The Internet of Things

This article was published in the August 2016 issue of STORES Magazine.

Exploring the latest hype and actual use cases

Industry observers say the Internet of Things could become one of the most effective retail tools since the advent of the bar code. To others, though, it’s a ubiquitous phrase that defies standard definition and confuses rather than enhances the customer experience.

At its most simplistic, IoT is the result of low-cost computing that connects everything on the planet — person-to-person, machine-to-machine and interactions between both. In other words, the global transfer of data without the need for human intervention.

“It’s all about how connectivity can make retailers more efficient, add value to a person’s life or better service them as a customer,” says Joe Jensen, vice president of the Internet of Things group and general manager of the retail solutions division at Intel. “The question is how we connect things that deliver insight.”

“The pre-IoT generation was built around instrumenting pallets and products with RFID chips. … Now we’re starting to transition,” says Dan Mitchell, director of the retail and consumer packaged goods industry practice at SAS. “Systems that were once proprietary are now opening up. It’s a huge benefit for data visualization and information exploration. Now we can use open standards tools to look at any data.”

Retailers still need to tackle IoT issues at scale. “When retailers look at our analytics tools and marketing platform, they want to make sure it’s future-ready for all of IoT’s potential uses,” Mitchell says.

“They may start with organizing offers and coupons and using older GPS technology. But eventually they’re going to crank up resolution and start to do proximity marketing in stores,” he says. “I expect some retailer to introduce a new smart store format. But we haven’t seen the totally ‘connected store’ yet.”

Taking steps

Target is taking some steps in that direction: Its “Open House” project in San Francisco uses touchscreen tables to educate consumers on how devices work with each other. The chain also opened a staffed “connected living experience” at a Minneapolis store that educates through product displays, and plans to expand the concept to stores in California and New York.

Not only does Walmart track social media and use it to showcase products, the retailer accesses weather data to track and forecast grocery sales. Amazon’s Dash button tracks usage of certain products and facilitates automatic product reorders. Disney’s RFID-enabled MagicBand enhances guest visits while helping the company track data on payments and park access.

Research by Goldman Sachs indicates that the IoT universe already consists of 12 billion connected devices, a number that could soar to 30 billion by 2020.

Disney’s RFID-enabled MagicBand enhances guest visits while helping the company track data on payments and park access.

In a July 2015 report, Juniper Research forecast that by 2020 retailers worldwide will spend $2.5 billion in IoT-related hardware — including beacons, RFID tags, other types of sensors and installation costs, a nearly fourfold increase from 2015.

 “I’d say we’re in our adolescence” on the IoT development timeline, Mitchell says. “We know the lay of the land, how to get access to technology and networking, and we’re coming up with ideas and solutions. We also have the components to bring it all together. But we’re not at full maturity when it comes to standards, the equipment and formatting data. That can still be all over the map.”

Jensen says that until recently, many retailers didn’t understand what IoT meant. “It was often equated to something like smart light switches. But we’re seeing IoT connectivity becoming better understood, standardized and cost effective as the cost of computing continues to fall dramatically.

“The analytics that will enable everyone to use the data to find insights is maturing rapidly,” he says. “Retailers already have more data than they can handle. It’s all about how to use data rather than the technology itself.”

Influencing engagement

Using IoT to manage inventory may be retail’s biggest challenge; overstocks, understocks and deep discounting alone cost the industry $1.2 trillion annually in missed opportunities, according to Jensen.

“Retailers spend $175 billion a year on IT technology,” he says. “But we know from empirical data that the minute you finish your inventory, it is 10 percent inaccurate due to human error.”

Another promising technology, featured by Intel at NRF’s Annual Convention and Expo in January, is conductive ink on packages, and a way to read that ink on shelves. “We’re seeing that technology mature,” Jensen says. “The question is, who’s going to spend the capital to deploy it? We may not see it as much on pancake mix as we will on high-value items like razor blades to track stock and reduce theft.”

Intel’s Retail Sensor Platform enables simple, affordable, effective inventory tracking and insight for bricks-and-mortar retail environments.

As with virtually all potential investments, it’s much easier for retailers to spend on IoT if they see a hard return. “Right now they’re worried about loss of traffic and sales to online competition. As a result, they are spending money on the mobile experience … . We think they’d be better off having the right pair of Dockers in stock,” Jensen says.

“About 60 percent of shopping is discretionary. That’s the instant gratification part of the market. People want to go home with something. The root of all this is [creating] demand for products that are on the shelf now and [planning] better for what might be needed.”

Retailers are paying attention to how IoT can influence customer engagement. “If a customer is dwelling at a certain endcap for more than an average amount of time, it might be time to send an associate over to see if they need help,” Mitchell says. “If we see it’s a highly loyal customer, maybe an assistant manager meets with them.”

He is also interested in what IoT can do for food safety. “If products have to be kept at a certain temperature, cases have to be monitored to make sure it’s not going above or below certain thresholds. I can see connecting to the Internet for real-time monitoring in stores and distribution centers.”

Companies are looking at IoT as a way to change processes, increase efficiency and cut costs in the warehouse. “Retailers want to increase operational efficiency in flowing inventory,” Mitchell says. “There’s also some interest in developing loss prevention for high-value items.”

There are challenges facing IoT, not the least of which is making a retailer’s systems more vulnerable to attack. “It’s not unique to retail,” Mitchell says. “The more devices you have that are Internet protocol-enabled, the greater the surface area. This means that physical devices can be susceptible to an attack by someone in the store or 100 miles away.”

Safeguards are being built in — namely, remote management capability. “A bulletproof future strategy is to assume that all devices will be changing over time. We can help by monitoring conversations between devices. … We can quickly alert you when two devices talk to each other in a way they had never done before,” he says.

“Protecting consumer data isn’t a technical problem,” Jensen says. “It’s a business choice. The chance for IoT to reach its maximum potential in the retail space rests on the shoulders of retailers.”