How should retail prepare for the Internet of Things?
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
Let’s assume the Internet of Things (IoT) will inevitably gain consumer acceptance. For retail, IoT isn’t really about a few confined "marketing" use-cases, but potentially how people shop.
Here are a few things for retail’s leaders to consider:
IoT will trigger radical process re-engineering — for both businesses and consumers. In 2007, a "talking fridge" tested by Germany’s Metro AG was designed to order milk based on a household’s consumption rate and current on-hand inventory in the fridge. In other words, consumers wouldn’t have to go to the store to get their milk — instead it would come to them. Consumer adoption may still take some time. A 2014 survey from Acquity Group found about 35 percent of consumers thought that the smart refrigerator would be commonplace "more than five years from now." Still, the question for retailers: What would that do to the grocery store? Amazon is already all over it with its recently announced Dash Replenishment Service.
Source: Amazon video
The technology has yet to be standardized. The good news is that the technology world is rushing to address that challenge. The bad news is that (as always) there are competing standards groups.
Disruptors will see the value before you do. Not known as an industry of early adopters, the question for retail decision-makers is: How many innovators do you have on staff? If the answer is "zero," where and how often do you look for inspiration from the outside?
The CIO will re-emerge with a vengeance. The CIO position is a place "where fools fear to tread" — with brutally low budgets, huge maintenance headaches, never-ending pressure over cost controls, and the emergence of the CMO as the hot hand when it comes to technology spend. But IoT is pure technology and its applications are still emerging.
Although I don’t believe the use-cases that consumers will glom onto have really emerged yet, they will. And just as was the case with mobility, retailers are going to need to devote resources (people, money, and time) to better understand what IoT will mean to them. The consulting world is already a-buzz with activity as the usual suspects align their resources for the coming innovation wave. But will retailers be able to respond from a knowledgeable position, or will they be responding to FUD (fear, uncertainty, and doubt) instead?
Discussion Questions
What steps, if any, should retailers be taking now to prepare for the eventual consumer acceptance of the Internet of Things (IoT)? What expected and unexpected ways may IoT re-engineer how consumers shop?
Poll
BrainTrust
Ian Percy
President, The Ian Percy Corporation
Ryan Mathews
Founder, CEO, Black Monk Consulting
How about installing Wi-Fi in the body of the store to carry all this data? Our benchmarks still show a majority of retailers do not have this on their selling floors. It’s almost comical to talk about IoT without talking about an actual infrastructure.
We’re already a decade late with this, now baseline, technology.
Three things will exponentially exacerbate the risk of cybercrime, particularly in retail.
Before you get all excited about the IoT, re-think your security.
Focus hiring on innovators like design engineers and user-centered designers to understand what consumers need and value. IoT may automate the shopping experience, triggering automatic delivery of products to the consumer and thus requiring less retail space. More consolidation of distributions centers vs. point-to-point sales.
This has been a question in my world for the last 20 years or so, (before smart appliance nomenclature was replaced by the IoT branding), and so far I haven’t heard a good answer.
For one thing, retailers aren’t technologists and most technologists aren’t retailers. For another, it depends on what specific customer need we are talking about.
I guess, based on the lack of progress in what has become a well-established area of technological research — I’d say retailers should be aware of the implications of IoT theory, partner with manufacturers who may be already down the road to learn more, and make themselves aware of potential partnerships in the technology sector in case demand should start approaching something akin to critical mass.
As to the unintended consequences of the IoT, we really don’t have enough time or space here to discuss it rationally other than to note that, for supermarketers, we are primarily talking about consumer replenishment strategies here which means one has to rethink the real value of new products for starters.
Retailers are lacking funding for the kind of human experiences shoppers desire in stores. Even if they did have more humans, those humans need access to the IoT to be useful helpers to shoppers. But as Paula point out, no Wi-Fi means no access.
That’s essentially two strikes against retailers to provide two baseline services shoppers expect. Humans and access to information. It is hardly a surprise that online shopping continues to grow. It’s a brutal business, and now that consumer expectations are so far ahead of investments, we’ll see lots more turmoil ahead.
