Digitalization and IT in Retail

The change in the retail industry is visible in city centers. Conclusion: The bricks-and-mortar retail sector is currently in crisis, with the German Retail Association (HED) predicting a decline of 5,000 retail businesses in Germany alone by 2024. This trend is affecting both large department stores and long-established specialty stores, which are struggling with succession problems in addition to the challenges already mentioned. The figures show that SMEs are also affected.

In addition to higher energy costs, experts from the retail association also see inflation and consumers’ concerns about the economy as reasons for the crisis. The Russian-Ukrainian war and the pandemic are also cited as causes. However, the most important point remains that almost 60 percent of all retailers still do not offer products online. The changed shopping behavior of many consumers is forcing many retailers to attach ever greater importance to e-commerce. Before we get into the analysis and focus on wireless IoT technologies in particular, the industry itself should first be introduced.

All retail sectors and companies focus on the sale of goods rather than their processing. Food retail includes small stores, drinks markets, supermarkets, and small delicatessens. The collective term ‘food retail’ is the technical term for companies whose product range consists almost exclusively of food. The clothing and fashion sector includes clothing stores, shoe stores, and fashion boutiques.

Another area of retail comprises building materials, electronic products such as smartphones and computers or household goods and furniture, as well as toys, sports, and leisure articles. Drugstores, pharmacies, and beauty salons offer their products in the healthcare and personal care sector. In addition to car repair shops, the retail sector also includes service providers such as banks, travel agencies, insurance companies, and post offices.

In addition to department store chains and small businesses, there are also retailers. Wholesalers are characterized by the fact that they resell goods to retailers in very large quantities. They ensure that retailers are always supplied with sufficient goods. Logistics service providers, whose main function is the distribution of goods, are not directly part of the retail industry, but are very closely linked to it. When looking at wireless IoT radio-based technologies, it becomes clear that smooth retail supply chains depend on close cooperation between transport companies and retailers.

In the service sector, retailers are supported by packaging companies, marketing firms, and advertising agencies, as well as financial service providers. The consulting business provided by IT companies is becoming increasingly important. They ensure that retailers can find a new direction in times of e-commerce and digitalization. IT companies. They advise retailers on big data in retail, IT in retail, smart retail systems and edge computing.

Before the status of wireless IoT can be examined in more detail, it makes sense to first look at the status of purchasing behavior and customer loyalty in the EU. Online shopping has developed considerably, and not just since the pandemic. It can be described as a boom. In 2023, over 75 percent of all people between the ages of 16 and 75 have ordered goods online at least once. In the Netherlands in particular, the percentage of online shopping is 95 percent. Germany is in eighth place in the ranking. Just over 80 percent of people in Germany have already ordered goods online.

Clothing in particular is the most popular item in e-commerce. On average, 70 percent of all clothing is purchased online in the EU. According to forecasts, 26 percent of all shoppers made purchases of furniture, garden products or accessories online in 2023. In the pharmaceuticals sector, 22 percent of purchases were made online. The proportion for food was 17 percent. All figures relate to the 16 to 74 age group. It is clear that the retail sector is facing a structural change and a change in customer loyalty. In addition, 34 percent of all people in the EU have used streaming services to access films.

Source: Eurostat, Federal Statistical Office.

Consumers are also noticing that wireless IoT technologies are increasingly being used in retail. This applies not only to contactless payment, but also to retail apps that provide information about discount offers or NFC tags that contain information about products and their origin, for example. Contactless technology has rapidly become more important in the retail industry in recent years. Paying with a smart watch is now also one of the variants of this innovative payment solution. Customers appreciate the convenience and speed of contactless payments, while retailers benefit from shorter waiting times at the checkout, and increased customer loyalty.

Customers are now allowed to scan their goods themselves at many points of sale (POS). Even more innovative are checkout systems that automatically recognize the goods as soon as they are placed in a basket or on a scale. Self-checkout systems are on the rise. These practical examples concern the customers themselves. On the retailer side, there is an even greater increase in wireless IT technologies in logistics processes, picking processes, the presentation of goods in the store, or customer loyalty processes via loyalty programs.

The range of products in retail, be it software or hardware, is so diverse that in principle almost all products can be used efficiently in retail. These include RFID read/write devices, Bluetooth LE or LoRaWAN gateways for determining the location of goods, scanners, antennas for capturing RFID tags, cameras that protect stock from theft, and robots that independently stock shelves, serve customers or answer questions.

There are several areas of application in retail where the integration of wireless IoT technologies is particularly innovative and offers high efficiency. The following examples show that the focus of wireless IoT efficiency is on automation, process transparency, data connectivity, and the evaluation of purchasing behavior. These practical examples include asset tracking, asset management, temperature monitoring, anti-theft protection, anti-counterfeiting, facility management, and inventory management in retail. All solutions and areas of application are based on data connectivity. The keywords are retail connectivity and cloud computing. Solutions for the customer, also known as consumer IoT, include personalized customer interaction, location-based marketing, customer-specific advertising, and customer flow analysis.

The negative impact of the pandemic on the retail industry was clearly noticeable. Household spending on consumer goods fell. Stores were closed, events were canceled, and travel was restricted. These changes also led to customers spending less money. At the beginning of 2023, rising inflation also had a negative impact on consumer behavior. The negative perception of the overall economic situation was exacerbated by the war between Russia and Ukraine. This negative perception also had an impact on consumer confidence. Consumers attribute their negative perception to rising consumer prices for food and energy, as well as the inflation rate. Delays in supply chains have also weakened consumer confidence in the retail industry.

