How cloud is disrupting the retail sector

Hybrid Cloud is Transforming the Retail Market

Traditionally retailers have concentrated on selling a commodity rather than solving a problem for a consumer. Buying an electric drill is not driven by the desire to own a power tool, but because the buyer wants to make a hole in something. This realisation has been accompanied by the disruptive forces of the convenience of online shopping, subscription services and manufacturers being able to directly sell to consumers. These challenges are in addition to ensuring customer retention, supporting seasonal or even daily spikes in business and managing the cost of IT, logistics and the point of sale.

Retailers must be agile in responding to evolving demands of customer experience while ensuring security and efficiency. In the face of increased and diverse competition, technology-driven innovation must provide high levels of scalability, performance, and availability – while maintaining control over cost and compliance. New capabilities need to be developed, tested and launched rapidly and with little upfront investment in infrastructure. At the same time, investment in core data applications must be protected.

For many large retailers, their core systems represent years of development and corporate knowledge and as such as valuable differentiators. However, they also tend to be proprietary and very expensive to maintain and upgrade. Some organisations assume that migrating these systems to a public cloud is a risk that could damage their business.

Hybrid clouds enable companies to run workloads in the most appropriate environment. Transactional processing of credit card payments may be kept in a PCI-compliant private cloud, while web-facing systems of engagement are better suited to public clouds.

With cloud-based services, retailers are able to scale operations fast without the overhead of traditional IT infrastructure. This supports rapid and efficient expansion into new markets as well as reacting to changing market conditions.

Challenges for CIO’s managing hybrid cloud deployments

Controlling cloud cost is often top of the list of challenges. The flexibility and easy accessibility that makes clouds attractive can lead to a loss of control of costs. Many businesses experience an increase in cloud computing spend by business departments independent of corporate IT budgets. For example, a project team could buy compute power simply by entering credit card information, so it’s important to consider the overall business spend as cloud computing becomes easier to access.

Security concerns are common in hybrid cloud implementations as there is a need to manage separate environments. A primary reason for using a private cloud is to protect sensitive data. Integration between private and public clouds in a hybrid environment means that transfer of data between clouds or access to data from one cloud to another must be carefully planned, governed and enforced.

Lack of resources can also inhibit cloud adoption, but hybrid cloud architectures ultimately release valuable IT staff from the burden of maintenance and operations. Implementing hybrid clouds allow organisations to scale for seasonal spikes and create a more customised customer experience.

The 5G impact and the use of hybrid cloud

The speed of 5G will support real-time capture and analysis of high volumes of data and consequently enable retailers to act on this intelligence. With 5G, the in-store experience can be influenced by online activity. The combination of cloud, the internet of things (IoT), 5G and mobile technology will give retailers the ability to react to who a client is, as well as where the client is.

Many retailers suffer from ‘showrooming’.  A website can’t provide the feel of dress fabric, the exact fit of a pair of shoes or the ergonomics of a gaming console. As a result, customers do some research online and then use a physical store to come to a purchasing decision – but then return to an online-only competitor to buy the product. To combat this, a ‘bricks and mortar’ retailer can use the big data analytics capability of cloud computing to build a profile of a client’s product interest based on social media and web activity.

A mobile application over 5G can alert the retailer when the client enters the store to get a physical experience of the product. When the customer is standing next to the preferred product, a real-time recommendation – and even a personalised discount – can be made to encourage an in-the-moment purchase.

The speed of 5G communication also has a far-reaching impact on inventory management where other stores can be used as distribution centres based on distance from the consumer. External sources of cloud-based data can also be integrated into the logistics process like weather or road conditions.

Rationalising cloud deployments with Multi-Cloud

As well as the hybrid approach that combines private and public clouds, there is a growing trend towards multi-cloud implementations where more than one public cloud will be used. Few organisations will use one public cloud exclusively. In addition, the public cloud hyperscale providers don’t offer some of the most popular platforms used by retail core applications, such as IBM Power Systems,  IBM i and AIX.

Retailers need to enable workloads to run on the most appropriate platform available.

Added to this, retailers will not only use cloud providers for Infrastructure as a Service (IaaS) or even Platform as a Service (PaaS). Many niche business applications will be offered in a Software as a Service (SaaS) model – for example, software that plans how merchandise should be displayed on shelves, based on sales, demographic and seasonal data.

Then you have Business Process as a Service (BPaaS) providers who offer cloud-based services for managing an entire business process such as invoice processing. Like many other sectors, retailers are re-evaluating what gives them a perpetual edge over their competition – and finding cloud-based alternatives for non-differentiating processes.

Supporting omnichannel and the expanding mobile commerce space

Customers want a seamless experience across all channels – the same product assortment in-store as online, the same pricing promotions online as in-store. They expect their loyalty to be rewarded regardless of the purchasing channel used.

With customers making more use of social media recommendations, comparison websites and a “shop anywhere, anytime” paradigm, retailers must turn to big data analytics to better understand what customers want. This requires a vast amount of data and massive compute power to return findings in time to act on them. This is where cloud excels: pay as you go GPU-accelerated processing, elastic storage, and pre-build machine learning models.

Current trends across the retail hybrid cloud landscape

Retailers, like all other vertical markets, range across a broad range of cloud maturity. For some, it is a huge benefit just to have the capability of scaling up for seasonal peaks (and scaling down afterwards). Many businesses are becoming more comfortable with the idea that workloads can be spread across platforms, from on-premise to private clouds to public clouds and SaaS. Of course, security and cost control are critical as the hybrid becomes more complex.

Once the first step is taken on the journey to a hybrid cloud, the opportunities are vast. Artificial intelligence models can analyse customers social media comments so that complaints can be followed up quickly. Store layout can be redesigned based on aisle analytics based on IoT sensors.

Robot employees may be a leap too far, but it is increasingly common for conversational assistants, or chatbots, to deliver advice on a website. Smart shelves that can sense the type and quantity of merchandise sitting on them and that can automatically request re-stocking may seem far-fetched, but automated check-out combining IoT sensors and mobile payment applications is not out of the question.

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In many ways, the use of hybrid clouds in retail is similar to other sectors. Pay for what you use, the ability to scale up and down quickly, ease of creating temporary test environments, availability of almost limitless storage, high availability – with the security and compliance provided by private platforms where necessary.

However, more than any other market, retailers are aware of the direct impact of client experience on profitability – and of the direct impact of IT strategy on client experience.

What Next?

Read our case studies to learn more about what CSI can deliver for clients in the retail space – or simply contact us to discuss the topics covered in our blog.