It’s already too late to “prepare.” The IoT is happening globally in retail and CPG. Sure, there will continue to be experiments with consumer offerings, however some are starting to take hold. Over the past century we have seen the emergence of a kind of global data field. The planet has always generated an enormous amount of data, but until recent decades, we weren’t able to hear it, to see it, to capture it. Now we can because all of these things have been instrumented with microchips, UPC codes and other technologies. And they’re all interconnected, so now we can actually have access to the data.
Merchants and brands need to maximize value from every resource, using retail analytics, cloud, mobile and social technologies. Whether you sell online, offline or both, retailers have unprecedented access to customers’ desires. How you handle that data will separate leaders from laggards. So the IoT already is happening today and consumers are driving the need for merchants to be agile enough to evolve with consumers’ fickle demands.
I think one way to think about this is the difference between IoT capabilities improving a current capability versus creating entirely new ones. That could be a guiding principal to starting the process of testing. For example, extend your mobile strategy to encompass beacons to improve the shopping experience with greater relevancy and interactivity. Or leverage RFID tag data on products on the shelf and in the back room to help shoppers looking online understand inventory availability before they even enter the store.
What’s interesting too is that these same scenarios could support better retail/supplier collaboration if some data is shared among the parties. Shopper marketing programs and supply chain processes that span both retailers and suppliers are places where IoT capabilities and data should be leveraged to drive sales and on-shelf performance. A last thought is to also draw an analogy to pure online e-commerce, where all interactions can more or less be tracked and improved with data and analytics. As physical stores get more instrumented, the data that is collected should start to allow conceptually a similar level of personalization but with the tactile nature of shopping in person.
The IoT is a very fast evolving phenomena. What we imagine now, we had a hard time conceiving of just a year ago, i.e., self-driving cars, manufacturing 4.0 and home security from anywhere in the world.
The challenge retailers will have is keeping up with their customers. Their customers will be fed possibilities of the IoT from every other interaction they have. That will increase their expectations. They will see retail possibilities that the retailer will be at a loss to understand.
Brian has hit all the right buttons here.
The other thing to consider is that all those smart devices in the store — and there could be hundreds of them — will require maintenance and upgrades. Retail companies that are focused on keeping the lights on, and clinging to legacy technologies, won’t be prepared. The retail revolution continues!
I am with Ian on the whole IoT picture in retail. It is a platform for more crime in retail. Other industries, like manufacturing, etc., use the technology already and have stops in place to assure that the processes are supported by IoT based tech. Retail and its vendors are racing all over with IoT concepts and fast cut code. A perfect place for cybercrime to feed.
I personally will not use any of the IoT-related tech in my home. Sure, turn on my alarm system from the office and whomever is monitoring the right end of the transmission now can get into my house. All my Elvis memorabilia is then GONE!
No way!
While on one hand it would certainly be foolish to ignore the potential security issues related to IoT as others have mentioned, at the same time it is just as risky to ignore IoT as it pertains to business and retailing. Consumers are already experimenting with IoT in home automation, smart appliances, smart devices and so on. This will create expectations and if retailers are not prepared to meet those expectations, shoppers will find retailers that can meet them. But adding in-store Wi-Fi and training associates on how to use technology to assist shoppers might be a good place to start.
No one apparently knows what steps to take or those who do are not being allowed to take them because there has been no progress in this area for years. Until the boundary-spanning person who understands retailing, understands consumers (in their many variations), understands technology and understands innovation emerges AND can persuade management to take a risk on a new idea, we will have more middling experimentation for another 10 years. Someone needs to figure out what consumers want, what consumers will use, what innovation makes sense for retailers and how to make this happen. We will be having the same conversation many times over the next 10 years.
IT and the internet working together to find out how the companies involved can improve the way we communicate and transact everywhere. One of the most glaring observations made by the many members of professional sales and marketing organizations is just how poorly IT companies sell their products. This is very evident in very fast-paced retail and financial institutions. With most of the hardware and software offerings proven to be no more than vaporware, as in never did or will work, executives are more and more stingy with the time they spend to look at new IoT products.
