The Internet of Things (IoT) in retail


The technology trends that are shaping the future of retail


The Internet of Things (IoT) is an innovative technology trend that is paving the way for an ultra-connected world that makes life easier not only for consumers but for business too. From smart light bulbs to fridges that tell you when you’re running out of milk and order it in for you, the computerisation of our everyday objects is a futuristic development that is only the tip of the iceberg of the power of the IoT. 

In the world of retail, the IoT is set to be particularly disruptive, with many brands already trialling exciting new ways to deliver on customer experience, marketing and logistics. In this article, we’ll take a closer look at the Internet of Things and its application in the retail industry and find out what this means for the future of shopping. 

What is the Internet of Things?

The Internet of Things is the term used to describe connectivity between devices, by which sensors and hardware communicate with each other about their status, location and other information. 

This becomes highly powerful when the data gathered by these smart devices is used by machine-learning and Artificial Intelligence (AI) programs to process it into useful, relevant information for the user or for a business. 

The Internet of Things in retail

According to a report by Grand View Research, the global market size of the Internet of Things in retail was valued at USD 31.99 billion in 2020, a number which is expected to grow by 26% between 2021 and 2028. What’s more, McKinsey expects the potential economic impact of the IoT in retail environments to range from $140 billion to as much as $1.2 trillion per year by 2025. 

The IoT has always had huge potential for disruption in the retail industry. In fact, if applied effectively, it could be just the breath of fresh air needed by many retail brands struggling to keep up with e-commerce giants such as Amazon and eBay. With a view to bringing shopping into the digital age, IoT technology provides countless opportunities for retailers to innovate, from the use of smart shelves to observing and analysing customer behaviour. 

There are three areas in which the IoT movement allows for opportunity in the retail industry: improving customer experience, making the supply chain more efficient and generating new channels and revenue streams. 

Why do we need IoT tech in retail?

For the past few years, traditional shops have been having increasing difficulty competing with online retailers due to the latter’s decreased overheads from the lack of a physical store, allowing them to spend more revenue on innovation. This is particularly true for electrodomestics, fashion and beauty.  Yet, although the traditional high street may be declining rapidly, there is still space for brick-and-mortar shops to comfortably exist in cities and towns. This, however, is looking to be increasingly dependent on their efficiency in implementing and maintaining IoT retail technologies. Here, the focus will be on customer experience within the store, making the customer’s journey as personalised and effortless as possible.   

Likewise, online retail has much to gain from IoT tech. With AI programs allowing businesses to gain in-depth knowledge into consumer buying patterns, identify new target groups and customise product ads to every type of customer, marketing strategies are set to become increasingly sophisticated. What’s more, with simplified, smart supply chain technology, both physical and online retailers can save money and time on logistics. 

How will the IoT in retail change the way we shop?

As previously mentioned, the three areas of opportunity of the IoT in retail are customer experience, supply chain and new channels and revenue streams. We’ve explored each one in detail below.

The IoT in retail to improve customer experience

With customers increasingly using the Internet to find the products they want at the cheapest possible price, physical shops run the risk of becoming nothing more than showrooms - but the IoT is here to change that. The experience of being in a traditional brick-and-mortar shop is a difficult one to replicate online and in many cases - particularly fashion retailers and, to a lesser extent, food - almost impossible. IoT technology can optimise customers’ in-store experience in myriad ways, which we will look at below. Fundamentally, improving customer experience is about two things: the first is making the time in-store as seamless and efficient as possible and the second is by offering an increasingly human and personalized experience.  Let’s take a look at some IoT applications that can face these challenges. 

The IoT allows retailers to greatly improve their relationship with customers by allowing them to interact with them in real time both in and out of the store.

 These interactions will take place principally via the smartphone and utilise technology such as Apple’s iBeacon and the mobile marketing platform Swirl, which we will look at in more detail later. Some retailers such as US department stores Lord & Taylor and Hudson’s Bay have already integrated this IoT tech, which allows the stores’ mobile apps to recognise when the customer enters the store and send them customised discounts and promotions based on their browsing history or past purchases. Compared to offering general, mass promotions, personalised offers are great for conversion rates and for generating valuable, loyal customers.  

Other Internet of Things solutions include contactless checkout, a development which both makes the customer’s experience in-store much more seamless and reduces the amount of staff needed to man the tills during busy periods. The technology works by automatically scanning the products a customer has on them when leaving the store and deducting it from their mobile payment app. According to McKinsey, the implementation of automated checkout can result in savings of between $150 billion and $380 billion a year in 2025. 

The IoT in retail can also make the customer experience more personal and human, giving stores an unbeatable edge over online competitors. This involves sales assistants having access to customer’s past purchases and browsing history to offer them a highly personalised service. Mobile Point of Sale (mPos) tech will also allow salespeople to carry out sales with customers there and then, increasing the probability of purchase. 

The integration of smart mirrors in fashion stores can allow customers to virtually “try on” clothing without having to visit the changing room, preventing long lines and reducing the need for staff in fitting rooms.  

