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In a highly competitive industry like the retail sector, it is important to maintain efficiency in routine operations and develop innovative methods of engaging with the customer. M2M technologies can help improve coordination in the supply chain, react adequately to market demands, and improve interaction with the customer. This market insight discusses the challenges faced by the retail sector and explains how using M2M technologies can address these issues and contribute to the development of a smart shop.
Setting the Scene
The retail sector will provide strong growth opportunities for the information and communication technologies (ICT) industry. According to Frost & Sullivan’s ICT forecast, the retail sector is one of the top ten industries with heavy investments in ICT in Europe. At the end of 2012, the retail sector was estimated to have spent € billion across Europe. By 2017, ICT spend is expected to increase to reach € billion, at a compound annual growth rate (CAGR) of %. At this CAGR, the retail sector is among the top ten industries with the highest growth potential in Europe.
The retail sector may not have direct legislation that drives ICT investments towards a ‘smart’ environment, as apparent in ICT spending patterns in energy or automotive industries, but, the retail sector is so intensely driven to protect margins and so competitive for customers that appetite for new technologies, including machine-to-machine (M2M), big data, and cloud computing, keeps the ICT industry very engaged. Frost & Sullivan believes that the retail is among a sectors for which the M2M industry is actively developing new solutions and applications. This analysis is a projection of what we see as the future of a smart shop and the role of telecom companies in facilitating this transformation.
Retail is a highly competitive industry, with participants encountering multiple challenges on a daily basis. In order to maintain their position in the market, retailers need to find a convenient method of maintaining an organised, well-connected supply chain, and develop production plans that are in tune with the desires of their customers. Implementation of M2M technologies can facilitate communication between supply chain actors, promote easier management of inventory, and provide a complete shopping experience for the customer. For example, M2M gives the retailer real time visibility of inventory levels, thus, providing useful information to maximise sales. Within retail stores, M2M can also enhance customer satisfaction by relying on automation and accurate customer segmentation to guide through the whole shopping experience. Finally, the M2M technology can also help develop innovative methods of communicating with customers.
As the retailer adopts wider M2M technologies and progresses towards integrating customer analytics with big data, there will be a transformation in retailer processes and in turn the ICT infrastructure. Frost & Sullivan projects the future of shops in a connected world, emphasising on the role of big data in driving smart retailers and integrating the retail sector into a smart communities vision.
Challenging Areas Requiring M2M Technological Implementation in the Retail Sector
In general, technological advancement in any industry helps streamline operations and promote efficient management of workload. Implementation of M2M technologies, on wireless or wired networks, specifically, promotes remote management of workload, thereby, reducing time spent on regular operational work. Further, M2M connectivity also allows data collection on various parameters, which can be analysed to provide better insight into the market.
The need for technical support is particularly important in the retail sector, which is a highly fragmented industry with small margins. There is a constant necessity to ensure efficiency in operations which can help retailers stay on-par or ahead of their competitors. Additionally, the retail sector, more than other sectors, is heavily dependent on a well-managed and coordinated production and distribution channel. Any delay or confusion in these channels can result in heavy losses for the retailer. Being a customer facing sector, it is also important for the retail sector to build and maintain customer interest.
Over the years, system integrators (SIs) and traditional IT service providers have been implementing Radio Frequency Identification (RFID) technology for logistics and inventory management in the retail sector. However, in recent times, mobile network operators have also realised the possibility of performing these functions using cellular M2M technologies. Besides achieving process efficiencies, M2M connectivity can also facilitate innovative ways of interacting with final customers.
The case for implementation of M2M technologies in the retail sector arises due to the many existing challenges in the industry.
The following are the main challenges facing retailers:
- Availability of adequate stock: The existence of cut-throat competition among retailers necessitates the maintenance of well-stocked stores catering to the requirements of customers. Retailers need to be aware of the market demand and coordinate production and distribution of products in accordance with this. M2M technology can help retailers be aware of their inventory, which is important to preserve and expand their customer base.
- In-store Management: One of the factors determining the success of a retailer is the presence of organised, well-stocked stores that enable a comfortable shopping experience until the customer checks out of the store. In-store management includes many aspects such as maintainence of well-stocked shelves, easy navigation through stores and convenient payment methods at check-out counters. There is also another challenge of providing high quality services without additional cost to the environment. M2M technology can enhance provision of efficient store services.
- Building relationships with customers: Brand-building is an important part of any industry and it is more so in the retail industry, where the success of a business depends mainly on a loyal group of customers who frequent its stores. In addition to this, it is also important to focus efforts on gradually expanding the customer base to include other age and income groups. This requires developing advertising and marketing techniques that encourage interaction with specific customer groups. M2M technology can also help develop innovative methods of communicating with customers.
Application of M2M Technology in the Retail Sector
These challenges in the retail sector can be addressed by M2M technologies in the following areas:
Inventory management is an integral part of a retailer’s overall operations. Inventory or logistics management includes tracking the location of the stock of goods from the time it is manufactured till it is sold. This is a very important function because it governs how soon products can be made available to consumers without encountering understocking or overstocking. Tracking inventory can also reduce the loss of goods in transit. Automation of stock-keeping is facilitated by attaching RFID tags to pallets or cartons of goods. These tags will contain unique codes that can be read by RFID readers which help store information about the product location on retailers’ systems. Enterprise resource planning software can help coordinate incoming and outgoing stock at stores. Inventory management can also be enabled using more recent M2M technologies. This involves implementing embedded SIMs in pallets that communicate their location using wireless technologies. Constant tracking of goods helps collect statistical data on sales patterns of products.