This leaves the lion’s share of the market to the big companies, as in the ones we know, trust and use. What is worrisome to me is how the big corporations will push for statutes to maximize ROI and disallow better ideas. Kind of like energy companies still using radiation and poisonous carbon-based fuels when it is no longer needed. The complacence, reasoning and actions of the user(s) is what is slowing the growth and limiting opportunities for all and may even slow development to a standstill.
Oh me oh my, retailers are already so far behind the curve in technology, and now the world throws in another hurdle. Let’s just help retail figure out how to get out from under the cobbled together systems stuck together with baling wire first.
This means actually investing in technology and building out a more perpetual infrastructure. Let’s get inventory visibility, accuracy and a single view of the customer. How about we get some true tech visionaries into the industry and maybe think about what security in the 21st century should be?
Then maybe, just maybe we can talk about the internet of everything.
Whew! Retail, I have fought to hold onto my mind long enough to see you here but I just don’t know how much longer I can hold out.
And that’s my two cents!
The simple answer is that retailers need to view IoT from the consumer use perspective, not as products or features to be sold.
The vast majority of consumers today have no idea of what IoT is. More importantly, they have no idea of how such a product would provide any practical value in their daily lives.
Where can a consumer go today to see a realistic, hands-on demo of IoT that they can personally “drive” and test? Stores are filled with signs talking about features, but almost no one has any IoT device setup and working as a consumer would use them at home (exception might be smart TVs).
Retailers need to start with a new assumption that IoT acceptance is all about consumer “seeing” the value, not about selling or up-selling tech products.
If retailers don’t consider the security component, they will get hacked and have financial and reputation losses. And then it won’t matter how innovative or ahead of the curve the company was. They will have forfeited the credentials of their valued customers and it will be a long hard road to regain the trust of those shoppers. As we say in the Info Security field, “It’s not if we’ll get hacked, it’s when.”
Since the meaning of IoT will differ by retailer, IoT should be used as a means to deliver a better brand experience for shoppers and to eliminate any friction hindering a potential sale.
Like with all technology and market disruptions, agility and flexibility is key. The notion that a retailer has enough time to adequately prepare for what’s on the horizon is a pipe dream. Retailers must wade into the waters today by carefully evaluating the customer journey and cautiously experimenting with devices to augment the experience.
Could a major part of the problem be that retailers have not accepted the true future of their business through technology? Hiring creative technology people never seems to be part of the next budget.
Five IoT retailer recommends:
Hope it helps.
Retailers need to look at their business processes and identify areas where gains in efficiency or revenue can be made with IoT. For some, it is supply chain and product sensors; for some it is shopper data collection, analytics and promotions. The key is to decide “what IoT can do to enhance or disrupt my retail business” and pick a few for quick tests/investments to gain knowledge. IoT is a rapidly changing field; the key would be learn, adopt and gain competitive advantage quickly.
How about 1) accepting the fact that your shoppers expect access to the Internet and coming to terms with the fact that, by thinking you’re limiting only their virtual ‘visibility’ you’re only hurting your brand, and 2) actually committing the resources and infrastructure to provide broadband access in your stores.
Develop clever ways to provide value to your shoppers in a way that helps you tell purpose-driven, emotional brand stories. People will actually pay attention and give you credit for respecting their time and reaching them on an emotional level.
Some retailers are experimenting with individual, stand-alone digital merchandising in stores. We leverage the internet to control and monitor content, connectivity and the health of networks.
As these consumer-facing networks mature, the need to consolidate and centrally manage becomes more important. And as the networks become more efficient, it becomes only natural to connect new smart devices.
Displays in stores are an obvious place to start, but the benefits of IoT is not always apparent to consumers. We need to think of this as how it benefits consumers, brands and retailers alike. Think smart gondolas and endcaps.
Do you need them to report inventory levels for more efficient replenishment? Do you need them to send a message to the best customers for those particular items? Do you need the screens in the store to know how many high-value customers are present?
Odds are, when retailers see the financial value of deployment (web-like analytics from in-store behavior?) then we will see wider adoption.
