Retail is not just another legacy 20th Century market sector succumbing to mobile- and web-based transactions. According to a 2017 Accenture report, “Painting the Digital Future of Retail and Consumer Goods Companies,” retail is undergoing massive digital transformation, blending e-commerce, big data analytics, Internet of Things (IoT), and the cloud to deliver an omnichannel customer experience unmatched by online shopping alone. [i] The report projects that digitization will bring $2.95 trillion in value to the retail industry by 2025. Digitization is also creating new value and opportunities to native E-commerce businesses that are putting a new spin on brick and mortar shopping experiences. According to a recent Bloomberg article, online shopping behemoth Amazon recently opened retail storefronts in several locations and is considering opening as many as 3,000 cashierless Amazon Go stores by 2021.[ii]
Interconnection — the direct and private traffic exchange between key business partners ꟷ will be a key enabler of this digital transformation in all vertical industries, including the Wholesale & Retail sector, as the second annual Global Interconnection Index (the GXI) demonstrates. The GXI Volume 2, a market study recently published by Equinix, predicts that installed Interconnection Bandwidth capacity across all markets could reach 8,200+ terabits per second (Tbps) by 2021, a five-fold increase over five years. Interconnection Bandwidth is the total capacity provisioned to privately and directly exchange traffic with a diverse set of counterparties and providers at distributed IT exchange points inside carrier-neutral colocation centers.
Interconnection Bandwidth by Industry Type
Wholesale & Retail global Interconnection Bandwidth capacity is expected grow at a CAGR of 67% for a total of 268 Tbps between 2017 – 2021, representing 3% of total Interconnection Bandwidth installed capacity. In fact, the sector comes in third in Interconnection Bandwidth growth after Energy & Utility (73% CAGR) and Healthcare & Life Sciences (70% CAGR). Regionally, the U.S. Wholesale & Retail market leads the world, with Interconnection Bandwidth showing a predicted 62% CAGR, totaling 121 Tbps by 2021. Next comes Europe (EU), with the sector’s Interconnection Bandwidth predicted to grow at a CAGR of 75% totaling 87 Tbps by 2021. Then Asia Pacific, with a 63% CAGR totaling 35 Tbps in 2021 and Latin America, with a 75% CAGR totaling 25 Tbps in 2021 in Wholesale & Retail Interconnection Bandwidth growth.
Trends favor retail and Interconnection
There are multiple macro, technology and regulatory trends driving the growth of Interconnection Bandwidth capacity worldwide, including: digital business, urbanization, cybersecurity, data compliance and business ecosystems. Many of these trends, as well as others specific to this sector are driving global Wholesale & Retail Interconnection growth and include:
Urbanization: The accelerated movement of populations to cities in the past 40 years works in favor of retail. According to the UN Department of Economic and Social Affairs[iii], the percentage of people living in urban areas is expected to grow from 55% today to 68% by 2050. In the U.S., millennials have been moving back to cities in droves from the suburban environments their parents chose. For retail this means more urban dwellers that can take advantage of retail shopping close to home and work, instead of having to get into a car and drive through heavy traffic to the shopping mall. Urbanization gives retail the opportunity to attract users via an omnichannel shopping experience that can’t be replicated solely online.
Omnichannel Shopping: This isn’t just about buying an item online and picking it up or returning it to the brick and mortar store. It is about buying what you need most, exactly when you need it, anyway you want. Even traditional retail stores can leverage data analytics, mobile computing, IoT and other emerging technologies to simplify and personalize the shopping experience for each user, much as local mom-and-pop retailers personalized shopping before mega stores took that experience away. Digital store “beacons” can detect when a user’s mobile phone enters the store and activate mobile instructions directing him/her to items of interest, pushing out discount offers and cross selling based on the user’s past purchasing habits. Mobile and supply chain integration can also direct users to nearby stores with inventory in stock if products are sold out at their current location. Users can interact virtually with product experts, reviewers and check items out via their mobile phones or automated store beacons as they exit the store without waiting in long lines.
Cognitive Computing: Retailers that leverage cognitive computing are adding tremendous value to the omnichannel experience by providing artificially intelligent chatbots or robots that can quickly analyze enormous amounts of data much like humans think…only better. These intelligent devices understand natural language and can quickly address consumers’ routine questions or direct them to the correct resources for further information, freeing up human employees to support the most important customer needs. In addition, the customer information captured by cognitive computing systems can then be handed off to a retailer’s analytics system to better refine customer sales and service.
