How Blockchain technology is disrupting the retail industry

Here, we’ll discuss how blockchain technology is disrupting the retail industry by delivering better security, visibility and improved transparency.

The retail industry is focused on customer experience and technologies such as artificial intelligence to conversational bots to future payments are revolutionizing that domain.

But what about Blockchain?

While blockchain was developed a decade ago, it has been compared with the internet in terms of the impact it could have on business and society. Michael Carney, principal at venture capital firm Upfront Ventures, says blockchain and decentralized systems give retailers an opportunity to drive efficiency and establish an advantage.

If you are a retailer and are thinking about implementing blockchain, you have to ask yourself a few questions –

• Where and how am I using data in my business?
• Who controls that data and what risks am I undertaking in its storage and utilization?
• What are my highest-leverage business problems that could benefit from greater trust, transparency and collaboration between stakeholders?
• What are my internal capabilities to test and implement these emerging technologies?
• If inadequate, what is my plan to bring in additional expertise?

How does Blockchain Work?

Blockchain is a digital record of data, value and transactions that are chronologically linked. Using distributed ledger technology, all the data is available in real time, transparently across the network with full access to see the full history of a product and its components. These blocks cannot be edited or deleted in any way, thus making the technology difficult to hack and therefore a secure alternative to the current digital data.

Blockchain can record any sort of data including deeds, intellectual property, art and contracts whilst minimizing paperwork and speeding up transactions, in turn lowering costs.

At the face of it, the obvious benefits of blockchain is its ability to enable better trust, transparency and collaboration across stakeholders that would otherwise be difficult to achieve. Additionally, using “smart contracts” offers a never-before-possible means of automating and auditing transactions. For retail, these benefits can be realized from vendors to employees to customers.

But aren’t audit trails and information available in existing information systems?

Yes, it is, but the question remains about data integrity, transparency and authenticity.

11 ways in which blockchain is disrupting the retail industry

1. Tracking source and authentication of ingredients:

With the historical trace data that blockchain provides, customers can see information from every point in the supply chain. For example, if a cafe was selling a coffee brew, the blockchain data would not only tell you exactly where and when that batch of beans were produced and by whom, but the data from the individual batch can also be tracked. This means the retailer can ensure the coffee shop is using fair trade coffee beans and sugar and that these have been ethically sourced, and also that the products are fresh.

In recent years more focus has been increasingly put on customers purchasing ethically sourced products, knowing where they have come from and also how they were made. Blockchain will allow complete transparency between retailers and customers giving the retailer the ability to prove that products are responsibly sourced, ethical and will add a new level of trust to the brand-customer relationship.

2. Certifying brands or conducting brand audits:

Counterfeit products have always been an issue for popular fashion houses, with convincing knockoffs available at far lower prices, diminishing the exclusivity of the items. Data tracked from the sourcing of materials to customer purchase will guarantee customers that what they’re buying is a genuine and confirm authenticity.

Blockchain will also help curb theft of expensive items and resale of stolen goods through tracking the ownership of the items.

Fashion brand Babyghost is already taking these steps by delivering a range of clothes incorporating NFC tags which will be verified at every touchpoint using blockchain technology.

3. Logistics, supply chain & inventory management:

Supply chains today are not linear anymore and have multiple layers. As the complexity increases, there’s an obvious opportunity to increase efficiency through better collaboration and transparency between multiple stakeholders including manufacturers, distributors, insurers, importers, shipping carriers, wholesalers and retailers. Knowing in real-time the exact source, location and state of all inventory in the system could be a game-changer for most businesses, particularly those dealing in perishable or luxury goods.

This could also be used to monitor the health and safety requirements and contamination of food products by tracking temperature and air condition at all times through the shipping journey. This reduces epidemics caused by contamination as seen in Europe’s egg crisis. By tracking the origin of all eggs, supermarkets would have quickly been able to tell which items contained the contaminated eggs from a farm in Holland and dispose of them accordingly. That is especially transformative for categories that deal with counterfeiting or questions about social responsibility in sourcing and manufacturing. Think coffee production! Layering on other technologies such as the Internet of Things (IoT) can further supercharge these impacts.

The world’s leading retailers and food companies are already exploring how blockchain technology can be utilized to ensure the food supply chain is safer which will result in less food waste, not only helping the environment but also company profits.

4. Payments and e-commerce:

Blockchain is great for its use in tracking transactions and ownership of cryptocurrencies like Bitcoin and has been successful in creating a secure and trusted system. These cryptocurrencies are sometimes called tokens which is a means of exchanging value or data. The widely adopted use case of these tokens is for payments, especially where current day financial infrastructure is either expensive or inefficient. Think cross-border payments and micro-payments.

