IoT in retail: the benefits and challenges

29.10.2019
7 min.

Traditional retail’s evolution over the past decade has been driven by digital technology, such as artificial intelligence, machine learning, big data, and the internet of things (IoT). The latter is forecasted to be deployed by 80% of global retailers by 2021, as IoT continues to penetrate the retail market. IoT applications are what allows retailers to raise productivity, improve customer experience, reduce costs, and increase sales. Frontier Economics estimated that increasing M2M connections by 10% would generate a $2.26 trillion increase in the US GDP alone.

Reaping the benefits of IoT

Forward-thinking retailers are already reaping the benefits of deploying IoT use cases in retail. According to Oracle’s report The Impact of Emerging Technology on CX Excellence,

  • 66% of surveyed retail executives state that IoT has already positively impacted their customer experience processes.
  • 88% of the study’s respondents state that using IoT in retail will provide better customer insight than any other data gathering method.

Thus, retail continues its inevitable shift toward IoT. People’s shopping experiences are being completely transformed by IoT software development that allows retailers to track customer behavior and collect personal data on a daily basis. Sensors located in the stores and even in the clothes themselves gather swaths of data that can be very advantageous for retailers. Processing and analyzing this data offers retail stores new opportunities to improve their strategies and productivity.

Here are a few competitive advantages that stores gain by applying IoT.

Better customer experience

IoT use cases in retail are already enhancing the brick-and-mortar experience by gathering and implementing insights into customers’ data. This is achieved by making use of data from surveillance cameras, social media, and mobile devices, which allows retailers to better predict consumer behavior and wishes. The value for customers is clear: the relevant advertising and personalized offers they receive are no longer annoying and actually deliver savings.

The research by Oracle cited above found that 50% of current IoT users report better insight into their customers’ needs and preferences. It also found that 47% were now able to provide a better and more differentiated customer experience.

Improved supply chain management

IoT use cases in retail, such as RFID tags and GPS sensors, can offer a complete picture of the movement of goods—from manufacturing to the store’s shelves and then to the customer. This detailed information, such as the time an item spent in transit or its storage temperature, can be analyzed and interacted with in real time. This has proven especially useful for transporting perishable foods, allowing retailers to act fast when faced with fluctuating temperatures, food spoilages, and any substantial losses.

Most retail stores have realized the potential of IoT to vastly improve their supply chain management, which is likely why the global retail tech spending will grow 3.6% to reach almost $203.6 billion in 2019.

Forecast of the global retail IT spending by 2022

Smarter inventory management

Inventory management remains a headache for retailers. Inaccurate inventory tracking can cause overstocking, stockouts, and shrinkage, leading to retailers estimating that their current inventories are only 66% accurate. But IoT in retail can automate inventory visibility, thereby solving these problems for good.

Implementing smart inventory management systems based on RFID tags, store shelf sensors, beacons, digital price tags, and video monitoring coupled with image analysis can enhance procurement planning at every level of the supply chain. When the product starts to run out, the system can automatically reorder the necessary items based on IoT data analytics.

Moving from manual to digital

With IoT, employees will better be able to serve customers’ needs. According to the Zebra 2019 Shopper Vision study, 55% of customers believe digitally-equipped associates provide a better in-store shopping experience.

Automated checkout

Checkout remains one of the most labor-intensive retail operations and an unpleasant process for customers. If a store is overcrowded, shoppers often decide to just leave. IoT solutions offer the opportunity to automate and personalize checkout. The improved checkout system can read tags on each item as customers leave and automatically charge the customer’s mobile payment app.

This personalization can lead to increasing revenue for the store. According to McKinsey’s research, 83% of customers say they would prefer if their shopping experience was personalized, while store revenues are reported to increase by 20-30% through effective personalization.

IoT in retail: use cases

IoT-based solutions offer actionable insights that enable new business models for retailers and increase their ROI. Moving from words to deeds, here are a few examples of how IoT can capture new revenue opportunities.

#1. Smart mirrors in Rebecca Minkoff’s fitting rooms

An industry leader in accessible luxury handbags, accessories, footwear, and apparel, Rebecca Minkoff has installed smart mirrors in their branded domestic retail stores. Smart mirrors located in fitting rooms read RFID tags on each item of clothing and display what other sizes and colors are available.

Moreover, smart mirrors demonstrate how the item can be styled with different looks and suggest other items based on what a customer is trying on. Customers can simply try on different clothes without leaving the fitting room, while retailers receive customer preference data to be used for personal promotions.

#2. Beacons for wayfinding and promotions in Auchan hypermarkets

Auchan, an international retail group, continues to bear fruit after implementing beacons in its hypermarkets four years ago. Customers visit more frequently and for longer, navigate the store more easily, and receive deeply personalized offers.

Auchan’s goal was to better understand how customers move around its 31,000 m² hypermarkets and help them more easily find the products they need. This was solved with beacons—hardware sensors that track movement and transmit data. Beacons send customers wayfinding notifications on a special map on their mobile devices. Simultaneously, personalized promotions are offered as they move through the store.

#3. Smart shelves in Kroger supermarkets

Kroger, the largest US supermarket chain by revenue, installed 2,200 smart shelves in its supermarkets. While they appear to be normal shelves, they’re equipped with RFID tags that read items and send the data to an IoT system. The data can then be stored, formatted, and analyzed. The retailer can use the system to find information about products that run short, while shoppers can receive product information when they touch the shelf below an item.

In addition, Kroger’s smart shelves can be integrated with customers’ digital grocery lists so that they light up when an item on the list is nearby. Thus, RFID-equipped smart shelves allow the retailer to constantly improve customer service in real time.

Challenges and solutions

With so many success stories and benefits offered by IoT, many retailers are still hesitant to invest in connected technology due to some issues of concern and possible challenges. These will have to be addressed in order to completely and responsibly integrate IoT into retail operations.

Challenge: security

One of IoT’s key problems is security and privacy. This has been especially acute with the introduction of the General Data Protection Regulation (GDPR) last year. While access to customer data gives retailers many opportunities, at the same time it opens a door for cyberattacks.

Solution: Retailers should closely collaborate with IoT software developers to ensure that devices and sensors used in retail are designed with strong security mechanisms: end-to-end encryption, secure passwords, regular software updates, and an IT infrastructure that constantly scans for vulnerabilities.

Challenge: infrastructure

Most retailers lack the infrastructure and networks to deal with the huge volumes of IoT data. In order to make their stores digital, retail companies need to make major investments in robust networks, data centers, cloud computing, and customer-facing solutions like mPOS, barcode scanners, and tablets.

Solution: When it comes to implementing a new technology, there’s no need to fund all the infrastructure aspects at once. Retailers could start with small changes, like using IoT to manage air conditioning or lighting systems. This will bring near-term ROI, after which they can implement more sophisticated IoT solutions, such as traffic analytics.

Challenge: data management

Without question, retailers’ lack of relevant qualifications makes timely and relevant IoT data analysis a huge challenge. While retail employees are good at commercial business, they simply don’t possess the necessary technical skills to gain valuable insights from IoT systems.

Solution: Retail companies can manage their data by hiring their own experts, or relying on third parties with relevant IoT qualifications, training, and skills.

Anticipating each of these challenges will make retailers’ IoT journey a profitable investment, offering them a competitive advantage in the marketplace.