Brick-and-mortar retailers have long favored highly visible investments, such as advertising or store design over spending hard-earned income on back-office information technology. In fact, the retail industry devotes only about 1.7% of revenue to IT. Compare that with banking, which spends about 6%.
Big-box and boutique retailers alike see that e-commerce competitors continue to use technology as a means to win on price and selection, and know their customers increasingly use smartphones in-store to compare prices or search for deals.
IBM’s latest Big Data-based retail forecast suggests that some brick-and-mortar retailers are turning the tide against showrooming, a trend in which consumers look at items in a store before ultimately buying them online, usually at lower prices. In order to remain competitive and press their advantage further, brick-and-mortar stores must look to the cloud computing revolution as a way to upgrade their technology without busting their budgets.
Perhaps most important, clouds offer retailers a way to explore the potential of big data analytics to understand their customers better. In order to compete with e-tailers, retailers are tapping social networks to learn what customers are saying about them and about their competitors. Weather data is being used to influence product purchasing decisions, and merchandise promotions are organized around social events.
In many cases, brick-and-mortar retailers are even finding new data sources. Some companies are tracking movement of customers within stores and analyzing how many stop at displays to improve the effectiveness of merchandising. Others are considering installing license-plate cameras in parking lots to find out which customer is about to walk into the store.
All of these innovations make use of massive amounts of data. A cloud based solution, with elastic storage, computing and analytics capability, can make it economically viable for retailers as they dabble with these nascent approaches.
Cloud computing involves a new way of thinking about data. In a cloud, a single server can host many virtual servers, slashing hardware costs. The virtual servers can scale on demand depending on the need for computer capacity. That’s very useful for retailers, whose businesses are notoriously seasonal. Automatically expanding capacity on Black Friday, for example, can reduce lines at checkout counters and ensure quick service.
Further, the retail industry is aided by thousands of specialty software programs that are designed for various niches and needs. The average retail chain uses about 450 such applications — far more than most other industries. Naturally, those software programs get heavy use at certain times while they are shut down at others.
For instance, Planogram software, which lays out how boxes and cans are displayed on shelves, may only run once per month. Order entry systems run during the day and in the evening when shoppers are in stores and online. Inventory replenishment systems run full bore overnight. Frequently, each system is operated by a different part of the corporate organization. Managers order capacity based on the maximum use they anticipate for the system, knowing that it’s hard to expand later because of the need to authorize new capital budgets.
The result is that retailers use only about 10% to 15% of the computer capacity in their data centers. Some 85% is sitting idle at any time. Huge economies of scale could be gained by using the same infrastructure across multiple applications in a cloud-computing architecture.
Companies can either build private clouds in their own data centers, purchase dedicated private clouds hosted by infrastructure providers, or they can move their data and applications to a public cloud used by several different companies and run by infrastructure specialists.
Many companies choose to do both by using a hybrid cloud solution with some applications in the retailers’ own data center and others in the public cloud. In a public cloud, retailers only pay for the capacity they use, just like buying electricity from a public utility. Further, many retail applications can also be rented on a monthly basis as software-as-a-service.
As mobile, social and ecommerce continue to explode in popularity, traditional brick-and-mortar retailers must understand and harness the benefits of cloud computing to optimize the in-store experience, market to the individual and maximize every sale. If they don’t, they risk falling behind their competition.
Vish Ganapathy is the Director and Chief Technologist for IBM’s Global Retail business, and has more than 22 years of consulting experience working with retailers worldwide. Ganapathy particularly focuses on bridging software applications and technology that can enable retailers to differentiate themselves in the marketplace.
