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Why Blockchain Technology Should Be on Retailers’ Shopping Lists


Here’s how blockchain can help the industry lower costs, speed transactions, fight fraud and ensure trust with all stakeholders for years to come.

Today’s retailers are getting squeezed on seemingly every side: the growth of online shopping, global competition, smaller margins, higher payment fees, order volatility, commoditization, counterfeiting and increasingly demanding consumers.

While there’s no cure-all for solving the industry’s many challenges, one emerging technology could help established retailers right their foundering ships. That technology is blockchain, and if early pilots in banking and manufacturing are any indication, retailers stand to reap a multitude of benefits, ranging from increased consumer trust and lower operational costs, through tighter relationships with partners across their far-flung ecosystems.

Simply put, a blockchain is a distributed ledger secured by encryption that provides an immutable, trustworthy record of information — from product design and chain of custody through transactional information — without the need for verification by a centralized clearinghouse or authority such as a bank or government. It does this by building a database of entries (each built from a preceding block of information and stored as a copy) that is secured by a complex mathematical algorithm. This approach makes it difficult for criminals to create fraudulent transactions or alter existing ones. 

What Is Blockchain And How Does It Work?

While the technical details are complex, the value for retailers is simple: Blockchain delivers trust (in a product, a transaction or the integrity of data) far more quickly and effectively than existing technology. Although blockchain has existed since 2008 (as the basis for the Bitcoin cryptocurrency), its application has only recently expanded beyond the financial services realm.  

Blockchain Impact

Here are four ways blockchain could remake the retail space:

Product authentication.

Currently, counterfeit or contaminated products exact a huge toll in the form of lost sales and brand damage. Using blockchain technology, retailers could provide indisputable proof of authenticity and quality. One sneaker manufacturer, for example, is using blockchain and scannable smart tags to prove authenticity. This approach could also be used to reinforce the value of premium products, such as organic foods or luxury items. Blockchain could also help ensure consumer trust in the claims of high-quality, conflict-free and other premium or specialty products by providing proof of purity and origin. This could be accomplished by recording product information in a blockchain that persists throughout the entire food supply chain; such data could include soil reports, sensor readouts and even animal DNA records.

Secure transactions.

Today, retail stakeholders pay a steep price to ensure the validity of goods, money and data exchange. Each must compensate the other for services provided, and then wait for each to finish their part before receiving payment. Blockchain-based transactions can reduce the need for third-party authentication, reducing time and cost to transact, decreasing fraud and increasing the efficiency of business partnerships through self-executing smart contracts (see interactive Figure 1). (For more on smart contracts, read “Blockchain’s Smart Contracts: Driving the Next Wave of Innovation Across Manufacturing Value Chains.”) 

Figure 1

Better supply chain visibility.

With blockchain, retailers could dramatically improve visibility into the value chain and optimize inventory levels. In many supply chains today, lack of visibility causes over-ordering upstream, which results in higher costs due to “the bullwhip effect.” By consolidating digital information into a single version of the truth via blockchain, suppliers, shippers and retailers could improve their forecasting and tracking capabilities. When coupled with smart contracts, the technology could reduce lag times, meet demand more effectively and minimize stock-outs. 

Networked loyalty programs.

Many companies are broadening their consumer loyalty programs to cover partner brands. For instance, airlines offer passengers an opportunity to earn extra points for renting a car from a preferred vendor, or shoppers at a grocery chain get discounts on gasoline at affiliated stations. The outdated technology that tracks loyalty points imposes high costs and delays on participating merchants and consumers; however, blockchain could make tracking these points faster, cheaper, more secure and much more visible to both the owners of the points and the companies issuing them. This would increase customer satisfaction and loyalty while strengthening relationships among partnering merchants. 

Getting Started 

As with any emerging technology, there are many obstacles that could thwart blockchain adoption. These include implementation costs, organizational inertia and conflict management among business partners. To accelerate adoption, organizations need to establish internal blockchain champions and identify low-hanging opportunities that shore up confidence and show quick results. 

To begin exploring blockchain’s potential, retailers should begin learning from early-day trials, such as those from Everledger, Block Verify and Provenance. They should also align pain points with blockchain capabilities, identify pilot opportunities, find allies from within the supply chain and establish a roadmap for adoption. 

At the dawn of digital commerce in the late 1990s, too many retailers took a “wait-and-see” attitude. As a result, many found their business models gutted by online competitors before they realized the power of the Internet. Meanwhile, first movers that grasped the Internet’s potential — and learned from digitally-native companies — quickly blossomed into powerful retailers. We view blockchain in a similar light: a powerful tool that retailers cannot afford to overlook or sit on for much longer.

To learn more, please read “How Blockchain Can Help Retailers Fight Fraud, Boost Margins and Build Brands” or visit the Blockchain or Retail sections of our website.

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