Emerging technology is disrupting the way retailers do business and engage with consumers. Recent technological advancements are providing the retail market with full end-to-end insights that they could only gain small glimpses of previously. While the potential is massive, realizing this promise is a complex challenge that requires the integration of new OEM hardware and analytics technologies in a manner that tightly integrates retailers with both their supply chain, their physical footprint, and their consumers.

As a result of technological disruption, the line between different types of retailers is increasingly blurring. The retail market is fragmented in terms of sub-segments, which include big box retailers, specialty retailers, supermarkets, convenience stores, pharmacies, unstaffed retailers, and e-tailers. New technologies are driving overlaps in how these types of stores interact with and sell to customers.

THE DIGITAL RETAIL REVOLUTION

Sensors, connected products and the onslaught of data they bring have transformed the retail market for all players. Consumers’ preferences for convenient and differentiated shopping experiences and retailers’ pressure to optimize operational processes have dovetailed to inspire retailers to rapidly adopt new technologies.

Changing customer habits and digitization have made retail environments more complex today than ever before. For years, retailers have struggled to supply frictionless shopping experiences to consumers that match the convenience offered through e-commerce, including auto-checkout, inventory wayfinding, and readily available product information. The proliferation of smartphone and internet users in developed nations, and, more recently, pandemic shutdowns, have necessitated that retailers adopt comprehensive mobile and e-commerce platforms.

Though consumers used to hesitate to purchase goods online, they now trust online retail as a secure and convenient mode of purchase. In fact, smartphones are quickly becoming the preferred means for consumer interaction, augmenting both the online and in-store shopping experience. In addition, simple and affordable social media ads are giving retailers an increased ability to find new customers.

Equipped with a greater understanding of consumer behavior and preferences, retailers must now interact with consumers through multiple channels and offer fast-paced delivery services. The COVID-19 pandemic accelerated consumer expectations for digital, rapid convenience, whether orders placed online, personalized shoppers, delivery, or in-car pick-up.

The success of Amazon underlines both the importance of supply chain efficiency and of developing comprehensive offline and online consumer profiles. Companies that can tightly integrate their supply chain and retail operations will differentiate themselves from the competition. A combination of in-store and supply chain inventory tracking and analytics can help retailers achieve this. Observing consumer’s online and offline habits through cookies, point-of-sale, and surveys can help retailers develop a profile of their consumers that facilitates more efficient target outreach.

Recent technological advancements in supply chain processes and forecasting, augmented reality (AR) and virtual reality (VR) technologies, and sensor efficiency have catalyzed retailers to modernize their retail and warehousing operations. In the warehouse, robots are speeding up fulfillment, picking and packaging capabilities. New in-store and online techniques to create engaging consumer experiences are being created by AR and VR technologies, while beacons are monitoring consumer’s offline behaviors and providing greater awareness of location, temperature, humidity, vibration, and more across the supply chain and within/outside of the store.

SUDDENLY EVERYONE IS AN OMNICHANNEL RETAILER

Rapid technological changes have led to the creation of a complex market with multiple dimensions that industry participants must consider. Major dimensions include:

• The type of retail environment
• The type of players interacting in this complex ecosystem
• The various applications and uses of Internet of Things (IoT) technologies

Today, retailers who may have had extremely efficient brick-and-mortar operations are now suddenly competing with companies with years of e-commerce and online order fulfillment experience. These e-commerce companies in turn are now competing with seasoned brick-and-mortar retailers with physical presence throughout their shared markets.

In order to effectively compete with e-commerce vendors, brick and mortar retailers must offer comparable services and customer service. For retailers, this means offering package tracking, accurate ETAs, simple returns and more.

With this transition and its associated increase in competition, consumers may benefit, but retailers – both omnichannel and pure e-commerce retailers – are experiencing new competitive pressure.  The trend toward online shopping had already begun, but the COVID-19 pandemic accelerated the consumer shift to online shopping by roughly five years, according to IBM’s U.S. Retail Index.

An Increasingly Complex Supply Chain

The expansion of retailers into business strategies that combine both brick-and-mortar and online operations, otherwise known as omnichannel, carries with it fundamental changes to their core business models and the structure of their supply chains.  To support the delivery of goods directly to end customers, retailers must roll out last-mile delivery plans by leveraging their captive supply chain capabilities or partnering with new companies to complete the final delivery stage of the supply chain.

Last-mile delivery can vary in form, whether delivered directly to a consumer’s home or to a package locker. The method of last-mile delivery also varies widely, from gig economy delivery services like DoorDash, to commercial fleets, bikes, drones and Autonomous Mobile Robots (AMRs). Regardless of form or modality, last-mile delivery will always carry a significant cost, forcing retailers to carefully consider their options.  Last-mile delivery accounts for roughly 53% of total logistics costs, emphasizing the importance of creating a sustainable and cost-conscious last-mile delivery system.

