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Blockchain in Retail: 9 Practical Use Cases

  • 24 October 2018
  • Sam Mire

With market growth for the retail industry projected to sustain between 3.2% and 3.8% for the 2018 calendar year, retail as a whole would seemingly be far from needing life support. But there are significant challenges facing the retail sector that could determine which players become long-term beneficiaries of evolution and which fall off the map completely.

Online retailers were responsible for a significant portion of retail sale increases, which contributed 11% of the total increase in a one-month segment. With more than $447 million in mobile payments expected to be completed worldwide per annum, it’s critical that retailers adapt their systems to cater to the mobile and internet-based iterations of retail, which have proven immensely popular and will only continue to prove the preferred method of purchasing for most. Regardless of these adaptations, problems that have plagued retail for decades will persist, and new issues will arise due to the relatively new ways in which consumers purchase and acquire many of their products.

Blockchain technology is uniquely equipped to deal with the challenges facing retailers, from providing greater oversight for supply chain management to offering the provenance and proof-of-ethicality that so many consumers now demand, and more.

Blockchain in Retail - Practical use cases


Supply Chain/Inventory Oversight

Blockchain use cases in retail - Supply Chain/Inventory Oversight

Regardless of a retailer’s sub-sector, the ability to establish a more transparent supply chain for the customer has obvious benefits. The food retail industry highlights this value, however: the food traceability technology market is expected to grow at a rate of 8.7% annually, reaching a $14.1 billion valuation by 2020.

All retailers can benefit from better product provenance tools, as consumers are increasingly concerned with the origins of their things, both from an ethical and value-based standpoint. The ability to know, beyond a shadow of a doubt, that the item you are purchasing comes from a reliable source is reassuring, and also adds a layer of intrigue to any given purchase — now you know the product’s “story.” Beyond product losses and fraud prevention, transparency in retail supply chains via blockchain distributed ledger technology will give early adopters a competitive advantage, and will likely become the industry standard in the long run.

Companies Trying to Solve This Problem

  • Fr8 Network Working with retailers for more accurate shipping data on the blockchain
  • Transparency One – Blockchain based supply chain solutions

Accepting Crypto Payments

Blockchain use cases in retail - Accepting Crypto Payments

Since Overstock became the first major online retailer to accept Bitcoin as a form of payment in January 2014, momentum for cryptocurrency acceptance in retail has picked up. Since then, Expedia, Dish, Microsoft, and several others have begun to accept Bitcoin as a form of payment in some fashion. Overstock has brought in a reported $5 million per annum in Bitcoin payments since 2014, and as many as 100,000 merchants worldwide now accept the digital currency as tender.

However, this is a relative drop in the bucket considering the colossal scope of worldwide retail commerce. In other words, the vast majority of customers who could be incentivized to buy more, higher priced furnishings from crypto-accepting retailers remains largely untapped. There are admittedly hurdles, such as the inclination of crypto investors to hold onto the assets when the price is appreciating, but analysts point out that eventually spending those coins will be necessary to cement their real-world value. When that time comes, and even before it does, retailers who are willing to go out on a bit of a limb to cater to a demographic that is more comfortable dealing and purchasing directly in cryptocurrency could open themselves up to a new, fruitful revenue stream.

Companies Trying to Solve This Problem

  • CoinPaymentsPayment processor for crypto payments
  • Beam WalletFacilitating payment and rewards with mobile blockchain platform.

Customer Identity

Blockchain use cases in retail - Customer Identity

There are benefits to sharing our browsing and purchase data with retailers: 56% of consumers are willing to share data to receive faster and more convenient service, and 64% of consumers want personalized offers from retail brands. However, plenty of online shoppers aren’t comfortable sharing their shopping proclivities with retail giants, especially if they don’t see any direct benefit. The blockchain could serve as an easily accessible way for consumers to store and manage their retail-linked data, protecting it with permissions and sharing it only with retailers who convince them that sacrificing some measure of privacy is worth the payoff, whether financial or otherwise.

Companies Trying to Solve This Problem

  • Shopin  Shopper profile built on the blockchain.
  • IOTA – Blockchain solutions for IoT, Identity, and Ownership.

Taxation

Blockchain use cases in retail - Taxation

Sales tax avoidance by online retailers alone is worth an estimated $14.5 billion, which helps explain the hotly contested nature of recent legal decisions that allow states to collect sales tax from e-tailers doing business within their borders. The Supreme Court cited figures that stated that the lack of online sales taxation was costing states up to $33 billion annually, with these unrealized revenues undoubtedly constituting the primary reason the SCOTUS ruled the way it did.

With ambiguity removed and most states imposing felony charges for unpaid sales taxes of over $10,000, the focus must shift to compliance. The blockchain could help companies to easily transmit a record of their sales to tax authorities, absolving them of any liability that could arise from initial confusion in a recently altered and evolving taxation landscape. Innovations such as digital invoices, sales receipts, and other non-duplicable, verifiable retail documents will reduce charges of fraud and potentially allow consumers a simpler means to attain tax refunds from their retail purchases.