Blockchain will not only assist retailers to move into accepting cryptocurrency payments but the digital records created will also help streamline the returns and refunds process. Large purchases like cars, houses and other high ticket items can also have their ownership tracked and verified to reduce the resale of stolen goods.

The ability to trace the flow of tokens on blockchain eases accounting and finance burdens on organizations when applied to areas such as supply chain and inventory management. Smart contracts can ease collection and enforce transactions based on rules for faster collection, payment, automated refunds, insurance settlements and payout.

Global companies including online travel giant Expedia are already accepting Bitcoin payments for hotels. E-commerce platform Shopify also allows its users to take bitcoin payments.

5. Proof of ownership:

Another key use case for many retailers will be proof of provenance or the ability to prove who made, owned or had contact with certain goods. This will increase their value and ensure the buyers know exactly what they are purchasing beyond what they can see.

In the future this will be a key source in dating antiques, knowing items history and tracking materials and origin of previously owned items. An example of this is Ascribe, a company that uses the blockchain to prove creator ownership. Artists can use the system to issue digital artworks and to register themselves as the creators. It can also track sales of the artwork, meaning that both creator and owner are permanently recorded. Ascribe can even be used to transfer intellectual property if desired, from the right to sell work on the artist’s behalf or display rights for a certain period of time.

For independent retailers, this type of security could be hugely valuable in reducing concerns over ownership and potentially even preventing copyright claims.

6. Loyalty and rewards:

Tokenizing loyalty programs is an obvious use case. Most loyalty programs today aren’t necessarily improving customer experiences. Tokens can dramatically simplify the tracking and managing of loyalty points, rewards cards and paper or digital coupons. Additionally, blockchain offers real-time liquidity, making points more easily swappable between consumers and across retailers. Retailers will still be able to reap the customer insight benefits but in a more consumer-friendly way.

Retailers who choose to adopt blockchain could expand loyalty partnerships without adding complexity, driving increased brand awareness and program adoption while making it possible for smaller retailers to compete effectively with larger competitors. A welcome side effect for many program operators will be a reduction in the balance-sheet liabilities associated with unredeemed points and rewards.

7. Advertising and consumer data:

Hello, GDPR! Consumers have had enough with abuses of their personal data and regulators are beginning to ask hard questions about data security. Blockchain is changing this by providing the users complete power over their data (control who and how the data is used) and what personalized advertising to receive, enabling collaboration between stakeholders and reducing fraud. For retailers who collect and retain consumer data today, its no longer a choice with GDPR to embrace open and transparent blockchain-based models.

8. Targeted recall using provenance:

Product recalls have the potential to cost companies millions of dollars. According to an October 2011 survey of Grocery Manufacturers Association members conducted by Ernst and Young, over 81 percent of respondents described the financial consequences of a recall as either “significant or catastrophic”. Blockchain allows for easier identification of unsafe or defective products and the tracking of the status of any product recalls.

Blockchain can help companies during a recall by automating product recall insurance claims through “smart contracts” and also by helping identify the right batch of products that were defective to take corrective action.

9. Sharing economy e-commerce companies:

Sharing economy is a trendy space for e-commerce tech companies today. Within this domain, it is becoming popular to allow consumers to participate in a wish list for gifting. Blockchain provides the transparency and audit trails to allow for the cooperative purchase of expensive consumer goods.

10. Know Your Supplier:

This is simply an adaptation of KYC for Banking sector where the enterprise uses external information to store and verify the stakeholder details, which in this case is the supplier. This ensures secure financial and good transactions.

11. Managing consumer product warranties:

Maintaining digital records of purchases and keeping track of product warranties is a mundane administrative task. With blockchain, the full product warranty details are available across the network of the retailer, service centers and third-party agencies.

A simple decision coefficient for blockchain implementation for CIOs
If you are in IT at a retail business, your implementation strategy should be based on the evaluation of the value to the organization (V) to use case complexity (C) ratio. I’d like to call this the benefit coefficient (V/C).

V/C > 1 – Organizations should start where the benefit coefficient is greater than 1. This is a great starting point for businesses that are exploring. E.g. “know your supplier” programs.
V/C <1 – These are long-term projects where the value will take time to realize. E.g. blockchain for locating stolen products or improving the recall process.
V/C = 1 – This is where it is very easy to implement and the value is relatively less. This is also a great starting point for businesses to implement blockchain in their ecosystem and internalize the technology. E.g. keeping a digital record of consumer purchases and warranties or using blockchain to make the delivery process more secure and transparent.