The Internet of Things will “rock” the retail sector

by DLA Piper
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The Internet of Things will generate in the retail sector US $ 329 billion of revenues by 2018 according to a report published by SAP, but such massive growth has to deal with legal issues concerning not only privacy compliance and cyber security, but also among others product liability.

What is the Internet of Things in the retail sector?

The Internet of Things is leading retail companies including fashion companies to better know their customers, customize and improve their purchase experience and services through among others sensors and big data analytics. It is still early to foresee what will be the areas of major growth for the Internet of Things in retails sector, but the following appear to be some of the most interesting at the moment:

Multichannel retail

It is commonly known as “me-tailing” and refers to the ability for retailers to collect data in real time about their customers from different sources such as mobile, social media, in-store channels and in the future wearable technologies so that retailers can offer very personalized interactions with their customers e.g. in terms of customized offers.

Understanding the preferences and the behavior of customers is essential in order to be able to show the right products to the right customers. This is a conduct already quite common in online stores and is increasing in physical stores, but requires a detailed filtering of customers’ preferences which entails a detailed profiling of them.

Likewise, the need to increase the simplicity of payments represents one of the most relevant areas of growth for Internet of Things technologies. Our smarthphone, smartwatch or any other wearable technology shall be able to communicate with the system of shops in order to make payments easier and faster.

Tracking items and customers

RFIDs are already commonly used in the retail sector to prevent thefts, but they can now be used to collect additional information about customers, their preferences and their location as well as for inventory management also in the view of its integration with the online sales channel. At the same time QR codes on product labels enable to provide additional information about the items and perform in-store marketing activities.

But the core of the Internet of Things is given by sensors. They can be used in the retail sensor to change the environment, e.g. an interactive display, when shopper are in the proximity. However, they can be used also for in-store analytics and therefore to track and measure the flow of customers in specific areas of shops.

Commentators though see the future of the retail sector in Bluetooth Low Energy (BLE) applications commonly known as beacons and similar technologies. Most of smartphones and wearable devices are already equipped with such applications communicating with beacon devices located in shops enabling retailers to track and send notifications to their customers during their visit of the shops.

The main advantage of beacons is that they can detect the location of customers with a very detailed approximation (i.e. between 5 to 10 m) which makes in shop marketing, tracking and payment much more effective and detailed. And for instance customers might receive push marketing notifications on their smartphone when they get close to discounted products.

What legal risks it may trigger?

Internet of Things technologies are by essence relying of the collection of data about individuals, their processing either individually or in the form of big data and their usage to increase efficiency and sales through tailored services and marketing initiatives.

Privacy

Some of the issues relating to Internet of Things technologies in the retail sector were recently raised by the European Privacy regulators. In particular, the main issue raised by European privacy regulators related to the lack of transparency of these technologies. Customers are not made aware of when and how their personal data are collected the purposes for which their personal data are processed and on the entities to whom the data are communicated. The issue relates to the level of information and the type of consent that is required by customers for the usage of such technologies especially taking into account that the data collected through them can generate detailed profiles of user. An attempt to find efficient solutions has been already performed by the European Commission with reference ot RFIDs, but we are working in order to find similar solutions also for different Internet of Things technologies.

Cyber Security

As I covered in this previous post, the risks in terms of cybersecurity are massive with Internet of Things technologies that lead to a very large volume of exchanged data. At the same time the implementation of security measures might lead to inefficiencies. Also, the loss of data by means of such technologies can lead to privacy related liabilities for the so called “data breach” whose fines will be up to 5% of the global turnover under the new EU privacy regulations.

Liability of the different entities involved

A common issue that arises with Internet of Things technologies pertains to the liability of the different entities involved in the management of the technology. Indeed, retailers will often rely on a technology provided by a tech company that in turn will manage a cloud database by means of its subcontractors. Therefore the issue is how retailers should be protected not only in terms of service levels, but also from potential reputational damages for instance in case of loss of data or cybercrime. And who should be the “owner” of the collected data which triggers the compliance obligations mentioned above.

These are relevant legal issues that IoT technologies will have to face in the retail sector. And what we are trying to achieve for our clients is to ensure compliance with the obligations mentioned above in a business oriented manner also providing the required protections according to modalities that are financially feasible for suppliers.

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