While the financial sector has been successfully using blockchain applications in several ways, researchers in other industries have also been looking for ways to utilize the technology. The tech community worldwide is very optimistic about blockchain technology as it provides a wide range of opportunities and experts believe that the adoption of Blockchain in retail is set to revolutionize the retail industry.
Retail companies have seen increased demand and consumers have experienced better quality products due to competition. However, despite these advantages, technological advancements have resulted in various challenges in the retail supply chain. Therefore, as retailers increasingly shift to an online-based model, they must adopt a system that helps solve age-old challenges. Such a solution is Blockchain in retail.
However, before implementing Blockchain, retail industries must ask themselves whether they need Blockchain Technology.
Is The application of Blockchain in Retail necessary?
In reality, the retail industry has been performing exceptionally well in recent years compared to other sectors. According to Statista, the global retail market generated nearly 25 trillion US dollars, with a forecast to reach close to 27 trillion US dollars by 2022. However, despite the positive projection in sales, the industry still deals with many internal issues that need to be addressed. Hence the reason why this industry requires change such as a blockchain system. Below are some of the issues facing the retail industry.
Some of the challenges in the retail industry
Constantly changing customer expectations
The retail industry faces a lot of volatility with regard to consumer expectations. Consumer expectations seem to change quite rapidly, and the current retail space does not have the necessary systems to keep up with this change. There are just too many elements and variables that come into play when retail companies try to find out the reason for the change.
Therefore, the retail space requires an intelligent system that is efficient enough to keep track of the changes and help retailers draw valuable insights from consumer trends.
Poor inventory management
Currently, most of the inventory management systems are centralized. As such, stakeholders involved in the supply chain store data in two significant ways: one, on personal systems where the data is inaccessible to outside parties, and second on centralized servers such as cloud platforms which are vulnerable to attacks.
Therefore, keeping track of products internally and on the supply chain becomes challenging. This raises the need for an innovative solution to enhance the current inventory processes.
Regulatory compliance and complicated contracts
Traditional retail processes often require paper agreements to settle transactions. Various complicated contracts, such as bills, sale agreements, and receipts, to mention a few, must be physically signed by stakeholders in the retail process. In most cases, this process takes long periods causing delays in the retail supply chain.
Fraud and counterfeit goods
One of the most significant retail industry issues is the increasing number of fraud cases and counterfeit goods in the supply chain. The current retail process lacks a system that allows consumers to confirm the authenticity of a product. Moreover, it also lacks a mechanism to help retailers keep track of their products across the supply chain.
Consequently, this shatters the reputation of retail companies and exposes retail companies to internal fraud activities.
Cyber-attacks and security breaches
Most retail companies store their customers’ data on the cloud, a client-server networking model. Since cloud storage is centralized, it acts as a single point of failure vulnerable to cyber-attacks. Therefore, it is almost effortless for malicious attackers to hack the servers and manipulate their data.
Furthermore, as retail companies store financial records on the cloud, attacks on the data would result in substantial revenue losses. More so, it will also mean a loss of consumers’ trust and a poor impression of the retail brand.
Conversation fragmentation in retail companies
The retail supply chain is complex, with lots of divisions put in place. Therefore, maintaining operations and management in the supply chain through internal communication is challenging and almost impossible in some instances. The lack of communication between divisions leads to disruption in business processes and inferior product and process delivery, reducing customer satisfaction. This may result in a loss of customers as well as a lot of revenue.
What benefits does Blockchain Technology offer the retail industry?
According to Lexology, Blockchain can be described as a digital, decentralized, and distributed ledger that provides a way for information to be recorded, shared and maintained by a peer-to-peer community. In the retail industry, blockchain technology helps retailers better track the origin of products, provides them with better control over the safety of their products and also prevents fraud and counterfeit goods, among other applications.
Integrating blockchain technology with the retail industry can soon help overcome most of the barriers. Here are some of the benefits of integrating Blockchain into the retail sector:
Improves retailer’s ability to meet customer demands
The transparent and immutable nature of blockchain technology ensures accurate data capture at every stage of customer interaction. This provides retailers with an accurate database that can be used to improve qualitative analysis and customer modelling. Hence, retailers can understand how each product performs in different parameters and how their consumers feel about the product.
As a result, retailers can personalize products and services depending on a specific client base, thereby ensuring high customer satisfaction. Additionally, with the help of other technologies like AI-powered recommendation systems, retailers would automatically identify consumer needs and advertise highly tailored offers to them leading to an increase in revenue.
Proper inventory management
Blockchain technology brings all the retail data into one data platform. This provides a single source of data and utilizes smart contracts to enable the automatic execution of payments and orders. This ensures that retailers are always aware of the inventory they have and what they require. Blockchain in inventory management increases efficiency and permits accurate forecasting, prevents over-ordering, facilitates automated ordering and minimizes lost sales due to stock-out.
