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Slumping markets have investors pulling back from funding startups that make internet-connected devices for retailers, threatening to choke an innovation pipeline for emerging tools like smart shopping carts and inventory management robots.
Many stores, which came to rely on software-connected systems during the Covid-19 pandemic, are now leveraging these capabilities to eke out efficiencies that can help keep prices down amid stubbornly high inflation and rising interest rates, industry analysts said.
The number of funding deals for startups developing Internet-of-Things technology, or IoT—as the software-connected systems are called—dropped to a six-year low of 300 deals in the second quarter, according to analytics firm PitchBook Data Inc.
Over the same period, investment dollars in IoT startups fell 57.2% from the previous quarter, to roughly $2.8 billion—with notable exceptions in areas like security and connected vehicles—outpacing a 22.2% decline in funding for all information-technology startups, which dropped to $59.5 billion, PitchBook said.
Total venture-capital funding for startups developing IoT technology specifically for retailers is on pace to drop 65.1% from 2021 to $188.2 million by the end of the year—one of the hardest hit subsectors in the IoT market, the firm said.
Like most commercial software applications, connected devices in recent years have become an integral part of retailers’ day-to-day operations.
Kroger CIO Yael Cosset.
Photo:
The Kroger Company
Kroger Co.
uses connected-device software and sensors to monitor store occupancy, enable smart checkout carts, track transportation systems, and regulate temperatures in pharmacy refrigerators—most recently to ensure Covid-19 vaccines are stored in optimal conditions, said
Yael Cosset,
the supermarket chain’s chief information officer.
He called IoT a “high priority” for the Cincinnati, Ohio-based company, which last month announced a $24.6 billion deal to acquire rival supermarket chain Albertsons, a move that would expand its footprint to roughly 5,000 stores across the U.S.
“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,” Mr. Cosset said.
Mr. Cosset said he is monitoring the slower pace of investing in early-stage IoT technology development, citing a potential impact in areas like software applications that would enable the company to extract even more value out of data generated by operations.
As the economy slows, retailers will need even greater access to near real-time sales and inventory information, said
Leslie Hand,
group vice president of market research firm International Data Corp.’s retail insights division. Tools like IoT can enable stores to fine-tune operations through software-connected systems tracking inventory management, orders, returns, curbside pickup and in-store engagement, she said.
“They can also orchestrate product and people movements more efficiently, supporting cost reduction efforts,” Ms. Hand said.
Though market volatility is expected to damp IoT investing in the months ahead, she said, “a positive indicator continues to be interest in acquisitions of artificial intelligence and IoT capabilities of various kinds from the established industry market leaders.”
Worldwide, retail-sector spending on IoT technology is expected to hit $62.6 billion this year, up from $55 billion in 2021, and forecast to reach an estimated $95 billion by the end of 2026, growing at a five-year compound annual rate since 2021 of 11.5%, according to IDC. IoT spending in all sectors this year is projected to reach $767 billion, up from $690.3 billion in 2021, growing by 10.7% annually to roughly $1.5 trillion by 2026, the firm said.
Scott Kessler,
executive vice president and chief information officer of BJ’s Wholesale Club Holdings Inc., said the store has deployed IoT technology in areas like in-store sensors to monitor customers’ use of wireless services.
It also supports online curbside pickup, and drives sensors that monitor product temperature on trailers, Mr. Kessler said. He said the company would continue to invest in these and other tech tools that help customers, despite tougher economic conditions.
Goya Foods Inc. Chief Information Officer
Suvajit Basu
said the company has had tens of thousands of IoT devices connected to conveyor belts in its manufacturing facilities for about a decade. IoT technology is critical for the food company, Mr. Basu said, because it also enables Goya to implement cybersecurity projects in its plants.
Mr. Basu said retailers are likely pulling back from IoT spending because of economic pressures and are still recovering from the business impact of the pandemic. “People are being cautious,” he said. In contrast, he said Goya’s technology investments in a tougher economic climate have helped the business grow.
“We see companies that invest during recessions come out far stronger,” Mr. Basu said.
—Belle Lin contributed to this article.
Write to Angus Loten at Angus.Loten@wsj.com
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