Amazon, the rise of Digital in Retail and what this means for your Networks
Retailers believed that the trend for consumers buying at Amazon during the financial crash was a blip and that those shoppers would return. They haven’t, quite the opposite actually.
Our spending habits have changed and traditional retail is going through a hugely significant transformation
- In Q1, 2014, Amazon represented 2% of all retail spend (excluding groceries). The top 20 US retail stores represented 5% of all spend.
- In Q1, 2017, Amazon represented 5% of all retail spend (excluding groceries). And the top 20 US retail stores? Sub 2%
The good news is that consumers still prefer to pop in to a shop for the majority of products according to a study by PWC (24,471 people across 29 countries in 2017). This includes groceries, DIY, clothing, homeware, health and beauty. (It’s worth noting that Amazon and ‘online’ rules for books, music, movies, toys and videogames).
So what are Amazon doing to overturn this trend? They are opening and partnering with physical stores!
- Amazon Go – cashier-less stores in trial
- Amazon drop-off stores
- Partnership with Kohl to package and handle returns
Amazon has recognised the value of bricks and mortar in retail. These tech-savvy stores provide a mechanism to better engage with their shoppers, learn about customer behaviour and ultimately personalise the experience across any retail medium.
So you could argue that traditional retailers have an advantage over Amazon right now. They have their own web presence and consumers who know and want to engage with their brand, but digital is key to bringing this all together.
According to the report “Digital Trends in Retail 2017″, the number one priority for retailers this year is customer experience.
Nearly three-quarters (73%) of retail respondents said they “have a cross-team approach with the customer at the heart of all initiatives”.
And this has culminated in a number of the new services being deployed in stores such as video, customer wifi, mobile integration, digital signage. All of this with a focus on both improving and personalising the consumer’s experience.
One of particular interest, is retail’s version of lighthouses: Beacons. A shopper who has the retailer’s app installed and Bluetooth activated, will get a push notification should they step near the store.
Beacons enable retailers to gather intelligence regarding a specific customer, which provides the opportunity to promote targeted adverts to that person. Think the personalised adverts specifically for Tom Cruise’s eyes in Minority Report or emails from Amazon recommending certain products based on your purchasing history! All this fantastic intelligence, however, has to be sent somewhere for analysis (either the data centre or Google services) and can be considerable in both size and pressure to the network.
We have seen this problem first-hand. One of our customer’s was looking to use digital to better educate store assistants in the values of the company to provide a better consumer experience. The retailer produced a very smart, media rich and interactive application and quickly looked to deploy it in the distributed store. Can you guess what happened next? The network couldn’t adequately support the application. A training video took 18 minutes to load up that in turn deemed it unusable! This put significant pressure on the Network team to quickly find a solution, as significant investment had been made to produce the application.
This example, to the backdrop of Amazon’s success, demonstrates how the rise of digital is putting pressure on traditional networks. Millions is spent on development of applications, and networks are far too often an after-thought..
To add to the complexity, these services and applications are no longer being hosted in the data-center. The ultimate irony of retail; they are being built in Amazon (other Cloud offerings are available)!
So traffic is being sent from the store, to the data-center, to Amazon, back to the data-center, back to the store and finally to your customer. This seems wasteful!
Brands are struggling in pursuit of the utopian Omnichannel model; spending on development and applications has increased and yet infrastructure – and notably networks budgets – have remained the same.
Physical Store Infrastructure was required for:
- Point of Sale (POS) and print services.
Now it’s needed for:
- Customer Wifi, Beacons, video (interactive), mobile applications, digital signage, IoT, inventory tracking services, colleague services i.e. Office 365, breakout to cloud based services, interactive training and the list goes on…
Traditional networks are not designed to support these requirements. Traditional connectivity is expensive and doesn’t offer the agility required to meet the demand.
So rather than turning up the amount of MPLS, retail is increasingly using SD-WAN to provide very high quality application performance, eliminate the tromboning of traffic and most importantly, to improve customer experience.
- More high performing bandwidth:
In brief, SD-WAN enables intelligent bonding for multiple forms of connectivity to provide a large virtual pipe. This can include 4G for “pop-up stores/sites”, commodity broadband or simply augmenting your robust MPLS circuit. Commodity broadband is treated to give a “private-line-like” performance.
- Lower cost:
For the cost of your current 4mb/s MPLS circuit (that doesn’t meet the demands of your business), you can have a high performing 160mb/s circuit. Some Retailers are even ditching MPLS and moving to a dual broadband service as firewalling is baked into the solution.
Breakout locally from your store straight to where the application is hosted in the Cloud reducing the time/ cost of sending it via the data-center. Office 365 is another huge growth area in Retail, and this is also putting pressure on the network through to the DC and back to Microsoft. SD-WAN sends the traffic straight to the nearest Point of Presence for O365. Simple, fast and cheaper!
- Visibility (and the ability to do something about a problem!):
Everyone blames the network when the application doesn’t work (I know, I’ve been in it for 10 years). SD-WAN gives you visibility of how the applications are performing. Should the system recognise that a link is performing poorly, traffic will automatically be shifted to a better performing link meaning that networks don’t get blamed as much, and (at a risk of hammering this point home) the customer experience is improved!
So, what can be said for the aforementioned retailer struggling to maximise on their application investment? The network team had to become innovative with a limited budget (excluding MPLS on both counts!) In deploying SD-WAN with an additional consumer broadband circuit, they reduced load times for their training video from 18 minutes to sub 10 seconds. You read that right too…
SD-WAN technology allows retail to fully embrace a Digital strategy to better serve consumers. It provides an agile platform with tremendous flexibility for the future. Finishing with a tawdry but important comment: the only thing “legacy” about this technology is the budget.
A little bit about us and what you can do next:
My thanks for taking the time to read this blog (congratulations if you made it to the end). We at Gyrocom focus on connectivity intelligence and have worked in the retail space for the past 10 years. Max Dudani (who heads up our SD-WAN solution team) takes his “Max and Paddy Workshop” across the UK providing insight into the market and how we solve retail specific challenges with SD-WAN. If you would be interested in attending one of these informal events, please get in touch with us (firstname.lastname@example.org or email@example.com). They are informative, engaging and provide opportunity to meet like-minded retailers.
Business Services Consultant at Gyrocom - Connecting Companies to their data, their applications & their customers.