Companies Trying to Solve This Problem

  • TencentAssisting governments with tax enforcement.

Preventing Fraud and Counterfeit Goods

Blockchain use cases in retail - Preventing Fraud and Counterfeit Goods

Retail losses due to fraud in 2017 were estimated to incur at least $23 billion in losses. High-end retailers average 20–30% greater losses, due to especially high margins and lenient return policies. However, the cost of counterfeiting and fraud extends beyond this dollar cost — it compromises a brand’s integrity and reputation. The prevalence of retail fraud is rising, with 1.58% of retailers’ revenues in 2017 coming from fraudulent transactions, an uptick from 1.47% in 2016. And retailers estimate that 11% of their returns will be fraudulent in some way. Blockchain technology and its ability to assign unique identifiers to each product is expected to provide unprecedented security in identifying counterfeit items in the supply chain, as well as immediately and cheaply rejecting fraudulent returns.

Companies Trying to Solve This Problem

  • BlockVerify – Reducing counterfeit goods through blockchain provenance.

Consumer Demand Contracts

Blockchain use cases in retail - Consumer Demand Contracts

Data shows us that consumers value convenience more than ever. 51% of Americans prefer to shop online, including 67% of millennials, and one-third of retailers stated that “targeting and personalization” was among their top three priorities for the year ahead. All of these trends help illustrate the untapped potential of consumer demand contracts. If they can swing it, consumers don’t want to drive around town or surf the web to fulfill their various retail needs. In the future, it’s likely that retailers will cater even more to the consumer to maintain a competitive edge.

Through smart contract technology, consumers may be able to lay out a project — say, back to school shopping or decorating a renovated living room — and retailers would be able to bid to provide individual elements of the project. Smart contracts would handle the payment and shipment logistics for each retailer, who would have to fulfill specifications to the T in order to fulfill the contract. This consumer-first paradigm is a logical progression in a retail marketplace where shoppers are harder to please than they have ever been.

Companies Trying to Solve This Problem


Product Contracts

Blockchain use cases in retail - Product Contracts

In one survey, nearly 75% of retail procurement executives stated that, in an effort to increase their profits, they would rely upon supply chain technology to drive greater supplier efficiency. 62% added that they are flexible in adopting new purchasing and logistical solutions, a response that opens the window for the blockchain to help solve massive inefficiency in retail supply chains. Because the cost of supply chain operations accounts for a substantial portion of the retail price, “a reduction in supply chain costs from 9% to 4% (or from 12% to 7%) will double net profits,” according to the Logistics Bureau.

One proposed solution for incentivizing greater efficiency among suppliers is smart contract-facilitated product contracts, which provide payment promises for the fulfillment of supply chain-related milestones. These product contracts would provide suppliers with tangible motivation to meet higher speed and quality standards in delivering a shipment, which would ultimately result in greater profits for the retailer.

Companies Trying to Solve This Problem

  • VeChain – Full cycle blockchain solutions for supply chain efficiency.

Reducing Cyber Hacks

Blockchain use cases in retail - Reducing Cyber Hacks

When Target’s servers were penetrated in 2013, 40 million consumer credit cards were compromised, and the fallout ultimately meant $150 million in costs for the retailer, plus countless headaches for the affected shoppers. Home Depot had to pay $19.5 million in damages after a similar debacle the following year. The damage from these breaches ranges far beyond stock prices and settlements — 19% of shoppers say that they would cease shopping at a retailer that fails to protect itself from hackers, even if the situation was rectified.

Executives are keenly aware of the perils of cybersecurity in the retail sector, too. 100% of the executives of publicly-traded retail companies questioned in a 2016 BDO RiskFactor survey see data breaches as a risk to their business, up from just 26% of those surveyed in 2007. Several cybersecurity companies are actively making the switch to blockchain to better insulate user data and root out attempts at theft and manipulation as soon as they occur, and it’s likely that the retail industry will ultimately follow their lead. 


Micropayments

Blockchain use cases in retail - Micropayments

In 2017, the top-selling digital song — “Despacito” by Luis Fonsi featuring Daddy Yankee — was purchased and downloaded 2.69 million times. Meanwhile, more than 30 million people currently pay for music streaming services, garnering $2.5 billion in revenue for the companies that offer such digital music-aggregation platforms. Both the ability to purchase a single song for 99 cents, as well as the option to pay a monthly fee for a virtually unlimited catalog of music represents the trend toward micropayments in the consumer sector. Additionally, by 2020, in-app purchases are expected to exceed $71 billion, proving that the allure of small, individual payments is strong, and that those payments add up to an impressive sum over time.

The psychology of microfinancing, by which users see multiple smaller payments as somehow less depleting of their bank accounts than a single large price tag, has proven a boon for the industries that have cleverly adopted micropayment systems. Because the blockchain and cryptocurrencies allow payments to be made in infinitesimal fractions, they offer an advantage to retailers that credit card companies and traditional currencies cannot.

About Sam Mire

Data journalist and market research analyst focused on emerging technology, trends, and ideas.

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