How cloud is transforming retail

Ian Rogers

The retail sector is experiencing a period of massive change on a scale not seen in at least a decade. Traditional lines of competition are blurred and the barriers to entry significantly reduced. Competition is no longer constrained by traditional rivals and the main differentiators of price, quality, brand, and location. The rise of new consumer technology has enabled competition from manufacturers, small online startups, and even long distance online retailers.

Today, customers are demanding one-on-one intimacy and a convenient, personal, consistent experience across all channels—one that always delivers on the brand promise. This represents a huge challenge for retail CIO’s as traditionally the retail industry is one of the lowest IT investors, leading to a mishmash of old technology. Often, 70% of a retailer’s IT budget is consumed just to maintain current infrastructure.

How does the CIO build a responsive, agile-enabling platform on a tight budget? By moving to the cloud, IT can become more agile and cost effective, shifting Opex funds to Capex. The cloud enables this by:

  1. Reducing the cost of servers, software licenses, maintenance fees, IT labor, data center space, and power consumption.
  2. Enabling faster deployment of new stores, domestically and internationally.
  3. Enabling the rollout of new services.

Reducing costs is achieved in cloud computing by moving the management, maintenance, housing of equipment, and upgrades to the cloud provider as part of a service at a flat or per-use fee model. This allows the retailer to reduce maintenance staff and focus on the core business. Costs are further reduced when using a pay per-use model, as system utilization rates of servers typically hover in the 5–20% range. This extra approximately 85% capacity is only required to support the peak trading period. As you can see from the chart, retailers have huge peaks generally during holidays.

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Enables faster deployment of new stores, domestically and international. A cloud-based infrastructure enables quicker new store rollouts by reducing the complexity of having hardware in each physical location and the associated costs of purchasing, shipping, installation, maintaining, and repairing, while increasing the speed of the initial deployment and future updates. From an international perspective this is a huge win as it reduces the requirement to have physical IT support overseas, and enables intellectual property to be maintained in the home country. The downside is that bandwidth of the communication connection often has to be significantly increased. It is not unusual for retailers to have extremely low connectivity speeds—often lower than the average North American has with their own home internet.

Enables the rollout of new services. The cloud platform unlocks the ability to create centralized services that the numerous disparate systems can call upon for data as required. Due to the way most retail systems have evolved over the years it is not uncommon for the same data to be maintained in multiple databases. For example retail product pricing data is stored in multiple systems in a retailer’s ecosystem—one source for POS, another for in-store price check, digital commerce, DC, etc., meaning all these sources need to be updated. Building out various cloud services that can be accessed by the different systems resolves operation problems such as various databases being out of sync due to updating timing differences or failed updates, reduced time and complexity in up dating all the systems, and reduces data storage requirements. These new services also enable new capabilities, such as real-time data acquisition for analytics, cross channel views of customer information, and inventory position.

Additional opportunities include:

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As the cloud becomes more mainstream, the question is not whether to go to the cloud or not, but which cloud model to use–private, public, or a hybrid. Many retailers will opt for the hybrid model as it leverages the security benefits of a private cloud and the cost savings of a public cloud. This approach is more complicated due to determining which applications and data go where, how to share between the two clouds, and other technical challenges.

Retail organizations that don’t include cloud in their IT strategy risk falling behind competitors that are lowering costs, improving productivity and efficiency, increasing speed and agility to market, and providing new business capabilities. Whether you are looking for ways to streamline existing initiatives or just getting started, the first step is evaluating your existing architecture, processes, and organization and developing a strategy for implementing cloud technologies. Then you can begin to take advantage of everything cloud has to offer for your retail business.

About ianr2013
Ian Rogers leads the Retail Practice at Slalom Consulting and is an accomplished business leader with 20+ years in Retail/Supply Chain Management, Portfolio, Program, and Project Management. Ian’s expertise comes from working in multiple countries (including Canada, UK, US, and China) and in multiple sectors including manufacturing and multi-channel retail (office products, mass merchandising, and lifestyle brands). Over the years Ian has worked with Fortune 500 companies as both a senior line leader and as a management consultant in Supply Chain and IT. This broad-based experience enables him to take a holistic view, thereby understanding the potential impact changes in one area of the business will have on other areas.

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