Blockchain in the Retail Industry

It’s your Jeopardy Daily Double! (Ready? )

{read in Alex Trebek’s voice} 

What emerging technology was once described by Stephen Colbert as, “gold for nerds”? 

Answer: 

Blockchain’s bitcoin. 

Blockchain might not be gold—but its potential promises great wealth. Arguably one of the fastest growing trends in digital innovation since the internet, blockchains are essentially databases. Broadly viewed as a tool aimed at streamlining services and operations, blockchain is an immutable ledger or digital record that is shared across a network. Whether tracking assets or more commonly recording transactions, blockchain continues to grow in popularity, especially in the financial sector, because of the incredible possibilities it holds. 

For retailers, blockchain presents a superior way of securing, organizing and sharing data. Greater transparency across retailers, consumers and manufacturers, means a deeper trust, more flexibility of options and a broader range of possibilities for service. In this article, we will take a look at what blockchain is, what benefits and opportunities and how it’s being used within the retail industry.

Let’s explore:

1. What is blockchain?
2. What are the key attributes of blockchain?
3. When did blockchain become popular?
4. What are the benefits of blockchain in retail?
5. Case study: Walmart’s use of blockchain technology
6. Conclusion: Blockchain solutions

1. What is blockchain?

In its simplest form, blockchain is a system of tracking transactional data across computers in a peer-to-peer network that is linked.  The blockchain itself is a “distributed database that maintains a continuously growing list of ordered records. These records are called ‘blocks’ and these blocks are connected by cryptography. Each block contains a cryptographic hash, sometimes called a “smart tag” of the previous block. These smart tags can be transaction data and/or a timestamp.

2. What are the key attributes of blockchain? 

Shared

Blockchain transactions are recorded, replicated and shared across a network. 

Decentralized

Transactions are performed without a 3rd party approver which results in much less risk of data being manipulated or stolen. 

Immutable

These records are irreversible and can’t be moved. Because there is no central authority, these records are “Append only”. 

Secure

All records are individually encrypted. Any given block is verified in accordance with consensus mechanisms, making it more reliable and a fault-tolerant system. 

3. When did blockchain become popular?

Blockchain first dates back to 2008. Satoshi Nakamoto, the founder of Bitcoin, first uploaded blockchain code to SourceForge. It was uploaded as a means for other software developers to start using and contributing to it. In its more modern incarnation, or as we know it,  it reemerged in January of 2009 along with its associated currency Bitcoin. For over two years, Bitcoin was the only blockchain and the only viable cryptocurrency. However, from 2011 when it reached $1 value, the currency has trended upwards as numerous other forms of cryptocurrency have emerged. 

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4. What are the benefits of blockchain in retail? 

The use of blockchain in retail allows each and every movement of a product to be recorded and better still, these movements can be monitored by wholesalers and retailers. Overall, system management is efficient and streamlined with ledgers stored on a network that allows accessibility to all parties involved. 

The sheer pace of retail and the industry’s rapidly accelerating growth alongside the ever-changing landscape of increasing consumer demands—positions blockchain as a desirable solution. The technology addresses many lagging issues within the industry from security and counterfeit issues to data management challenges and a massive reduction in operation costs.

Problems of counterfeit 

Counterfeit and pirated products continue to grow at an alarming rate and result in an enormous loss to businesses impacted. In a report from OECD (Organisation for Economic Cooperation and Development) published in 2019, the gross loss per year was estimated at 500 billion. The repercussions of counterfeit products are vast and include decrease in trust, diminished brand reputation, product recalls and ultimately substantial monetary losses. 

In this regard, blockchain technology offers immense value to the retail industry for its transparency and immutable nature. Blockchain can provide a “proof of origin”.  Using blockchain an item’s life cycle can be tracked along the entire supply chain. From the extraction of raw materials, to shipment through to purchase—the increased visibility protects consumer and retailer from fakes. 

Improved Customer Loyalty Programs

According to Statista, the customer loyalty market is valued at more than 5 billion US. It is estimated that by 2028, that number will have reached 28 billion dollars. In a study conducted by Oracle, over 62% of customers said that a good loyalty program would persuade them to choose one brand over another. Loyalty programs in retail play an important role in engagement, deepening the connection between brand and consumer. However, they are plagued with some inherent issues. Let’s look at what these inefficiencies are and how blockchain provides a solution for programs to reach their full potential.  

Security 

As mentioned, blockchain is superior in its decentralized nature. A blockchain based loyalty program provides transparency and security, with points stored and tracked on a decentralized database. 

Flexibility 

Points can be redeemed for traditional rewards or potentially be represented as digital tokens. In the latter, these tokens can be used to exchange for brand merchandise or exchanged for another form of digital cryptocurrency or even money. These options are available because everything is highly traceable and near impossible to steal. Additionally, because of the secure system, retail partners can create a loyalty program that extends across multiple brands—where points can circulate freely between options and retailers can create bundled options that appeal to specific demographics. 

Simplicity 

Blockchain allows customers to forgo multiple physical loyalty cards or even digital accounts for a single e-wallet. In this case, it can assist in a longstanding issue of customers not redeeming their points. Having a ‘single source of truth’ keeps both customers aware of their standing and allows retailers to balance sheets. Points are traceable and not subject to stealing or faking. 

5. Case study: Walmart Canada 

Walmart represents a strong example of the power of blockchain and its vast possibilities in resolving long standing issues in the retail sector.  Walmart was plagued with huge data discrepancies from its freight carriers between invoice and payments. Over 70% of invoices needed some type of reassessment and resolution. The impact was costly reconciliation efforts and long delays in payments to staff. It was Walmart Canada that decided to pioneer a solution, employing blockchain technology.

Using  distributed-ledger technology, they  created an automated system to manage invoices and payments to its over 70 third-party freight carriers. To have some context of the level of service Walmart juggles, Walmart Canada delivers over 500,000 shipments a year to stores and distribution centers across the country.  This is accomplished  using its own trucking fleet and third-party carriers. With the enormity of goods and considerations from time zones to varying climates and borders—the operational challenges are complex. And at the root of the problem was that multiple information systems were being used, none of which “spoke” to each other. Corrections were done manually resulting in inconsistencies and time delays. 

Using blockchain technology, a single source of truth was created. The pilot project was rolled out in January of 2019. With all parties involved united, the system continues to gather information at every step of the process. From the  carrier’s  tender offer to prove delivery and approval of payment—all of these details are captured and synchronized in real time. Furthermore, all of this information is secure and only visible to the parties involved. Today, a mere 1% of invoices require adjustments and those that are disputed are easily flagged and resolved.  And Walmart carriers are paid in real time. 

Blockchain solutions 

The strength in blockchain technology is its ability to control big data and allow for not simply scaling but security within that system. The decentralized ledger allows for an ever growing list of records (or blocks) that is secure within the encrypted format. Data traceability means that retailers can show proof of a product’s journey—verifying the authenticity of an item. This holds great importance in the luxury retail industry but also for products where safety is central, for example airbags. 

Real-time analysis of information and transparency of data empowers retailers to refine their operations and have a high level of reactivity in scenarios when an error occurs. And because this data is shared openly in a network, brands can collaborate in a whole new way. For example, enticing loyalty programs that involve multiple retailers and different modes of reward tokens targeting a broad customer base.

Arguably, the most extraordinary element of the blockchain system is that it creates an issue-free data world. The combination of encryption, decentralization and hourly updates, ensures security, visibility and integrity of the information, making it an incredibly powerful resource for retailers to explore in the coming years.  

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