Stop me if you have heard this one before. The Internet of Things (IoT) will revolutionize the way retailers serve their customers and operate their stores.
Skeptical? You probably have a good reason to doubt that statement. Let’s take the case of the most widely known IoT variant, RFID. Remember in 2003 when Walmart mandated that all suppliers would put RFID tags on pallets and cases? Apparel retailers, among others, were preparing for the time when everything in their store would have an RFID tag.
Fast forward to 2018. RFID penetration in apparel retail is just under 10%. This is actually ahead of the overall adoption rate for all of retail. So, did RFID fail? Well yes, and no.
The initial expectations for RFID were higher than were truly achievable. I put myself firmly in the camp of early “believers”, having served on the Auto-ID Advisory Board. I truly believed RFID would be quickly adopted, as the use cases for the technology were so compelling. But that didn’t happen. Part of that is due to the lack of success of some early efforts that soured retailers on the subject. But, a larger part of the reason is that retailers never truly prioritized RFID ahead of other major initiatives. As a result, RFID floundered for a few years before finally gaining steam within the apparel and footwear sectors in the past four to five years.
With this as a backdrop, imagine what retailers are thinking when they hear the discussions about beacons, sensors, electronic shelf labels, digital signage, and the like. Is the broader IoT movement in retail analogous to the RFID movement in the early 2000’s?
I would argue, vehemently, that it is different this time. To bolster my argument, I offer the following evidence:
- The speed off wired and wireless networks has increased dramatically since 2002. In addition to the network, processor speeds have continued to grow exponentially and data storage costs have dropped dramatically. These advances result in a technology foundation more than able to handle the demands of IoT.
- Customer adoption. In 2002 the smart phone market didn’t really exist. Today, over 80% of US adults have a smart phone. These devices have become indispensible for most of us and offer the ability for retailers to connect with us in a number of new ways.
- Customer behavior. Customers increasingly are demanding a more personalized, omni-channel experience. They are willing to opt-in for value-added amenities enabled by location services.
- End-point technology. Technology advances in Bluetooth Low Energy (BLE), Near Field Communications (NFC), passive chips, and antennae enable high performance proximity services at a much more compelling price point.
In short, the customers are demanding services and the technology is at a point to fulfill the demands. In fact, according to a recent Juniper survey, 79% of North American retailers are investing in IoT technologies to improve inventory visibility and performance. In Europe, nearly 36% of all retailers know when specific customers are in their stores thanks to IoT technologies. European retailers expect that number to be over 70% in two-three years.
This leads us to the real question. What are the best use cases for IoT in retail and will the technology live up to its promise?
Let’s explore the five high-level use cases that stand out in terms of improving the overall customer and retailer experience.
Inventory Visibility – The number one reason most customers leave a store without buying is because they could not find the product they wanted. Compounding this is the fact that most retailers struggle with maintaining accurate and timely, SKU-level inventory data at the store level. With IoT technologies such as RFID and smart shelves, retailers are able to see up-to-the moment inventory levels on the sales floor and in the backroom. This real time inventory can trigger alerts when shelf or floor levels are low to ensure the products the customer wants are available.
In addition, with accurate, up-to-the-moment inventory, retailers are able to satisfy customer demand from other stores or the their e-commerce channels. In order to compete with the likes of Amazon in delivery convenience, retailers must be able to transform inventory from a channel (brick and mortar and online) specific asset to a fungible asset that can be used to satisfy customer demand regardless of where the demand emanated. To do this, inventory levels must be timely and accurate. IoT technologies offer the best opportunity for retailers to achieve this goal.
In-store Customer Interactions. Retailers love the ability to interact with customers in an online environment. On-line retailers have near perfect information about the customer, their interests, and their shopping journey. This is in stark contrast to what retailers typically have available in store. IoT technologies can change that. Using a combination of technologies that could include beacons, mobile devices, video, QR codes, electronic shelf labels, and digital signage a retailer can capture unprecedented information about a customer’s visit in a brick and mortar location. These technologies provide the retailer with the customer’s presence in the store, the products they are browsing, products they are reviewing in more depth, and the places they have already visited in the store.
