Investments in Internet of Things (IoT) device startup companies are expected to decrease, despite more stores using this technology to assist with their operations, The Wall Street Journal reports. Down markets have caused investors to pull back on their funding for such companies. The amount of funding deals for IoT startups fell to a six-year low of 300 during the second quarter, according to analytics firm PitchBook Data, Inc.
Meanwhile, investments in these startups fell 57 percent from the quarter before — to approximately $2.8 billion. Security devices and connected vehicles appear to be the exceptions, but otherwise, IoT funding’s decline is much bigger than the 22 percent drop that all information technology (IT) startups faced, per Pitchbook.
Total venture capital funding for IoT startups focused on the retail industry is expected to fall especially hard — down 65.1 percent from last year to $188.2 million by year’s end.
IoT remains key in companies’ operations
Investors shying away from IoT startups is somewhat surprising given how much retailers rely on it. For example, Kroger uses IoT software in the form of sensors to track store occupancy, enable smart checkout carts, monitor temperatures in the in the pharmacy refrigerators and to make sure COVID-19 vaccines were stored in ideal conditions, Yael Cosset, Kroger’s chief information officer, told The Wall Street Journal.
Cosset called IoT a “high priority” for the company. It recently announced it acquired supermarket chain Albertsons for $24.6 billion. The purchase will increase the grocer’s footprint to about 5,000 stores nationwide.
“The various types of IoT devices we deploy are an essential component of our information systems, enabling Kroger to continuously understand the current conditions in our stores so we can take steps to minimize waste and keep prices low,” Cosset said.
Cosset also said he’s keeping an eye on the decrease in early-stage IoT tech development investments. It’s possible the slowdown could impact software apps that allow the company to get more value out of the data that operations can generate.
In a slower economy, retailers need IoT more, not less
Real-time sales and inventory data will be even more critical to retailers as the economy cools, Leslie Hand, group vice president of market research firm International Data Corp.’s retail insights division, told The Wall Street Journal. With IoT, stores can perfect their operations using software-connected systems that can track inventory management, returns, in-store engagement, curbside pickup and more.
“They can also orchestrate product and people movements more efficiently, supporting cost reduction efforts,” Hand said.
However, Hand noted that industry market leaders still appear interested in acquiring different AI and IoT capabilities, which is a positive sign for the industry.
Another positive sign for IoT? While investments might be down, sales are expected to rise, according to International Data Corp. Retailers are expected to spend $62.6 billion on IoT tech this year, compared to $55 billion in 2021. IoT tech spending is forecasted to hit approximately $95 billion by the end of 2026. All sectors are expected to spend a combined $767 billion in 2022, up from the $630.3 billion spent last year.
BJ’s Wholesale Club has leveraged IoT technology as it uses in-store sensors to track its customers’ wireless service usage, EVP and CIO Scott Kessler told The Wall Street Journal. The retailer also uses IoT to help its online curbside pickup service and to monitor product temperatures on trailers. The company plans to keep investing in this sort of technology despite the current challenging economic environment.
Goya Foods meanwhile uses tens of thousands of IoT devices connected to conveyor belts in its manufacturing facilities. The company also relies heavily on IoT to use cybersecurity in its plants. Goya chief information officer Suvajit Basu noted retailers that have scaled back IoT spending are probably doing so for economic reasons.
“People are being cautious,” he told The Wall Street Journal. “(But) we see companies that invest during recessions come out far stronger.”