Retailers can also optimise the store layout by integrating aisle-analytics software with sensors that track customers’ journeys through the shop, ensuring that the most popular products are strategically placed and premium products are also positioned in areas with a high footfall. Hugo Boss is one retailer employing heat sensors in its clothing stores to gather data on customer movements within the store.  

In supermarkets and hypermarkets, smart shopping carts are being developed that have access to a customer’s shopping list and can consequently help them navigate through the store in the most efficient way possible, as well as letting them check out via the trolley’s contactless payment system. 


The IoT in retail for logistics & the supply chain

While good customer experiences are paramount to success in retail, much of the necessary work to achieve this takes place behind the scenes. In addition, businesses want to optimise their supply chain logistics in order to have the most cost- and time-efficient systems. The IoT can provide myriad opportunities for this, both in-store and out. 

Correctly managing and controlling stock and supply chain is a hugely important issue for many retail businesses. In fact, McKinsey estimated that inventory distortion represents $1 trillion dollars worth of losses in retail worldwide. 

One of the most innovative IoT tech applications for the retail supply chain is smart shelves. Since a lot of employee time and energy goes into inventory, smart shelves are a game-changer as they allow businesses to automate the process of keeping track of stock as well as helping to recognise any potential theft. These shelves use weight sensors and RFID (Radio Frequency Identification) tags and readers to scan products, allowing them to store data about what’s on display and in stock and notify managers when items are running low or placed in the wrong area. The RFID tags are also connected to readers, which help detect and prevent in-store theft and mean businesses can spend less money and time on in-store security. Automated inventory also frees up sales assistants, giving them more time to attend to customers.  

In grocery stores and supermarkets, IoT technology can also include sensors that monitor perishable items in order to let employees know when a product is going out of date, notify suppliers of the need to replenish inventory and suggest discounts to reduce waste. What’s more, frozen products can be placed in smart freezers which adjust the temperature according to how long the freezer has been closed, how long the products have been inside, etc., thus helping businesses make savings on energy and keeping products in an optimum condition for customers. 

Businesses can also employ smart price tags, which can be adjusted in real time to lower prices on promotional or low-turnover items and increase prices on products showing a higher demand.  


Using IoT technology to create new revenue streams for retail businesses

When it comes to finding new customers, the biggest advantage of the installation of the Internet of Things technology in retail is the access to large amounts of highly valuable, relevant data. 

The data gleaned from the above IoT sources can be leveraged to help businesses profoundly understand their existing customers and, as such, reveal opportunities for new customers.

Equally, the highly efficient IoT systems allow businesses to test new marketing strategies and feel out new target groups at a reduced cost by using machine-learning and AI to precisely analyse data taken from experiments.

The aforementioned beacons, first introduced by Apple in 2013, can be used to attract new customers as well as improving the experience of existing ones. These small bluetooth devices send alerts to nearby smartphones, allowing retail businesses to attract passersby with ads for promotions or in-store events. A study by Swirl Networks Inc., who run the mobile marketing platform that interacts with iBeacons, showed that over 70% of shoppers say beacon-triggered content and offers increased their likelihood to purchase in-store. Macy’s has been employing beacon technology since 2014 and other participating stores include Urban Outfitters, CVS and Timberland.  


Who are the key players in IoT in retail and where are they based?

The massive growth of e-commerce and subsequent need for innovation across many department stores combined with the strong R&D capabilities of key players such as IBM, Google, Microsoft and Intel means that North America is showing a substantial revenue share of the IoT in retail market, with over 30% in 2020. Google developed their own beacons and in 2018 launched Project Beacon, an initiative which involved sending free beacons to businesses with physical locations in order to help them increase their visibility to nearby customers. In 2015, Intel launched the Intel Retail Sensor Platform, which is designed to improve and simplify inventory accuracy and, in partnership with IVA, launched a smart vending machine for Costa Coffee, allowing for contactless payment and a touch-screen design for customers as well as remote management and data analytics software for vendors.  

Elsewhere, the Asia Pacific region is expected to thrive in its application of IoT tech in retail. China is set to be the world’s largest adopter of the Internet of Things in general while massive investment in the retail sector means India has huge growth potential. Additionally, this region has an increasing adoption of real-time systems and location-based services that is due in part to government initiatives to boost digitization. As sensor prices become more accessible and big data and analytics technology become more widely spread, it is likely that growth of IoT in retail will be incredible in highly populated regions such as Asia Pacific.   

In Europe the UK and Germany are the major players contributing to the overall growth. The software side is expected to witness the highest growth because of the increasing number of applications across different industries. Concerns around privacy and security are some of the biggest factors that seem to be limiting the adoption of IoT. As America and the East are leading this adoption, we are likely to see countries in Europe closely following suit.

The vast and varied opportunities for innovation offered by the Internet of Things technology means it is likely to generate massive disruption in the retail industry. Our EFMP partners who operate across Europe in the retail space are at the forefront to assist, witness and report on the exciting innovative developments that will help retailers become more efficient and profitable across all sectors of industry. 


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