Retailers have historically struggled to provide complete transparency across the supply chain, leading to unreliable product fulfillment and frustrated customers. These issues were exasperated during the COVID-19 pandemic, which created rippling impacts across every stage of the supply chain, from labor shortages to less in-store retail traffic.

The disruptions caused by the pandemic began at the furthest point upstream: sourcing raw materials.  Outbreaks halted the operations of key raw material facilities, such as farms and mines, delaying their shipments to manufacturers. This, in turn, created production delays and impacted retailers’ ability to replenish inventory. The cascading effects stemming from closures and delays caused by the pandemic are still being felt, even as society has re-emerged from government-regulated shutdowns.

E-COMMERCE & DIGITAL RETAIL ADOPTION CHALLENGES

For years, traditional brick-and-mortar retailers have struggled to supply frictionless shopping experiences to consumers that match the convenience offered through e-commerce. Yet providing these experiences is critical as 83% of customers now believe convenience is more important now than it has ever been in the past, according to a 2020 Smart Insights survey.

Adoption challenges include:

• Brick-and-mortar retailers are unable to connect with consumers that have access to perfect product information online
• Outdated endpoints are vulnerable to exploitation
• Most advanced software and analytics carry prohibitively expensive subscription fees
• Retail offers thin profit margins, so retailers can only invest in targeted areas and can only address short-term concerns
• Lack of interoperability between software systems
• Unclear ROI of software solutions in targeted areas
• Unclear view of how the software provider’s IoT strategy matches consumer needs

DRIVERS OF ADOPTION FOR DIGITAL RETAIL

The barriers retailers have historically faced are now receding. Some of the key trends in digital retail are:

Technology is becoming more accesible. A key component of this is the dropping prices for sensor and beacon technologies that allow for transparency along the supply chain. Data analytics software prices are dropping as well, while the sophistication of these technologies are improving.

Improvements in uptime, efficiency and overall equipment effectiveness. Software and connectivity improvements, along with adoption of Smart Systems throughout the retail ecosystem, has optimized product development, manufacturing, and fulfillment.

A rising demand for product personalization. Consumers are increasingly demanding personalization options for goods, especially for high-ticket items like consumer electronics, designer apparel and jewelry.  Customization leads to an increase in SKU counts, and can require changes to production processes, as well as their own fulfillment process outside that of traditional retail operations.

The increasing diversity of transportation modalities. As various forms of modalities and equipment decline in cost and human labor becomes increasingly scarce and costly, supply chain participants are relying on new forms of transportation to enact processes like last-mile delivery.  Fast-growing supply chain transportation modalities include delivery AMRs, such as Nuro AMRs for Dominos Pizza, and delivery drones, such as Zipline drones for Magellan Health medications.

Affordable digital advertising opens up new markets. Google, Meta, LinkedIn and other digital platforms have simplified digital advertising, making it easier to target specific demographics, thus saving money that would be spent on blanket-coverage campaigns. These platforms are giving retailers the ability to create new revenue streams from brand-funded digital advertisements.

The rise of fulfillment centers. As brick-and-mortar retailers expand their operations to include e-commerce, retail stores are increasingly functioning as hybrid locations.  While retaining their ability to serve customers and display goods, retail stores have begun expanding into the role of the fulfillment center, reducing the impact of growing e-commerce fulfillment needs by creating additional bandwidth for online order fulfillment.

LESSONS TO EVOLVE RETAIL

In light of all of these societal and technological changes, retailers must evolve and they must do so quickly. There are several things retailers should keep in mind:

Retailers must adopt both operational and consumer-oriented technologies to fend off disruption. Big box retailers want to transition towards fulfillment-center focused models that accommodate the consumer’s demand for convenient and rapid product delivery in order to fend off advances from Amazon and other tech suppliers who are disrupting the market. Both big box and large-scale specialty retailers want to improve operational efficiency and to differentiate their products through technologies that directly engage the consumer and analyze that consumer’s online and offline behavior.

Retail end-customers are seeking players who can enable back-end operational efficiencies and/or improve the customer experience. Top players address key use cases across retail sub-segments, including predictive and preventative maintenance, resource utilization management, supply chain and logistics, product quality, compliance control, and predictive personalization and consumer preferences.

To win in an omni-channel retail world, a more cohesive relationship between distributers, retailers and consumers is needed. Emerging IoT technologies have enabled a range of new use cases that address needs in the rapidly shifting retail market. However, this is only the first step. The true winners in this market will integrate today’s largely siloed world of warehouses, retail stores and consumers into a close knit, end-to end environment.

Delivering new solutions will require ecosystem development and new channels to market. Increasing levels of integration will require new interactions and the need for players to seek out ‘strange bedfellows’ in order to develop the ecosystems required to address increasingly sophisticated customer needs. OEMs and tech suppliers will also need to adopt new channels to market that leverage systems integrators and other value adders that understand how to properly sell and integrate new IoT technologies. ◆