Industry. Retrieved July 19, 2017, from http://www.pcquest.com/impact-iot-retail-industry/

 

S. G. (n.d.). How the internet of things is revolutionizing retail. Retrieved July 19, 2017, from http://www.cio.com/article/3090123/internet-of-things/how-the-internet-of-things-is-revolutionizing-retail.html

 

L. C. (n.d.). Internet Of Things Will Revolutionize Retail. Retrieved July 20, 2017, from https://www.forbes.com/sites/louiscolumbus/2017/03/19/internet-of-things-will-revolutionize-retail/#16df80175e58