Industry pundits have been talking about the Internet of Things, well, since the Internet. But it’s taken us almost 20 years since that time to get to where we can start talking about real solutions and real value. Part of the challenge has been on the technology side, just figuring out mobile and internet-connected devices and big data. And part of it has been maturing to the point that there are enough IoT devices out there to where people can start experimenting at a scale that shows what the technology is truly capable of.
Retail is not immune to those evolutions. From Walmart’s ill-conceived RFID mandate in 2003, to early talk of in-store refrigeration units alerting stores for proactive maintenance or temperature sensors mixed in with the strawberries, there have been use cases for IoT proposed that apply to retail. And yet, nearly 15 years since Walmart’s mandate, here we are, with little progress made.
So what’s changed that we can talk about IoT in Retail now, and assert that it’s more than just a pipe dream? First, retailers’ focus has changed significantly over the last 15 years. Where early IoT use cases focused on supply chain and operational efficiencies, retailers now appear to be focused on omnichannel and customer experience. Don’t get me wrong, they still want inventory visibility and accuracy, and they still want to make the store an effective place for consumers to shop, but they also want IoT to deliver on ways to interact digitally with consumers in stores, and they want those other things so they can better connect the store to the online experience – by offering store inventory to online shoppers, for example. In other words, they want IoT today not for operational efficiencies, but for enabling customer service.
But even as retailers say they’re extremely bullish on IoT opportunities to help them achieve these objectives, they also report they aren’t making a lot of progress in implementing IoT. The primary reason is because of IT: too much uncertainty about how this is all going to be architected for retailers to make big money investments in the technology, and too little infrastructure currently in place to support the volumes of data that IoT generates. These problems existed 15 years ago too, and while it doesn’t surprise me that retailers have not yet invested in overcoming these challenges, things are changing here as well. Fifteen years ago, retailers had to piece together their own solutions with a mix of technologies provided by relatively large, stable tech companies alongside startup solutions that were experimental at best, if barely more than some algorithms sketched out in a grad student’s thesis paper.
Cloud computing, edge processing networks, big data analytics, and even artificial intelligence have all added new dimensions to IoT that make the dream that much closer to reality today than the solutions available 15 years ago. And several of the largest providers, like Intel, IBM, SAP, Microsoft, SAS, and Software AG have put together partnerships and platforms that make investing in an actual “IoT solution” much more realistic today.
However, even with all that going for retail, there is still the problem of educating executive teams on what’s possible. Many of the retailers who shared their IoT objectives in our research also said they’re just now exploring what IoT can do for their businesses. And it’s clear there is still a lot of confusion about what “IoT” really means – in our survey, 86% of respondents identified consumers’ smartphones as IoT vs. only 43% who thought beacons should be classified as IoT.
That said, retailers’ perspectives on IoT appear to be converging on five main use cases today. They’re still not investing to make most of these real, but many more are experimenting with some of these than we’ve seen in the past, and that’s important: you can’t learn if you’re not on the learning curve.
- Omnichannel fulfillment
In a lot of ways, omnichannel fulfillment is an old story – and RFID story. And certainly there are a lot of retailers either piloting RFID or rolling it out, not for efficiencies in the supply chain, but to track on hand inventory in stores. And most of the companies that are busy here are apparel companies, where RFID seems to work well as a compatible technology. It’s no coincidence that these are also companies that are pressing full steam ahead on implementing online visibility into in-store inventory and ship from store. They need the most accurate view of in-store inventory they can get if they want to promise that inventory to orders coming from outside the store.
- Reaching out to consumer devices
At the beginning of 2016, beacons were going to be the hero of in-store shopping experiences, and now they seem to have gone to zero. There are a lot of reasons why, but I think a big one came from retailers’ misuse of beacons. Every new technology that comes along, the first thing retailers do is try to send promotions through it. Consumers, upon receiving unpersonalized spam in yet some new iteration from the retailer, immediately try to block it. And thus a technology that could potentially be used for so much more – and for which delivery of promotions was probably the least valuable use – gets consigned to the dustbin of in-store technology, not because it didn’t work, but because retailers didn’t use it for what it might have actually been good for.
That said, the need to reach out to consumers, and to do it via the easiest channel to use while they’re in stores – their phones – has not lessoned any. In fact, it’s probably become even more important to reach consumers in stores, and to figure out how to extend that reach onto consumers’ phones. IoT as a mechanism for connecting the digital life of the shopper to the physical location (or product) in the store is going to play some role in that kind of interaction – it’s just too easy to ignore. Whether we’re talking NFC, beacons, QR codes or AR cues that consumers trigger with their phones, retailers will figure out some way to connect consumer, store, and phone all together. And if retailers can control their impulse to spam consumers with promotions, they might actually succeed in using IoT to create an engaging in-store experience.
- Employees as IoT
While retailers may be focused on tracking customers in stores, there is actually an interesting use case around tracking assets in stores. Employees are by far the most important assets in stores, and retailers are increasingly exploring use cases that involve allowing customers to summon help in a store by pressing a button in an app, rather than finding a call station somewhere in the store. It’s the kind of value for which consumers will gladly give up their location in store, and tracking employees helps retailers understand utilization – how much time are employees really spending helping customers vs. doing operational tasks in the store?
Employees aren’t the only assets – shopping carts can often be proxies for customer location in the store, helping retailers understand footpath tracking in a way that does not personally identify customers. Just be careful what you measure, though – one shopping cart study way back in the ‘00’s concluded that consumers didn’t actually walk the center store of a grocer because the RFID-tracked shopping carts all ended up getting parked on the ends of the aisles. But it turned out the grocer just had so many temporary displays in their aisles that consumers parked the carts at the ends and walked through without them.
- Personalization & Localization
IoT isn’t the most important enabling technology of personalization, but it’s an important part of the whole platform. This is the beacon story – the most personalized offer in the world is useless if it doesn’t make it to the right shopper at the right time and in the right context. Mobile is increasingly the format of choice, for both the shopper and the retailer. But it doesn’t have to be just beacons to deliver this. Retailers are also exploring use cases involving QR codes or NFC, where the consumer activates or triggers the offer not through proximity but by active opt-in. And mobile apps are still important here, because with the right opt-ins, push notifications triggered by location achieve all the same ends without a single beacon in sight.
- Ecosystem Opportunities
More and more electronics, home improvement, and general merchandise retailers are setting up smart home or home automation sections in their stores – because businesses aren’t the only ones looking at implementing IoT. Retailers have opportunities to be players in the ecosystem with sales support, service support, and even by being on the receiving end of automated orders generated by IoT sensors in consumers’ homes. Amazon is already working hard to be the order method of choice for anything you might ask Alexa for, and the company is opening up the platform to developers who can extend that to smart devices or services they might be creating. I don’t think Kroger will be thrilled to cede smart refrigerator automated reordering to Alexa, just because it’s the default voice ordering capability…
The Bottom Line
There are a lot of business needs driving retailer interest in IoT, and there are several use cases now that can drive value - if retailers can overcome their internal IT challenges. Vendors are stepping up with platforms, and retailers are enthusiastic about the opportunities, but there is still a long road before IoT in retail is ubiquitous.
