Retail innovation rises or falls on IT infrastructure

Author Greg Buzek, President of IHL Services
Sponsored by Cisco Systems Inc.

Retail innovation rises or falls on IT infrastructure

In today’s world of retail, it is the brands which are transforming their IT architecture in line with their business objectives that are providing the customer experience necessary to win the business. Let’s face it. Customers used to have to shop and now they must want to shop. And those retailers that are succeeding in this new environment need to deploy technologies in all aspects of the business to improve operational efficiencies, while adding systems that can help differentiate the brand from competitors. No place is more important for retailers to implement a strong foundation than at the store level. 

 

A recent IHL Group study showed that in an era of increased growth in ecommerce and free shipping, by far the two biggest reasons that consumers now come to stores are: 

 

1.  They need the product right now and expect an item to be in-stock. 

2.  They need more information about the product or need to try it on. 

 

These are the two major things retailers must deliver on. Further, IHL forecasts that 25% of all retail will be via ecommerce by 2021. However, 85% of the total business of retail will still be fulfilled at the store level. This is because not only is nearly all of the store business fulfilled at the store level, but also 25% of the online orders will be fulfilled from the store with either ship from store, buy online pickup in store, or click and collect.  Additionally, there are many new digital experiences retailers are offering at the store level to engage consumers. Digital signage, kiosks, beacons and location-based marketing, traffic counting, mobile applications, and save the sale functions are just to name a few.

85% of all retail purchases (online and offline) will be fulfilled in the store by 2021.

Finally, richer multimedia training, task management, inventory tracking, video analytics, and many other mobile applications are now being used by employees at the store level that demand an optimized network experience. All of these are in addition to the standard applications of POS, payments, CCTV, loss prevention, and others for store operations.  The increased use of applications calls for greater bandwidth requirements, and the optimization of that bandwidth at the store level. And herein lies a great challenge. For most retailers, there is not a consistency of bandwidth, nor the availability of similar WAN levels across the enterprise stores. 

 

Further, many retailers based in malls or rural areas do not even control the level of bandwidth available. (Many mall leases specify that retailers use the mall WAN network, while in rural areas the technologies may simply not be available.) This puts added pressure on network operations since there is not enough digital horse power to enable all of the business applications mentioned above.  A key part of a retailer’s success is the ability of the brand to have all of their core systems working together across all channels to enable unified commerce. IHL research has shown that there are 4 specific foundational technologies for unified commerce to work properly. Successful retailers of tomorrow are building their IT infrastructure on top of these building blocks, to achieve unified business agility and enhanced customer experience. 

 

The first building block stems from a single version of truth about customers and employees across all channels and their touchpoints. Customers expect you to know how they have been engaging with your brand whether it’s online or in the store.  The second area is related to status of inventory, regardless of the location. Retailers must know what they have in their direct store but also what is available in other stores, warehouses, and distribution centers to fulfill orders.  The third core element to achieving unified commerce is an updated POS system. This means at the store level and in real time, a POS system that can utilize the data in customer and inventory systems both as a fixed POS and as a mobile POS.  And the most critical component to enable unified commerce is a robust store network that prioritizes and manages all the network traffic securely, ensuring that the other core blocks are functioning properly. Retailers that have that single view of inventory, single view of customer data, updated POS and updated network are outperforming their peers with an average sales growth that is 76% higher. But this is just the beginning. It isn’t until after these foundational technologies are set that retailers are able to reach new in- store efficiencies and the magic truly begins.

 

There are many different technologies that leading retailers choose to deploy on top of an optimized network. Of these technologies, the ones producing the strongest results surround 3 areas that require an optimized network to achieve the desired business results.

Retailers empowering their employees with mobile tools expect sales growth that is 71% higher.

The first area is empowering employees with tools to help save the sale, provide more depth of expertise in product information, and suggest additional items for purchase. Those retailers deploying upgrades in this area are expecting sales increases that are 71% higher than their peers. 

 

A second area is focusing on better workforce management tools in terms of task management and better store coverage, or scheduling of personnel. Retailers investing in this area of employee productivity have sales growth expectations 95% higher than the average retailer. 

 

And the third most common way retailers are investing on top of the network is with RFID and video technologies for better inventory accuracy. 

 

Retailers worldwide lose up to 3.4% of their chain-wide sales due to not having the inventory in-stock. In some segments like apparel and shoes, this is as high as 7% of sales!  By deploying RFID and video recognition technologies, leading retailers are taking their in-stock position from 75% to 96% or higher.

 

In fact, those retailers growing their investment in RFID by 10% or more are expecting sales growth increases that are nearly 3x the average retailer in their segment. By being in-stock more often and converting those sales, these retailers are expecting to greatly outperform their peers. 

 

These are just some of the examples of the way leading retailers are leveraging the network for their own operations. Others include VOIP, location marketing, customer traffic analysis, payments, sustainability initiatives, and energy management.  Without an optimized network, retailers will struggle to meet intended customer and employee experience goals set forth by the business units.  But today’s brands must also engage the consumers on their own devices. This entails providing secure wireless access in their stores, enabling social media sharing, in addition to a user-friendly application for their particular brand. New beacons and location tracking technologies that interact with the consumer’s own mobile devices are also on the rise.

 

To provide this ability, retailers need a network  that is segmented and secure, that provides simplified Wi-Fi access and a personalized experience that allows for quickly onboarding the customer to the network.  Now that we have discussed the specific reasons why leading retailers must have an optimized network, what are some of the core technologies that enable this in foundational store networks today? Most specifically, software-defined WAN technology. 

 

SD-WAN allows for the retailer to specifically set rules that govern guaranteed service levels for the business unit functions, while leveraging all of the bandwidth options of the stores in a secure way to provide the optimized customer experience. So, if you have T1, Cable and 4g options at the store, you can set prioritized and guaranteed network traffic for your highest priority applications like credit authorization, POS, and save the sale functions to a guaranteed level that take advantage of all the bandwidth choices, not just one.  A second key enhancement are the operational insight tools that combine sensors for Bluetooth, mesh Wi-Fi, video for security and loss prevention, traffic analysis and inventory, and RFID into a single dashboard.

 

Rather than having a proliferation of separate devices and networks, these tools provide for simplified device management plus actionable insights like heat map, traffic management and automated alerts in the store.  The third enhancement to the network is the deployment of edge computing devices that are able to delineate between the traffic that must leave the store over the WAN and that which can be handled in the store.  With today’s digitally driven stores and the options with video on top of other web traffic, optimizing the data that must go through the WAN is critical, especially in limited bandwidth situations. 

 

All of this must come with security in the core of your network DNA. Between support and security of payment data, customer personal information, and your own core IP, retailers today must deploy networks that have strong IT security processes and practices built into protect your brand, secure your operations, while providing a great customer experience for your clients.  Bringing this altogether allows retailers to continuously and quickly innovate. The store network must be designed to optimize your retail operations, empower your employees to be productive and customer focused, create a personalized customer experience, and do so in a way that protects your brand and secures your operations. It is the key that allows for brands to interact with their customer how and when they want.

 

Next in our series we will talk about the opportunity for IoT in Retail as well as an integrated security strategy to keep the network, data, and physical retail experience secure.

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