Data Analytics: A major driver of the omnichannel experience, near real-time data access and analytics that provide the insights to maximize sales performance at each retail location are vital to success. Every retail location (physical or virtual) cannot support the robust infrastructure needed to collect and deliver analytics on huge quantities of data, nor can long distance connections from a single centralized location deliver the low latency needed for real-time performance in delivering the information. Retail increasingly leverages the cloud’s global reach, scalability and cost advantages to deliver these capabilities. Interconnection with the cloud and supply chain ecosystems will also allow the quick ramp-up and ramp-down of pop-up temporary retail locations and departments in larger retail environments during seasonal shopping periods.
Security and Compliance: Harnessing massive quantities of user and supply chain data will be a major security and compliance challenge. Nothing makes consumers’ blood run cold like learning from their bank that their credit card number has been compromised in a location clear across the country, or even on the other side of the world, from their home. Data localization at the digital edge, along with the direct private data exchange that Interconnection enables among systems, partners, and cloud and security infrastructures, can deliver the tight data security and compliance global, regional and local retailers require.
Proximate Interconnection with customers and cloud, supply chain, ad exchange and financial services ecosystems at the digital edge will enable the omnichannel data-driven retail experience required to compete in this increasingly digital market. As we work with our customers in the Wholesale & Retail market, such as Colony Brands and Smithfield Foods, we see how they are leveraging private Interconnection at the digital edge, close to critical digital and business ecosystems and customers, to accelerate their digital transformation and stay ahead of today and future industry trends.
Seasoned retailers tap Interconnection for digital growth
Retail brands that thrive over time are those that are continuously innovating and reinventing themselves. Two such examples are our customers Colony Brands and Smithfield Foods. The following use cases provide a snapshot into each of these companies’ digital transformations and how they harnessed Interconnection to become successful digital businesses.
Colony Brands (previously Swiss Colony), a leading catalog retailer for over 90 years, leveraged Interconnection via Platform Equinix® to deliver a greater quality of service to its internal users, as well as gain real-time business intelligence from its growing amounts of customer data. Colony migrated its on-premises data warehousing, back office and customer analytics systems to AWS by leveraging Equinix Cloud Exchange Fabric™ (ECX Fabric™) to create a fast, scalable, secure and reliable interconnected hybrid IT infrastructure. The company also used private Interconnection between the Colony and Equinix data centers and Colony’s remote sites via the Equinix Performance Hub™ to establish an Interconnection hub that delivered greater bandwidth to optimize network and application performance across the hybrid IT environment. As a result, Colony realized a 50% network cost savings vs. using MPLS networks and an 81% internal rate of return.
“Equinix allowed us to unlock the value of AWS for greater agility and innovation with our data warehouse and customer analytics, accelerating our productivity like never before,” says Steve Cretney, Vice President and CIO, SC Data Center, an affiliate of Colony Brands.
Similarly, Smithfield Foods, a global food producer and wholesaler for over 80 years, leveraged Platform Equinix with ECX Fabric to deliver a high-performance hybrid and multicloud infrastructure using private and public cloud services to scale large transactional databases and applications, such as SAP®, more reliably and cost effectively. Direct and secure Interconnection at the digital edge also enabled robust, immediate disaster recovery services between Smithfield’s multiple cloud providers and slashed user application response times from 100-200 milliseconds (ms) to 40-80 ms. The company achieved zero outages by moving its applications to the cloud and reduced bandwidth consumption, which resulted in 75% lower cloud connection network costs. Integrating new businesses now takes the company months instead of years thanks to its more optimized and safer interconnect fabric. In addition, applications are spun up in the cloud in less than an hour rather than in months.
“We’ve built a fast, scalable, secure and reliable multicloud Interconnection infrastructure on Platform Equinix that is truly cutting edge. It is the core of our application acceleration and disaster recovery solution.” says Julia Anderson, Global CIO , Smithfield Foods.
Direct and secure Interconnection enables wholesalers and retailers to develop digital-ready IT infrastructures that can deliver a more optimized, secure and reliable data-driven omnichannel customer shopping experience and greater growth.
Download the Global Interconnection Index Volume 2 for more information on Interconnection trends by region, vertical markets and vital ecosystem partners.
[i] Accenture Strategy, Painting the Digital Future of Retail and Consumer Goods Companies, 2017
[ii] Bloomberg.com, Amazon Will Consider Opening Up to 3,000 Cashierless Stores by 2021, September 19, 2018
[iii] United Nations Department of Economic and Social Affairs, 68 Percent of World Population Projected to Live in Urban Areas by 2050, Says UN, May 16, 2018.