The Candid Voice in Retail Technology: Objective Insights, Pragmatic Advice

Inventory Management: The Biggest Immediate Opportunity For IoT

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While it’s tempting to treat the Internet of Things as a bright shiny object that can be used to mystify and delight consumers, its real value is in improving the quality and efficiency of inventory management.

The Omnichannel fulfillment revolution has created tremendous profit leakage for retail enterprises. Big box apparel retailers particularly find their employees wandering the selling floor looking for product that has been promised to a customer, either from another store or from a digital order.

A sidelight of the Omnichannel revolution is the introduction of “BORIS” – Buy online, return in store. In traditional retailing, returns weren’t a terrible problem. The merchandise was returned to the place it was bought, and store employees put the product back in stock. As the percentage of apparel sales in particular consummated on line continues to rise, return rates are skyrocketing. Consider that in direct-to-consumer retailers typically experience a 25-30% return rate: more than triple the return rates of brick and mortar retailers.

Also consider that in an era of localized assortment, the returned merchandise can easily be dropped off at a store that doesn’t even carry it! What motivation do store associates have to process the return, and how many retailers have clear processes and incentives in place to do so? Often, the answer is “none.” The product ends up languishing in a bag on a shelf in the back room, neither saleable nor unsaleable… just in limbo.

In our most recent benchmark report, “The Internet Of Things: Identifying REAL Benefits,” fully 98% of Retail Winners (those whose comparable sales outperform the industry) cite “Inventory management across the enterprise” as a very important capability driven by the IoT. And 45% of those same Retail Winners cite “pressure to cut operational costs” as a top-three business challenge.

In truth, the combination of poor visibility and lost inventory accuracy doesn’t just lead to profit leakage, it also leads to lower turn and larger working capital requirements. When 30% of your inventory is “somewhere” that you can’t identify, the most expedient solution is to buy more next time to create safety stock across the enterprise. This is why using the IoT to find and create alerts around “dead” merchandise is so important.

An ancillary value to using the IoT to manage inventory rather than customers is it avoids an important issue: privacy concerns. While it’s tempting to use various tracking technologies to deliver personalized offerings and make store layouts more efficient, using these technologies without explicit permission can be a retailer mind field. As we said in our benchmark report:

“We have seen no definitive data indicating that there’s a large generational disparity in the desire for privacy. We know that Baby Boomers are most distrustful around privacy intrusions, but there have been studies indicating that Millennials are only marginally less distrustful.

We have come to the conclusion that retailers must tread lightly.”

The day may indeed come when both the industry and consumers are ready, and able to track effectively. In the meanwhile, it makes far more sense for retailers to capture the somewhat low-hanging fruit of poor inventory visibility and accuracy with the IoT. This will help retailers gain knowledge of how to best use the IoT, get used to managing the vast amount of data that it generates, and prepare for future projects.

Inventory management is, indeed, the biggest immediate opportunity for the IoT!


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Articles & Opinions November 14, 2017
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