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From Beauty to Bin Bags – how is the Internet of Things shaking up Retail?

The Internet of Things (IoT) is talked about a lot, but what is it? And how can retailers leverage its benefits?

At its most basic level, the IoT is the concept of connecting any device with an on/off switch to the internet (and/or to each other).

 

This isn’t a new idea. In fact the first ever “IoT device” was the Internet Toaster, created in response to a light-hearted challenge laid down at the 1989 Interop conference.

It was a huge hit, with just one minor flaw – it still needed a human to insert the bread…

 

On a Roll?

Predictions are that by 2020 there will be more than 26 billion connected devices: between people-people, people-things and things-things. The new rule might be “anything that can be connected, will be connected”.

Web-enabled devices are now everywhere, putting customers firmly in the driving seat. We now expect to shop around the clock, compare products at the click of a button and expect our shopping to be arrive tomorrow, if not sooner.

This dramatic shift in power over the last decade or so has meant that retailers have had to pull out all the stops to meet tech demands from the consumer. Data from Juniper Research shows that retailers are planning on spending £2bn globally on IoT technologies by 2020.

Retail IoT technologies include RFID inventory tracking chips (more of these later), traditional in-store infrared foot-traffic counters, digital signage, connected kiosks, and most simply, a customer’s mobile device. We see some of this new technology daily, such as the rise (and subsequent wane) of wearable tech and the ubiquitous “unexpected Item in the bagging area” chorus in supermarket self-service tills.

Whilst claims of revolutionising a sector may generally be treated with a degree of skepticism, the IoT actually might live up to this bold assertion. It could allow retailers to significantly automate warehouse-to-store retail operations, and link their bricks-and-mortar operations with consumer data to make a shopping experience that’s more personalised, more immersive, and more profitable.

Practical Applications

One of the fundamental aspects of the growth of the IoT is that it delivers products and services to customers at their precise point of need. Amazon Dash, the new technology launched in the US in 2015, is focusing on that exact area.

 

Selling for $5-a-piece, these tiny self-adhesive buttons are connected to your Amazon account, positioned around your home and pressed when you are running low on something. For instance if you notice you’re running low on toothpaste, simply hit the Trident button attached to your bathroom cabinet to order some more instantly.

The model we see here addresses a specific customer pain point; it is focusing on everyday essentials such as loo roll, detergent and bin bags which are not front of mind, but which are particularly irritating when they run out.

It appears that consumers are embracing this disruptive technology. Orders via Amazon Dash surged more than fivefold over the last year and new product buttons are being added each month, to incorporate Kids, Baby & Pets and Beverage & Grocery sectors.

Increased accuracy, increased productivity

A similar Tag concept has also been developed to benefit retail operations.

The Radio-Frequency-Identification Tag (RFID) automates the tracking of merchandise throughout the retail supply chain, replacing the often lengthy and inaccurate process of staff scanning products manually.

 

The RFID tags increase in popularity is in part due to their considerable price drop. In 2003 a RFID cost around £1, but this has dropped to around 10p, allowing retailers to invest much more heavily in them.

Macy’s has declared that they’re preparing to have every SKU tagged by RFID tech by the end of the year. They’ve already completely rolled them out in their fashion department, revealing that their sales volumes in this area have increased by more than 200% since they made the change.

Retailers are also taking note of increased accuracy levels which these tags can offer. According to the RFID Journal, inventory levels have dramatically increased from an average of 65% to more than 95%1.

Macy’s have also praised the efficiency of the new system. They have revealed that their speed of counting inventory is 12,000 to 18,000 items per hour, compared to manual counting of about 250 items per hour.

A Personalised In-Store Experience?

So the IoT has tangible benefits for online retailers and in inventory control. There are also examples of how it works to connect to their physical stores too.

As store traffic continues to decline, retailers are turning to the IoT to breathe new life into the bricks-and-mortar shopping journey. At the forefront of retailers in-store strategy has always been the basic fact that in order to coax customers away their smartphones to shop in store, they need to be offered added benefits which they can’t get in front of a screen.

 

A personalised service, the opportunity to try before buying and a compelling, sociable, collaborative experience are all reasons to hit the high street. With this in mind, the IoT can be leveraged to add a new dimension to a physical store visit, be it discovering new products, education or interaction.

Sephora, so often a trailblazer in in-store tech, is once again leading the pack. It’s invested millions in digitising its stores to connect with customers, a key initiative being their popular Beauty Workshops. These beauty masterclasses take place next to their Beauty Board, a transactional gallery which displays user-generated content created online. Customers see real people wearing Sephora products and so choose to purchase the looks they like.

This links bricks and mortar stores to online flexibility and peer-to-peer advice. Contrary to many reports, Millennials are not alone in being influenced by their peers for purchasing recommendations; all ages of consumers are, to a certain extent, and this initiative brings the benefit of online reviews to a physical arena.

The downsides?

Far from being an abstract concept, the IoT offers retailers a wide range of practical applications. However there are some major considerations that need to be considered early on:

  • Retailers will be rapidly inundated with masses of customer data. How will they store, track, analyze and make sense of it all?
  • Security is always a hot topic and very relevant here – could a hacker compromise a single RFID tag and thereafter access an entire network?
  • Privacy and data sharing. When many billions of devices are connected, how do you establish a boundary line between private data and the public sphere?

Leveraging the IoT in a business has paid off in several retailers, allowing them to optimize their processes and logistics, connect bricks and mortar stores with online data and more effectively offer customer personalisation. With all the challenges currently facing the industry it is something that retailers ignore at their peril.

Bryony Graham

 

Further Reading

1 – RFID Journal http://www.rfidjournal.com/articles/view?14092

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