The outlook for retailers is similar. The pandemic has led to store closures, and thus, to a drop in sales. After a normalization of purchasing behavior in 2021, 2022 began with a renewed reluctance to spend money. For wireless information technology, the economic health of the retail industry is crucial in order to make investments in innovative technologies. Current insolvencies, even among large retail chains, are rather critical. Retailers who want to maintain their market share in the future must drive innovative processes and e-commerce in order to grow.

Artificial intelligence and metaverse could also be described as popular buzzwords. Or are they? Retail associations agree that one of the biggest trends in 2024 will be the integration of generative artificial intelligence and advanced analytics in all areas of retail. Shopping assistants in the form of chatbots will motivate customers and turn shopping into an experience. Walmart took a big step towards conversational commerce in 2023 with its text-to-shop project. Customers receive personalized shopping suggestions, recipes, or ingredient lists via text message. Value creation in retail and new business models are strongly influenced by AI. The more conversational commerce grows, the more efficiently prices, product ranges, discount campaigns, and advertising can be placed. How does this work? Collected data is evaluated in real time to optimize the customer journey.

Experts report that retailers can optimize their EBIT margin by up to 1 percent by using AI. Retailers are expected to unlock up to 20 percent efficiency gains through AI in the coming years. Virtual fitting rooms will significantly reduce the carbon footprint in the metaverse while innovatively changing the shopping experience.

Let’s start with the concept of the digital twin in retail. This is the creation of a virtual representation of a physical store that uses real-time data to analyze and improve operations. A digital twin allows retailers to simulate different scenarios to understand the impact of changes in layout or operations without having to physically implement them.

Geofencing is another technology that is gaining importance in the retail industry. By creating virtual boundaries around a geographical location, retailers can automatically trigger specific actions when a customer enters or leaves these boundaries using a smartphone. For example, a geofence can be used to send personalized offers or discounts directly to customers’ smartphones when they enter a store. These targeted measures can increase customer loyalty and boost sales.

In the area of smart home integration, retailers are developing innovative ways to integrate their products and services into customers’ everyday lives. By connecting smart home devices with shopping platforms, customers can, for example, reorder household appliances directly from their smart home app or automatically update shopping lists based on their consumption. The seamless connection between online shopping and physical product use increases convenience for the customer, and at the same time, opens up new sales channels for retailers.

Machine vision in retail uses camera technologies and artificial intelligence to automatically recognize and interpret objects, people, and even their actions. In-store machine vision systems can be used to monitor stock levels, analyze customer behavior, and optimize product placement. In addition, machine vision enables more efficient and accurate checkout processing by automatically recognizing and calculating products. This leads to faster processing and improves customer satisfaction.

The challenges facing the retail industry have become clear in the previous sections. There are fewer and fewer stores and customers in city centers. Like the clothing sector, the food retail sector is undergoing the biggest transformation in its history. The profound transformation of retail is in full swing. It is no exaggeration to speak of disruptive events.

The future lies in mobile shopping. Users of mobile apps and devices are up to 40 percent more active when shopping. This applies to both the number of products and the frequency. Modern shopping apps are very popular. Advertising on paper is a thing of the past. The apps of German retailers record between 55 million downloads. Their appeal is primarily based on digital discount coupons.

However, this rapid development also presents retailers with new risks. Big data and cloud transformation mean that cyber security and data protection must be significantly improved. At the same time, retail companies need to significantly reduce their carbon footprint in order to appeal to young consumers. These challenges are compounded by the problem of supply chains. AI can help retail companies to emerge from these crises. However, the integration of AI solutions means renewing systems from the ground up.

Artificial intelligence plays a central role in retail. It enables personalized shopping experiences by analyzing customer preferences and creating tailored product recommendations. By using computer vision in retail, stores can observe and analyze customer behavior in real time, which enables a targeted design of sales areas and a better customer approach.

Facility management in retail also benefits from these technological advances. Sensors and IoT devices continuously monitor a store’s infrastructure, making maintenance and operations more efficient and cost-effective. Another innovative approach is the Retail Digital Twin, which creates digital replicas of physical retail stores. These digital twins make it possible to test different scenarios and carry out optimizations before implementing them in the real world.

Efficient inventory management in retail is a key factor for success. By using retail big data, retailers can better manage their stock levels, optimize reorders, and avoid shortages. Machine learning in retail helps to analyze sales data and make precise forecasts about demand. These predictions support planning and help to ensure that the right products are always available in the right quantities.

The Internet of Things in retail connects various devices and systems to create a seamless shopping experience. From smart shelves that automatically monitor stock levels, to connected checkout systems that reduce waiting times, IoT solutions contribute to efficiency and customer satisfaction. Artificial intelligence in retail also supports the automation of routine tasks and improves decision-making by gaining valuable insights from big data.

Overall, these technologies offer a vision for retail that is characterized by efficiency, personalization, and an improved customer experience. Through the use of artificial intelligence, computer vision, digital facility management, digital twins, improved inventory management, big data, machine learning, and the Internet of Things, retailers can optimize their processes, reduce costs, and increase customer satisfaction. These innovations enable retailers to meet the challenges of the future, and at the same time, take advantage of new opportunities.