The Internet of Things (IoT) is viewed as a major driver of the third Industrial Revolution. There is no question that the connectivity of "things" will only continue to affect how businesses run in the future.
However, retail and CPG companies should avoid chasing after the 'killer IoT application' that promises to solve all their problems. Rather, they should focus on near-term IoT use cases that will demonstrate positive returns on investment in IoT, lay down the ground work, and prepare the organization for that yet-to-be-developed 'killer IoT application'.
This is an excerpt from my report, Retail: Prepare for the IoT Revolution. If you are interested in learning more, download a snapshot of the report:
Five Ways Retailers Can Start Using IoT Today
One issue that haunts retailers is how to extract greater efficiencies and profits from their physical stores. At the crux of this challenge: Where is the inventory? With the massive number and variability of SKUs in the retail supply chain, retailers face an ever-growing challenge of being able to properly manage and understand where the inventories are. In the near term, retailers should use IoT to focus on inventory. Here are areas where the IoT can be employed to improve retailers' operations:
Connect the store shelf and the back room
One of the age-old problems in retail is having a true picture of inventory on the store shelf. It is not simply the inventory that systems show is available at the store. Too often, there is a disconnect between what is found on store shelves compared to the inventory sitting in the back room. The inventory management system might show that there are 50 boxes of Pampers diapers at the store, but it is not precise on how many are on the store shelf versus how many are still in storage. This lack of visibility creates a host of issues and associated costs for retailers. Among the negative outcomes are lost worker productivity, mishandled stocking, potentially empty shelves (when there is actual inventory available within the store) and suboptimal inventory order management.
Retailers can tackle these problems with greater usage of technology to bring more visibility into the actual location of inventory. They can employ solutions that take advantage of existing infrastructure - such as cameras within the store - as well as new technologies such as sensors, beacons, and RFID chips. Vendors such as Panasonic offer both hardware and software that can make the store shelf "smarter" and tie it to the back storage room. The combination of store shelf sensors, smart displays, digital price tags and high resolution cameras makes it possible for retailers to see what is on the store shelf and in the back stock room and link these two sets of data.
Retailers who have issues with being out of stock, rapidly moving inventory and massive swings due to seasonality need to look at IoT to help manage the inventory process. With greater visibility within the four walls of the store, retailers can start seeing improved results within their stores.
Improve traceability of inventory before and after the point of sale
Retailer supply chains, like most supply chains, have become longer, more complex and require greater control than before. Having visibility into inventory does not start at the receiving dock of the store. On the contrary, the ability to track and trace product movements starts from the point of manufacturing. It is simply not about tracking where the inventory is either - certain retailers need to be able to trace the inventory and its treatment and condition throughout the supply chain. This is no more apparent than with perishable and temperature-sensitive inventory. Confectioners such as Cadbury and Hershey's have to ensure that their products are transported at the right temperature throughout their journeys to retail outlets. These companies use a greater number of sensors to guarantee that their products are handled properly, measuring a host of variables from temperature and humidity to vibrations and altitude.
It is not simply about bringing product to market, but what happens once the product has been sold. Major disruptors to retail supply chains are product recalls, which have struck everything from vegetables and dog food to baby products and appliances. A few years back, grocery operator Tesco's recall of consumer meats that contained horsemeat not only caused a financial penalty - having to pull off 10 million products from store shelves - but it also created a public relations disaster. Could IoT have averted such a scandal? Probably not, but it could have made the recall faster and more efficient. Having data and improved visibility from the IoT would have made it easier to rapidly track and trace the product's origins, where it was distributed, and which retail outlets it passed through. Industrial manufacturers are already taking advantage of the IoT for tracking and tracing their finished goods. Being able to understand exactly how products went through the manufacturing supply chain makes the implementation of recalls much smoother.
Retailers need to investigate how to leverage IoT technologies such as RFID to better track and trace products throughout the extended supply chain. This level of IoT investment focuses more on transportation and warehousing assets to provide a more complete picture of the retail supply chain. Retailers do need to be aware that these investments will require more sensitivity to working with partners and an extended ecosystem. It is not simply about kitting out your retail locations but working with your transportation and warehousing providers to make the investments.
Reduce fraud and shrinkage
One challenge all retailers face is shrinkage and fraud. Whether this is from store employees stealing, shoplifters or even organized crime, there is a constant need for trying to curb items being taken out of circulation nefariously. North American retailers lost and estimated $42 billion due to shrinkage in 2014.[1] How can IoT help curb this? By adding an additional layer of visibility to the process. Rather than solely relying on point-of-sale systems to indicate when a piece of merchandise has been sold, retailers can look to smart shelves, source-tagged SKUs and more sophisticated camera technology to track the flow of inventory in and out of the front door of the store. Companies like Panasonic are bringing on more sophisticated smart shelf technology as well as more powerful cameras that can enhance the ability of stores to track and manage their inventory.