Armed with this information the retailer can begin to personalize the customer’s experience by providing targeted, meaningful offers, offer new levels of relevant information about products, and even tailor concierge services to the customer’s visit. Of course this needs to be on an opt-in basis from the customer. The biggest mistake a retailer can make is to flood the customer with pings and alerts without asking for their consent.
Last Mile Inventory Fulfillment. Competition for the last mile (getting the product to the end consumer) has become increasingly fierce in retail. Customers are demanding convenience and researching options to get the products they want and need. Two-day delivery is rapidly becoming same-day delivery. Same-day delivery will likely become two-hour delivery (especially in the larger markets).
Having highly reliable and timely information about inventory levels at all nodes of the retail network (distribution centers, stores, off-site storage, etc.) is the first step to providing the level of service the customer demands. The next stage is managing the flow of the product to the customer. Here, IoT technologies provide the ability to monitor the delivery of products to the customer regardless of whether the retailer owns the delivery fleet or not.
Store Associate Productivity. Brick and mortar stores are rapidly transforming into fulfillment nodes, capable of satisfying customer demands from any channel. To do this in a profitable manner, retailers need to be able provide these new services without adding lots of new labor. Improving the productivity of retail associates, while always important, is now paramount to enabling a new brand of retail.
IoT technologies can lay a critical role in finding ways to improve associate productivity and in making the store a better place to work. Using video, retailers can identify customer and associate patterns that form the basis for on-the-spot coaching to improve customer outcomes. In addition, providing associates with mobile technology (either company owned or leveraging the associate’s own device) opens up a number of interesting possibilities well beyond simply line busting or mobile POS. Real-time inventory alerts to trigger stocking, routing new tasks/assignments to associates based on real-time customer traffic, and providing access to detailed customer information to provide a better customer experience are just a few examples of how mobile and IoT combined can accentuate associate productivity.
Enabling New Customer Services. A frequent complain in brick-and-mortar retail is that the experience never really changes. Customers become frustrated when they can’t find a sales associate to provide answers to questions, can’t find the product they want, encounter long lines at the checkout, or when promotions/coupons are applied incorrectly at the POS. None of these experiences have dramatically changed over the years.
IoT technologies can play a role in improving these experiences and making the store a much more compelling place to shop. Enabling information through the retailer’s mobile app on the customer’s smart phone such as detailed product specifications, inventory levels, and customer reviews goes a long way to providing the same level of convenience in-store as the customers receive online. Frictionless checkout processes are rapidly being enabled by contactless technology in both smart devices and credit cards. Digital couponing is already available in the majority of retailers. Linking this automatically to a customer’s mobile identity eliminates another step in the checkout queue. Of course, retailers would love to offer the “Amazon Go” experience of pick-up products and walkout the door without intervention. The technologies and processes needed to do this, while not breaking the bank on location cost and shrink are rapidly emerging.
There are many more examples of how IoT can improve the experiences of customers and associates in brick-and-mortar stores. However, retailers need to prepare for IoT and begin prioritizing IoT higher in their respective technology portfolios to begin achieving anticipated benefits.
Preparation for IoT comes in a number of forms including improved network reliability and throughput, security, data streaming technologies, data storage, and advanced analytics capabilities. Each of these items can vary in significance depending on the current state of technology at a particular retailer. If these items are not already on a retailer’s roadmap, they should be.
And the final piece of the puzzle is to being experimenting and testing IoT technologies in a store environment. Labs are great for exploring the art of the possible, but the impact of the technologies can’t be determined without putting it in front of customers.
Yes, it is different this time. It is not just hype and hyperbole. IoT technologies will be a vital tool for retailers looking to survive in the most competitive retail market in history.