In the meantime, we are already experimenting and laying the infrastructure for smart, responsive stores.
Some disconnected thoughts on this mind-bending topic.
I would start by looking at the merchandise lines I carry and ask: How can the shoppers’ experience be enhanced during the various phases of a shoppers’ relationship with the product or service if the product or service is connected to the internet where phases are pre-sale, sale, installation, usage, and disposal or upgrade?
How can usage information enhance the utility and value of “the thing” including comparisons with others or perhaps with suggestions like: “You haven’t used that ‘thing’ for awhile. Do you want us to sell it for you?” This scenario is related to the “If This Then That” phenomenon. That means that each merchandise “division” may have app developers assigned to them to come up with IFTTT applications.
The usefulness of a sensor is enhanced if other “things” that are used together can be aggregated. That might mean that merchandising will be more around solutions than product categories. That might reduce the number of brands carried since brands will translate into platforms.
How about intelligent hangers that can detect if a piece of clothing has been touched and reviewed but not purchased? That would be the first step regarding what retailers can do, not the hanger, but the solicitation of crazy ideas from everyone. But for now, I would buy a Nest thermostat and live with “a thing” to get a sense for what it does and how knowledge of the behavior of others and greater sensing alters how you think and use products and services.
If any retail CEO is not yet sold on the future of their own success as directly tied to their organization’s capability to leverage data and analytics to solve business problems, the IoT freight train coming at them will help finish in the delivery of that very message. The projected forecasts: IoT and machine-to-machine communications market to grow from $256B last year to $950B in 2019. By 2022 there will be an increase in the use of connected devices in the family to 50 devices (that Samsung Smart Fridge driving family grocery replenishment based on actual inventory levels is just one of many “smart” devices interwoven into the day-in-the-life story of the 21st century consumer).
Even for an industry like retail with notoriously late technology adopters, it is only a matter of time before IoT touches all areas of retail operations and customer engagement. It is going to be interesting to watch just who embraces retail innovation around IoT and leads the way (and just does not follow Amazon as a defensive measure). I have little doubt those “innovative retail leaders” are already at work figuring out just how IoT enabled capabilities can increase revenue, reduce costs and drive their differentiated brand experience.
Firstly, everyone in this thread seems to be totally focused on consumer and shopper IoT, but the initial payoff, already visible if you know where to look, is internal operational structures (and yes, it requires a decent broadband network, but its primary purpose for some time to come will be connecting the store, the employees, the backroom and the front end together).
Secondly, the relentless newness of some of the tech toys and methods are a lot of why retailers won’t pay attention. My store needs to last 10 years till a remodel and at least thirty years as a location. And stores (at least for food) are 97 percent of my business still.
Frankly, there is no consumer driven demand for a lot of this stuff at all. It seems much more likely that e-commerce will grow and stores will remain more experiential and less tech-driven by comparison.
Although I dearly wish we closed the information gap at the shelf in an open source device independent manner!
Good points Brian and I agree with Paula. Retailers need the infrastructure, else it’s moot.
Much like how digital technologies and mobile applications have forever changed the consumer shopping experience, so too will the IoT. According to Altimeter, in the last year alone some 4 billion devices have come online, and this could reach as high as 200 billion in less than five years. By 2020 they believe there will be roughly 26 smart objects per human. Imagine each of those personal devices and sensors being interrelated and exchanging information. For retailers, understanding this magnitude of connectivity will be like having a crystal ball to better anticipate — maybe even predict — the needs and desires of their customer.
While most consumers today understand how data is passed between connected devices in a specific context, e.g. Fitbit connecting to a smartphone, only a few grasp the more expansive concept of IoT connectivity and its game-changing implications. For example, consider the retail possibilities when leveraging IoT data in a smart city. In this setting, store owners can expect to ascertain the moment when a customer steps off a bus near their shop, and instantly send them a personalized and contextual mobile offer.
With the ubiquity of connective networks, the affordability of sensors and empowerment of the customer, the possibilities are truly endless. For retailers, the key to success will be knowing how to mine the IoT data and create apps to deliver a highly personalized experience to make the lives of their customers easier and safer.