How Smart Products Will Solve the Retail Apocalypse

July 13, 2017

Some of the world’s biggest department stores are facing branch closures in what reports are referring to as “the retail apocalypse.” Yet amidst this darkness is a new dawn: the rise of Internet of Things-enabled smart products, helping brands and retailers better compete.

Shopocalypse Now
According to Bloomberg, more than 3,500 stores are expected to close in the coming year, with many of the outlets belonging to huge household names like JCPenney, Macy’s, Sears and Kmart, along with smaller chains such as Crocs, Abercrombie & Fitch and Guess.

When you consider the performance of retail stocks over the past few years it’s hardly surprising. Stocktwits reports that Macy’s is not only trading at its lowest levels since just after the financial crisis in 2010 with a loss of 50 percent, but is shutting down 100 stores (nearly 15 percent of its store base) as it battles plummeting sales and foot traffic. Analysts suggest that the retailer needs to close even more locations to revive business.

What’s more, the crisis doesn’t just lay with certain retail brands; it’s industry-wide. According to Mark Cohen, director of retail studies at Columbia Business School, the slowdown in retail is “creating a slow-rolling crisis” that “creates a cascade of economic challenges.” Then there’s asset management company Cohen & Steers that says this isn’t just a phase or a temporary trend. A few months ago, it described the industry’s decline as a “new normal.”

Digital Beats Traditional
So why is this happening? The most succinct answer is from billionaire investor Warren Buffett, who at Berkshire Hathaway’s annual meeting simply noted that: “the department store is now online.” As we’ve already seen in media, transportation, telecommunications and travel, the retail industry as we know it is being reinvented for a digital world.

The digitally native companies of the new age, the best example of which is probably online retail giant Amazon, have the massive advantage of no pre-existing legacies to overcome or assets to reconfigure. And by building their business on cloud platforms, they can innovate using access a wealth of data as a competitive advantage.

When it comes to retail, Amazon is transforming the machine. More than half of products searched online (55 percent, according to BloomReach) start there, making it the Google of online shopping. In fact, it could be said that what Uber did to the taxi industry, Amazon is doing (and will continue to do) to retail. By creating a giant commerce machine (online and now physical with the Whole Foods acquisition) that chews up everything in its path. The digital behemoth has already redefined cloud computing to better serve itself (the AWS business unit now has $12 billion in sales and $3 billion in annual profits) and will do the same with shipping and logistics.

This operational excellence supports aggressive price cutting (“Your margin is my opportunity,” Amazon CEO Jeff Bezos famously says), and because it has more credit cards on file than any other company on earth and vast data insights from purchase patterns, it can also take note of exactly what people are buying and use that to launch its own brands. For example, Amazon will overtake Macy’s to become the largest apparel retailer in the US this year. And just look at its Prime offering, a retail service innovation model that has bankrolled the company.

Retailers Strike Back
The major assets manufacturer retail brands have to play with are their brand, their network of brick-and-mortar stores and the sheer volume of products they put into the market (either in their own stores or via third party retailers). Internet of Things smart product technology is the key to leveraging these three things and competing effectively with Amazon. They must start by digitally transforming the central pillar of their business: the products they make and sell. We’re at a tipping point for the smart products revolution, with Apple and Android/Chrome integrating NFC and native scanning of barcodes and QR codes, plus Apple opening up iOS11 to NFC, as well as platform players from Facebook, Snapchat, WeChat, Kik, Spotify and Shazam educating the market by promoting consumer-product digital interaction via codes on packaging.

This means that brands and retailers can turn their physical products into smart, digital assets that are connected to the Web and that generate valuable, real-time data throughout their lifecycle, from point of manufacture, through the supply chain, to point of sale, consumer use and responsible disposal. This solves valuable business problems like product traceability, real-time inventory management and direct-to-consumer experiences.

As a smart, digital asset, each individual consumer product is in a constant state of sharing data, being able to tell end-users throughout the product lifecycle where it is, where it’s been, what it’s made from and who’s using it. This means, for example, that a smart product can enable mobile self-checkout for consumers and at the same time inform the distribution center which items needs to be re-stocked. A smart product can verify its sustainability credentials and tell customers how to recycle it. A smart product can become a media channel that interfaces directly with consumers and offers personalized content or exclusive offers to drive upsells, cross-sells and brand loyalty. A smart product can behavioral data from consumer interactions back to the brand to drive insights and further personalization.

Combined with sensors, cameras and interactive experiences in-stores, a smart product strategy can digitally renew the retailer’s brand by adapting the digital content and service that accompanies the product to its context of use, and provide a consistent, personalized brand experience at key stages in the omnichannel shopping journey, from browsing to buying, owning, evangelizing and re-purchasing.

As McKinsey recently observed: “By creating a customer-centric, unified value proposition that extends beyond what end users could previously obtain (or, at least, could obtain almost instantly from one interface), digital pioneers are bridging the openings along the value chain, reducing customers’ costs, providing them with new experiences, and whetting their appetites for more.”

In other words, by leveraging Internet of Things smart products technology, retail brands can fight the retail apocalypse on two important fronts: catching up to Amazon by creating a real-time, fully instrumented supply chain, and then delivering better, more personalized service experiences to shoppers, who value touching products and seeing them in person before they buy. Beyond simply using technology for greater convenience, this puts the “experience” back in “retail experience.”

Want to learn more about how smart products can solve business pains? Download our Digital Product Lifecycle eBook.

ABOUT THE AUTHOR: Andy Hobsbawm

Andy Hobsbawm

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