The Internet of Things (IoT) is one of those technologies that offers the ability to reduce costs, improve efficiency, enhance customer understanding and improve overall business visibility, all at the same time. For consumers looking for the most innovative and seamless shopping experience, it is patently obvious which retailers have taken on digital transformation and embraced the IoT and radio frequency identification (RFID). It is also quite clear which are slow to adapt to the new technology.
So why aren’t all retailers rushing to adopt it?
RFID is arguably the origin of the IoT. Approximately 15 years ago, RFID was first becoming a hot topic in retail and distribution-intensive industries. At the time, there was speculation that it could become as ubiquitous as the bar code once Walmart got behind it. Now, RFID still has massive potential in retail—specifically, to help understand exactly where in the supply chain specific packages or items are in real time. Given the complexity of the omnichannel supply chain, this visibility is more important now than ever.
Another reason retailers have been slow to adapt to digital transformation is that RFID does not have as many immediate customer-facing ramifications as other potential technology investments, like artificial intelligence and robots. But given that RFID can boost inventory accuracy to 95 percent, retailers not leveraging the technology could truly be missing out.
One big challenge brought about by omnichannel retailing is that retailers cannot sell a product if employees don’t know exactly where it is located. A product cannot be picked up from a store unless the retailer is certain that the product is there—and RFID has the potential to fix this. As RSR points out, investing in “closer consumer engagement is useless without system-wide inventory visibility and accuracy for cross-channel orders & fulfillment.”
As RFID has come to fulfill its promise of potential, retailers should consider the following points as the IoT is poised to take off in retail technology.
Manage Inventory Efficiently
An immediate opportunity with the IoT is efficient finding and managing of inventory. You might think a particular stock-keeping unit (SKU) is somewhere in the store, but how can you quickly find it? In distribution centers, locator systems and bar codes help workers find products, but in stores, you need to rely on employees to sift through products in a back room—and hope that they display the items at the correct locations. Using IoT technologies can help personnel locate these items more quickly and efficiently.
Recognize How the IoT Can Set You Apart
Many organizations fail to fully grasp the IoT’s potential. For example, retailers may not understand how the IoT will help set them apart from competitors, yet this is the most highly cited business challenge driving retailers to the technology. Similarly, many retailers are unaware that the IoT could allow them to reduce inventory, when inventory management is crucial to their bottom line.
With returns continuing to rise, and with retailer policies of allowing returns to any store increasing, the risk of items becoming lost in back rooms—real or metaphorical—also grows. Without the visibility created by the IoT, apparel retailers, in particular, cannot continue to manage growing return rates (now at more than 25 percent), especially if the solution involves buying more inventory to compensate for the inability to accurately track where those returns are located in their enterprise.
Business Challenges Drive IoT Interest
Although many successful retailers maintain a customer-centric approach, they also tend to adopt new technologies earlier, especially if those technologies help them to achieve new ways of operational excellence that puts them ahead of their competition. When it comes to the IoT, successful retailers relate those two challenges (providing great customer service and maintaining streamlined operations), but for many, it is unclear exactly how the IoT will help them accomplish both.
Others exhibit similar discontinuities, as the IoT can deliver greater speed and agility to operations, and may help close the gap between consumer and retailer technological capabilities. However, the connection between the IoT and growing a business faster is often missed. Oftentimes, companies tend to look for payback associated with a specific individual initiative—and with the IoT, that is very difficult because the infrastructure costs are high and need to be amortized across multiple initiatives.
When these points are combined, we can draw one conclusion: too much confusion remains around the valuable use cases for the Internet of Things and the actual business problems it can solve. Until retailers can eliminate that confusion, the technology will remain in labs or pilots, with very few full implementations.
Other opportunities will emerge later, but retailers have immediate problems that need solving, and the IoT will help. One solution would be to partner with a vendor that can help them minimize the initial infrastructure outlay costs, but also allow them to scale as initiatives take hold.
Oliver Guy is the global industry director for retail at Software AG.