Retail environments have undergone significant change over the past two decades due to the introduction of information technologies, including the rise of online shopping. The Internet of Things has the potential to cause even greater disruption, but IoT can also provide traditional retailers with the tools to compete—and coexist—with the online retail world as “omni-channel” shopping erases the distinction between online and offline shops. The Internet of Things, for example, can guide the shopper to the item she has been looking at online when she enters the store and text her a personalized coupon to make the purchase in-store that day. IoT technology can also provide data to optimize store layouts, enable fully automated checkout, and fine-tune inventory management. These and other innovations could enable new business models and allow retailers to improve productivity, reduce costs, and raise sales. We estimate that these uses of IoT could have an economic impact of $410 billion to $1.2 trillion per year in 2025.

Widespread IoT adoption would affect players across the value chain, including employees and consumers. It has the potential to reduce the need for labor on the selling floor and at checkout, while raising the amount of revenue per customer (increasing the “shopping basket”) through customization and cross-channel (online/offline) selling. Consumers would gain more value through convenience, time saving, and more attractive customized promotions. To remain competitive, companies would need to master new ways of operating and learn to collaborate closely with technology and data vendors.

By adopting Internet of Things technologies, retailers can improve their economics by reducing shrinkage (losses due to theft by customers and employees), lowering inventory costs, raising productivity, and improving the customer experience.

Automated checkout.

The Internet of Things has the potential to completely automate checkout by scanning the contents of shopping carts and automatically charging the sale to the customer’s mobile payments account, allowing a consumer to walk out of a store without pausing. The system would read the electronic tags on the items in the cart and a checkout system would add up the prices of the items and relay the information to a wireless payment system that would debit the customer’s smartphone as it passes. This would lead to lower costs for the store as well as time savings for the consumer.

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Real-time in-store promotions

With beacons that connect to mobile phones to track customers within the store, retailers can launch custom promotions in real time. Once the customer is identified by his or her phone, algorithms can combine historical information about the customer’s preferences and lifestyle with current in-store location data to create unique offers. Over time, these systems can develop customer profiles that include not only data about what they have purchased, but also what they are willing to pay. Real-time advertisements and promotions based on this information can increase spending per customer, giving the advertiser a higher return on investment and raising productivity. In a theater or sports arena, patrons selected by particular criteria (such as frequent attendance) could be offered last-minute upgrades to unsold premium seats at discount prices.