With the integration of other technologies like RFID tags, retailers can assign products unique addresses on the Blockchain. Therefore, retailers can track products in a warehouse for effective stocktaking and delivery processes.
Improves compliance management through Smart Contracts
In a video by Simply Explained (below), smart contracts can be viewed as tiny computer programs stored inside a blockchain. Smart contracts are just like contracts in the real world; the only difference is that they are digital. These types of contracts allow the computer programs to execute automatically when certain conditions are met.
In the retail industry, smart contracts provide a wide range of automation in several internal operations like billing, supply chain management and inventory management. These contracts help automate online and offline transactions. Thereby saving time and money by eliminating intermediaries who charge extra fees to authenticate and execute transactions in the supply chain.
Furthermore, since smart contracts are stored on the Blockchain, companies can access all operational and transaction history. This significantly reduces the amount of money spent on auditing and accounting as the data is immutable and the accounting process is automated.
Better security and customer identity management
One of the core features of Blockchain is immutability. This means that it is nearly impossible to alter the Blockchain without detection. Data stored on the blockchain ledger can only be accessed by people who have the exact private cryptographic keys. With Blockchain, consumers also have control of the level of information they want to share with retailers. This way, consumers are aware of who needs their data, and retailers are confident the data is secure. Creating a win-win situation for retailers and consumers.
Moreover, Blockchain provides its user with unique identification numbers known as addresses. These addresses help maintain anonymity in the chain as they cannot be traced back to a consumer or retail company. In the case that data is leaked accidentally, the data is of no use to third parties or malicious actors as it cannot be traced to any party in the supply chain.
Blockchain transforms communication in the retail industry
Blockchain technology is also distributed, meaning that all participating nodes can access any ledger data with the correct authentication keys. Additional application of smart contracts makes the transactions automatic and trustworthy as they are immutable. Therefore, retail operations throughout the supply chain can be initiated and verified without any human assistance. Besides, Blockchain is a transparent ledger, so all stakeholders have to do is track an operation once it has been initiated.
Provides product provenance and tracking
At present, retail companies do not have any system that provides consumers with sufficient data on a product. Therefore, consumers are very sceptical about what they purchase. Using blockchain technology, retailers can offer provenance as consumers have access to the entire supply chain information, from the supplier to the retail shop. Additionally, Blockchain may provide consumers with information on the manufacturing process of a product. This enhances consumer confidence and increases customers for retail companies.
Real-world use cases of Blockchain in retail supply chains
Dedicated startup retail companies are, without a doubt, in their early stages and small in number, such as OpenBazaar. However, there are also large retail companies that have implemented blockchain technology into their operations. Such companies are Walmart, Alibaba, Carrefour, Amazon, and Target, to mention a few.
Below is a list of retail companies using blockchain technology:
Walmart, in partnership with IBM, has been at the forefront of blockchain applications in retail. The retail giant has already deployed two successful proof-of-concept projects in their supply chain using Blockchain. Currently, Walmart is still working on methods for food traceability using Blockchain. According to the Walmart technical team, Blockchain can improve food quality and avoid dangerous and costly outcomes.
Alibaba is using blockchain technology to increase the traceability of its products. According to Paypers, Alibaba has developed a cross-border e-commerce platform based on Blockchain, known as Koala. The platform aims to increase traceability by recording custom clearance processes, logistics details and product registration. They also aim to use the Koala product to track and fight counterfeit goods.
Carrefour has also implemented blockchain technology to help track products across its supply chain. After trying out a blockchain model in China, Carrefour reported a drastic increase in its sales. Currently, retail store is incorporating blockchain technology into their stores across the world.
OpemBazaar is a free e-commerce marketplace that connects buyers and sellers utilizing blockchain technology. It was one of the first blockchain retail startups that utilized blockchain technology as its primary model and platform. In OpenBazaar, there are no fees and the platform is governed by nodes participating in the network. Each user is in control of his store and private data.
Other than OpenBazaar, there are various other blockchain retail stores making great strides, such as Gamp, CyberMiles, Aventus, Steemit and Appii. These eCommerce platforms aim to create a truly decentralized peer-to-peer eCommerce ecosystem.
The future of the retail industry
According to NewsBTC, Blockchain in the retail industry will grow from 80 million to around 2.3 billion US dollar sector or at a compound annual growth rate of 96.4 per cent by 2023. Taking all the benefits of Blockchain into account, change is definitely needed in the retail industry pipeline.
Blockchain in retail has the potential to change a lot of aspects such as increased speed, enhanced trust, cheaper costs, decentralization and peer-to-peer governance, to mention a few. Although the retail sector is quite strong already, it still deals with various challenges that could cause future problems.
Using blockchain technology can help the industry overcome these problems. Considering all the Blockchain possibilities, one can say without a doubt that Blockchain is certainly here to stay.