Rather than relying on receipts or lack thereof, retailers can lean on these smarter in-store technologies to paint a much clearer picture of what transpires. If a patron claims to have purchased items but misplaced the receipt, having rapid and detailed access to what occurred in the store could quell some of the fraud that is occurring. Of course, it will not eradicate fraud, but give the retailer an additional layer of protection it currently does not enjoy.
Deliver just-in-time promotions and coupons
Traditional brick and mortar retailers are at a disadvantage from online channels. One area where brick and mortar has struggled to keep pace with online players is in the ability to hone in on demand, quickly identify customer desire, and seamlessly cross-sell and upsell products. Everyone is familiar with banner ads that are based on online search history and with receiving suggestions of other things to purchase based on what's in the online shopping cart.
Brick and mortar retailers do not have the digital intelligence their online competitors have. Better sensors and beacons are starting to give brick and mortar players a glimpse into what is possible. Turkcell in Turkey works with its partners to provide customers who have opted into its loyalty program with access to in-store promotions when they are near certain brick and mortar retailers. Leveraging the cellular network as well as beacons in specific stores, Turkcell provides the retail channel with online flexibility. Companies such as Zebra Technologies allow brick and mortar stores to tie in customer experience data via beacons to push more tailored content onto smart displays within the stores or even onto customers' mobile devices. Via this more targeted content, users of the technology hope to drive greater retail sales.
IoT will offer brick and mortar retailers the opportunity to provide their customers demand-shaping deliverables - promotional materials. But this is only the first step. Retailers must realize that customers will expect, if not demand, more sophisticated interactions if they are to truly develop a deeper relationship via mobile and IoT.
Maximize in-store flow management
Focusing on and trying to maximize how consumers navigate the store aisles is not a new concept. Retailers from grocers like Shaw's to Whole Foods to furniture giants like IKEA have spent time perfecting how they lay out their stores to maximize the appropriate customer exposure. Much has been done to analyze traffic and flow patterns. But much of this work has been done through experimentation and human observation.
With IoT, there is an opportunity to add more sophisticated digital tools to the process. Rather than relying on someone with a clipboard measuring the traffic patterns or reorganizing displays and then trying to correlate with sales, leveraging smart cameras, beacons and even microphones can give brick and mortar retailers more detailed and accurate data.
Companies such as Extreme Networks are working with entertainment venues to demonstrate what is possible with a more prevalent IoT. For example, Extreme Networks, is partnering with the NFL's New England Patriots and Gillette Stadium to monitor fans' traffic patterns. From lines at the restrooms to traffic patterns at the concession stands, Extreme Networks technology has enhanced the ability of the Patriots and Gillette Stadium to understand where customers congregate, where they spend the most time and where the traffic is the heaviest. The data is leveraged today to work with advertisers; for example, Gillette Stadium can price its advertisements and product placements more accurately using the heat map information on traffic. Moving forward, this information could be used to push data and messages to patrons to better manage traffic patterns as well. If the line is too long at a certain restroom, push a message to patrons in a section that they should go to a restroom a few sections away with a much shorter line. Or offer value-added services such as when the line at the concession stand is too long, send a message that you can have your hot dogs and beers delivered to your seats for an additional cost.
Entertainment and sports venues can leverage IoT to act more like retailers. Meanwhile, retailers can take these tactics and create digital, connected and customized experiences in their brick and mortar stores.
These use cases address business needs whose results are visible in the near term. IoT is not a panacea, but a tool that can be coupled with traditional approaches to provide retailers with another step forward. These use cases can also bring immediate results for retailers, making the investment more palatable for executive teams. As retailers work through early implementations of IoT, they will also lay the groundwork for more ambitious use cases.
Download a snapshot of my report: Retail: Prepare for the IoT Revolution.
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[1] 2014 Global Retail Theft Barometer - $128 billion in retail shrinkage globally. "The New Barometer: A Study of the Cost of Merchandise Theft and Merchandise Availability for the Global Retail Industry 2013-2014", www.globalretailtheftbarometer.com, The Smart Cube and Checkpoint Systems, October 2014, http://netmap.com.au/files/Global%20Retail%20Theft%20Barometer%202014.pdf.
