Advantages of Cloud Computing for the Retail Industry

Article by Nitin Mishra

The internet has hugely disrupted the retail industry: e-commerce is a significant threat to brick-and-mortar stores, and social media has given customers the power to influence opinion instantly. Little wonder then, that the retail industry’s IT landscape is expanding well beyond traditional ERP, CRM, and supply chain management.

To compete and survive, retailers are beginning to use new technologies such as analytics, big data, and social media to identify individual customer preferences and behaviors and to offer personalized shopping experiences to build loyalty.

Doing all this means managing massive amounts of both structured and unstructured data and requires significant compute power and storage. Cloud based solutions, with elastic storage, compute and analytics capability, are a natural option. According to IDC Retail Insights, one- third of Western European retailers expect to increase spending on cloud computing by up to 25%; in Asia-Pacific, 32% of retailers expect to adopt cloud technologies in the next two to five years; and 28% of retailers in Central and Eastern Europe plan to increase spending on cloud technologies.

Traditionally, retailers acquired and owned hardware and software as part of capital expenditure (capex), and paid for connectivity and managed services as part of operational expenditure (opex). This meant large upfront investments for hardware and software and employing IT personnel to run and main these assets.

What cloud computing does is to enable all of this expenditure as opex. Retailers can pay for computing power and storage and software licenses either on a subscription basis or on a pay-per-use basis. This has enormous advantages. Retail businesses are characterized by periods of normal activity interspersed with high demand spikes during weekends and holidays, or promotional campaigns. Designing an IT infrastructure to accommodate the peak demand would mean idling the IT capacity for long periods. In the opex model of cloud computing, the CIO can design the IT infrastructure for a base load and simply source additional compute resources on demand to handle spikes.

In our experience at Netmagic in engaging with most of India’s top retailers and several global retailers, we see some clear trends and preferences:

  • Retailers prefer to outsource IT infrastructure management and retain business-critical applications in-house.
  • Most retailers are moving some part of their IT infrastructure to the cloud on a pay-per-use basis.
  • Since retailers are very concerned about delivering outstanding customer experience, they have stringent service level agreements with cloud service providers.
  • There is an increasing trend toward hybrid IT infrastructure models (pay-per-use, capex, and opex).

Retailers looking to optimize their IT spending would do well to consider a combination of private clouds and public clouds. This would allow them to retain control over their core data and applications in a private cloud, and connect to a public cloud for demand spikes, scale out, or to try out new initiatives.