While Internet-based competition has created serious issues for traditional retailers, the Internet is now benefiting established retailers by becoming a conduit for substantially reducing their computer network costs while offering increased flexibility, reliability and new options for servicing customers.
Lower communications costs are helping traditional retailers to shrink the advantage gained by digital retailers whose go-to-market strategies have significantly lower operational expenses. These on-line traders have eliminated costs such as store rental, store staffing and store connectivity from headquarters.
In response, conventional retailers are developing strategies that leverage their store and staffing investments to provide ‘value added’ in-store experiences that digital retailers are unable to match. Their tactics include introducing upgraded customer loyalty schemes and customer knowledge programs, better demonstration facilities, improved customer tracking, and increased investment in online customer service and sales training.
Compounding the issues of raising the capital expenditure to invest in these strategies, established retailers are finding that their new IT-based solutions are increasing the volumes of data being sent to and from each of their stores, inevitably resulting in higher monthly costs.
The answer lies in new technology – the software-defined wide area network, or SD-WAN. This allows organizations to replace or augment their present networks, which run on a technology called multiprotocol label-switching (MPLS), with the far less expensive commodity Internet links. The cost advantages can be as high as 60 percent.
SD-WAN is the latest iteration of data communications, which began with dedicated bandwidth via copper cable through telephone exchanges. In the early 2000s, these ‘pipes’ were replaced by frame relay technology which delivered greater flexibility and more bandwidth and lower costs. In turn, frame relay was replaced by MPLS, further reducing cost.
Now SD-WAN is becoming the next stage of the evolutionary process, offering retailers a spectrum of technical and monetary benefits. It can help with most of the initiatives that traditional retailers are introducing to combat Internet-based retailers.
The traditional retailers are working to create a compelling in-store experience, a key area where Internet sales organizations are unable to compete. Free Wi-Fi and the tracking of customers as they move through the store are projects that can benefit from inexpensive and flexible Internet-based networks, rather than MPLS networks. Using the Internet via SD-WAN, a store that wishes to demonstrate 4K television to a customer can simply download the demo from head office without delay or incur prohibitive costs.
A marked trend among conventional Singapore retailers is to retain a brick-and-mortar presence while conducting business around an online e-store. Omni-channel retailing entails the maintenance of a seamless experience and connectivity across channels from physical stores, the mobile app and the website to drive sales. Retailers must be prepared to handle the increase in customer data and improve their store-to-store communications.
Loyalty plans are a trend at present, as stores reward good customers. Contactless payments such as e-wallet services like Apple Pay which was introduced last year in Singapore as well as mobile payments are changing the way traditional retailers collect payment.
As these initiatives became globalized we expect a trend to their becoming cloud-based solutions, with data on customers stored in remote data centers. At present, most traditional retailers are using expensive MPLS bandwidth to reach their data centers.
Many lack the network capacity to minimize computer equipment in each of their stores and do not have the option of administering their networks centrally.
By switching to SD-WAN these retailers can gain low-cost Internet communications to all their branches, enabling them to run their software-as-a-service (SaaS) solutions more efficiently and cost-effectively.
Another issue that SD-WAN can help resolve arises among retailers that need to backhaul all their network traffic, including cloud applications, to the data center then out to the Internet and back. This infrastructure is a source of network bottlenecks and poor application performance. SD-WAN is able to make this an all-broadband route, savings substantial costs, and increasing traffic speed.
The rise of SD-WAN
So how are Singaporean retailers and other organizations responding to the emergence of SD-WAN technology? We saw 2016 as the year of proof-of-concept. Organizations are looking to add branch or store locations incrementally by taking advantage of a localized SD-WAN solution initially and slowly, over time, migrating toward full SD-WAN coverage.
Most have long-term contracts in place with telecoms providers for their communications links, so we are unlikely to see full savings of the new technology for two or three years as contracts come up for renewal. Singapore’s retailers can use the intervening time to proof SD-WAN and make sure it works optimally. When the time comes to retire their MPLS links, they will have a deep knowledge of the new technology and be well versed to appreciate the differences in cost and flexibility. They can switch over safely knowing it delivers the goods.
Initially, we expect to see smaller retailers going 100 percent with SD-WAN, while larger organizations with more applications in their data centers will use a hybrid MPLS/SD-WAN setup. In this architecture, they would use MPLS only to exchange secure information between a store and the in-house applications at head office.
Some are already leveraging SD-WAN to bring their idle Internet links to life, adding broadband Internet as part of a hybrid MPLS-Internet network, or even ditching MPLS and implementing dual broadband connections to the branch.
The proven SD-WAN capabilities, including dynamic path control, zero-touch provisioning and path conditioning, which delivers forward error correction and real-time packet order correction, make Internet connectivity simple to deploy and manage and deliver retailers a more cost-effective means of achieving 99.99 percent service availability.
Offerings from leading vendors such as Silver Peak are already linking users securely to their applications via the most cost-effective source of connectivity available. The flexibility of SD-WAN allows retailers to augment or replace MPLS with any combination of transport connectivity, including broadband, DSL, LTE and more. Its visibility and control allow network administrators to see and control all applications, and encrypt all WAN overlay traffic with AES-256 for maximum security.
An SD-WAN-enabled architecture resolves the issues of high cost and complex MPLS; shows clearly what cloud applications are consuming a network; and puts an end to users complaining about poor application performance over distance.