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When worlds collide: Retail and IoT

A recent report from Retail Systems Research (opens in new tab) (RSR) foretells of an imminent collision between the Internet of Things and retail; the result will be a dramatic change in the way retailers operate.

In RSR’s latest report, The Internet of Things in Retail: Great Expectations, 80 per cent of respondents agreed that the Internet of Things will drastically change the way companies do business in the next three years.

Retailers believe in the Internet of Things, both for connecting with consumers with personal devices such as smartphones, watches or appliances, as well as for offering new services using consumer-driven data from those IoT-based devices.

Despite their optimism, retailers face significant internal challenges before they can leverage any of the perceived opportunities from the IoT. A startling 53 per cent of them say their business leadership doesn’t even understand what IoT is. The lack of progress does not dampen their enthusiasm, however.

When RSR asked retailers about the business challenges that are causing them to look at IoT opportunities - growth challenges, cost challenges, and margin challenges - they identified the challenges that might hinder growth as offering the biggest opportunities; top of the list being differentiating themselves from competition (51 per cent) and consumer price sensitivity (42 per cent).

In the study, RSR divided the respondents into “retail winners,” those firms that achieve above the industry average comparable store/channel sales growth of 4.5 per cent, and “laggards,” those which do not. Retail winners are consistently more aggressive about the opportunities for IoT and said that the demand for more speed and agility in operations was their top IoT business challenge (46 per cent), with corporate impatience with growing levels of inventory second (32 per cent). Laggards (46 per cent) said consumer price sensitivity was at the top of their list and were also concerned (26 per cent) with their lack of cross-channel integration.

Winners were already investing money in order to try and understand customer behaviour, which started during the initial rise of onmi-channel. They felt it necessary to figure out what customers wanted across channels – do they want to buy online and return in-store? Do they want mobile capabilities? – so as not to lag behind on the technology side. Nowadays, investment is more focused on differentiation. The report notes that 71 per cent of the largest retailers cited differentiation as the most important driver.

The surprising lack of concern about ROI appeared to arise from the perceived benefits that retailers can realise. Almost a third of respondents said: “It’s not about ROI, it’s about doing things that keep us competitive.” This 27 per cent was made up of the largest retailers, which consider IoT as enough of a game-changer that – if they don’t invest, they will be left behind.

So if the potential gains are so obvious, why are retailers so unprepared? Many respondents (53 per cent) said it is because their business leadership does not understand the benefits of IoT. And 49 per cent said that capital requirements were an issue, plus their firms had not identified a business use case to support the expenditure (47 per cent). Some 47 per cent even blamed the technology supporting the IoT, saying it is not mature enough to invest in. And many said they do not have the technology infrastructure (45 per cent) or analytic skills (32 per cent) to support it.

Clearly there is a lot to be done. In my next post, I want to explore the report’s findings of what retailers see as their biggest barriers to harnessing IoT and the power of data in order to differentiate themselves.

Oliver Guy, Retail Industry Director at Software AG (opens in new tab)