Retailers and IoT: Where You Should Start

Retailers looking to invest in Internet of Things (IoT) technologies may be attracted to the buzz around beacons and other in-store customer tracking technology. The effort to improve marketing efforts by doing a better job of tracking customers and selling more will always be important to retail businesses, and IoT technology such as in-store beacons has promised to take that to the next level.

But while some retail executives may be dazzled by the promise of beacons, in-store customer tracking, and other customer-facing IoT technologies, the smart IoT investment money may actually still be best directed elsewhere. Many retailers have yet to go after the low-hanging fruit that could enable significant cost savings. That's according to Paula Rosenblum, managing director of retail market research firm RSR Research.

RSR Research recently published their third annual study on the application of IoT technology in retail. Rosenblum told AllAnalytics in an interview that retailers are still in the early stages of exploring investments in IoT. However, the attention to starting with customer-facing solutions may be a mistake.

"There's no doubt -- and this has come up in study after study -- that retailers have lost track of, or never had track of how much inventory they own. It's hard to see what they own across the enterprise," Rosenblum told me.

That's why inventory management and improving the efficiency of inventory management is really the low-hanging fruit for retailers as they consider IoT investments, according to Rosenblum.

Consider the following example: A customer comes into a store looking for a pair of pants. He finds the pants he is looking for, but cannot find the right size. He asks a store associate for help. The store associate looks on the racks for the right size. The store associate looks on the computer to see if the size is in stock, and the computer says the store does have that size in stock. The store associate goes to the back storeroom to look for the right size of pants. During all this time the customer is waiting. Maybe it's 15 minutes, maybe it's 20 minutes. Perhaps the customer is searching for those same pants in the right size on his phone at another retailer while he is waiting for the store associate to come back.

Meanwhile the store associate has spent 15 minutes or 20 minutes helping this customer. He looks around in the back storeroom. He cannot find the right size of pants. He cannot satisfy the customer, and the retailer loses the transaction. Plus, the retailer also loses 15, 20, or 30 minutes of labor from this store associate who wasn't able to satisfy the customer. But it's not his fault. The in-store inventory systems are areas that are ripe for improvement.

If retailers can improve these inventory systems they stand to both improve their own cost efficiency and do a better job of satisfying customers, according to Rosenblum.

Analytics solutions can work with this data by discovering trends in these exceptions and improving inventory practices.

RFID technology together with analytics could eventually provide significant improvements for inventory management and control, Rosenblum told me.

It's something that Walmart mandated for its suppliers in the early 2000s. Many of those suppliers didn't see the value in it for them and they resisted Walmart's mandate. Rosenblum believes the Walmart experiment could have set back the progress of RFID for retail inventory control and management. Other factors impacting the slow adoption of this technology include the cost of RFID readers, she said. But like any technology, the prices will drop over time, making them more affordable for retailers to deploy broadly rather than in limited pilots.

Rosenblum recommends retailers invest in inventory management systems first and leave the customer-facing IoT deployments for later.

"Customer experience has gotten washed out as a statement," she said. "The object of the game is to make money."