Bloomberg Businessweek: Big Brother Is Shopping With You as Store Owners Seek Better Data: Retail
Retailers have a case of Web envy.
By Ashley Lutz and Matt Townsend - Dec 13, 2011 9:00 PM PT
Brick-and-mortar stores have long wanted to track consumers the way online merchants do and are starting to figure out how. They’re using security cameras to monitor shopping behavior and tracking mobile phones to divine which stores people visit.
The technologies mean retailers from discount chain Family Dollar Stores Inc. (FDO) to luxury pen-maker Montblanc can make changes on the fly -- such as deploying more salespeople in a given department and moving high-margin merchandise to parts of the store where shoppers are more likely to see it.
“It’s really a game-changing experience, and this is only the beginning,” said Rodrigo Fajardo, a Montblanc brand manager, who says a six-month-old tracking system prompted him to move best-selling items to another part of his Miami store, boosting sales 20 percent. “Before we were just working based on know-how and intuition. This is designing a retail business based on real statistics.”
As increasing numbers of shoppers migrate to the Web, retailers are using the new technology to boost sales and keep market share. This holiday season online sales may grow 15 percent to $37.6 billion, according to ComScore. That compares with the 2.8 percent sales growth to $465.6 billion for brick and mortar stores predicted by the National Retail Federation.
Online stores have advantages, including the ability to track how long shoppers linger and what they click on, said Lora Cecere, an analyst at Altimeter Group in San Mateo, California. By contrast, brick-and-mortar merchants wait for sales numbers to come in before taking action, she said.
“Right now physical stores are only looking at dollars per person, dollars per store, and ignoring big problems until the numbers come in,” she said. “To compete they need to embrace this data so they have the ability to innovate.”
For years retailers have deployed security cameras, largely to deter and catch shoplifters. Now some are using the cameras to watch how shoppers behave.
3VR Inc., a security firm that made its first product for the Central Intelligence Agency, realized its cameras could be used to gather consumer data two years ago when T-Mobile USA Inc. asked if the firm could count people entering its stores, 3VR Chief Executive Officer Al Shipp said in an interview.
T-Mobile, based in Bellevue, Washington, now uses the cameras in 1,000 stores to track how people move around, how long they stand in front of displays and which phones they pick up and for how long, Shipp said.
T-Mobile USA, which is owned by Deutsche Telekom AG, declined to comment.
3VR, which is based in San Francisco, is now testing facial-recognition software internally that can identify shoppers’ gender and approximate age. The software doesn’t identify a person; it would give retailers a better handle on customer demographics at specific stores and help them gear promotions to age and gender, Shipp said.
This year, Family Dollar Stores began testing a monitoring system using cameras in 20 stores. Designed by San Jose, California-based RetailNext, which is also working with Cie. Financiere Richemont SA’s (CFR) Montblanc, the system watches how customers interact with store displays. Then it correlates the results with sales data to figure out the percentage of customers who buy something, right down to individual products.
In many cases, the data refuted conventional wisdom, according to RetailNext CEO Alexei Agratchev. Retailers often put high-margin merchandise just inside the store entrance, believing shoppers will stop and take a look. Turns out most don’t, Agratchev said.
“The stores have been a black hole,” according to Agratchev, who says 40 chains are using RetailNext’s technology. “People were convinced something was true and spending tens of millions based on that. Then it quickly became apparent it wasn’t true.”
While retailers are starting to understand the potential of security cameras as intelligence-gathering tools, it will take time for the technology to become widespread because loss- prevention managers rather than marketing types still have authority over the cameras, Shipp, a former Apple Inc. (AAPL) executive, said.
Still, over the past year conversations with stores have more quickly turned from security to analytics, he said.
“You’ll have the ability someday to measure every metric imaginable,” Shipp said. “We’re scratching the surface.”
Monitoring foot traffic via shoppers’ mobile phones is another emerging technique. Path Intelligence, a Portsmouth, England-based company, sells a phone-tracking technology called FootPath that follows shoppers around malls in Europe.
FootPath consists of monitoring units that recognize signals from shoppers’ mobile phones, CEO Sharon Biggar said in a phone interview.
The data is presented in two ways: a "heat map" that assigns colors to stores depending on traffic and an “affinity map” that allows retailers to click on a store and determine the probability of a shopper who went there visiting other stores in the mall. Retailers use the data to figure out where to place their stores, Biggar said.
Participating shopping centers post signs near entranceways and mall maps informing shoppers that their mobile phones are being tracked and that their personal information is not being collected. Those who don’t want to be monitored are encouraged to turn off their phones.
“We have designed this service so that it’s impossible to detect any personal information or link the number to a person,” Biggar said. The phone number that the FootPath tower detects is changed twice before entering the database, she said.
Last month, the Short Pump Town Center in Richmond, Virgina, and the Promenade Temecula mall in Temecula, California, began testing the technology, the first such trial in the U.S. The test, which was to run all holiday shopping season, was temporarily suspended after one day, following complaints from U.S. Senator Charles Schumer that the technology could compromise shoppers’ privacy.
Julia Yuryev, a spokeswoman for the malls’ owner, Forest City Enterprises Inc., said the company might not continue with the study after customers complained it was invasive.
The privacy issues are overblown, said Mark Rasch, director of cybersecurity and privacy at CSC, a consulting firm in Falls Church, Virginia.
“It’s no different from following someone in the mall, which retailers have been doing for years,” he said. “But most people aren’t aware of what stores already do.”
Since the 1970s, consumer behaviorists such as Paco Underhill have followed shoppers around stores and documented their behavior. By the 1980s, Underhill’s firm Envirosell was using hidden cameras to observe shopper habits. In the U.K. another researcher named Philip Graves dressed up as a construction worker and observed consumers for department and electronics stores.
Tracking phones or using cameras to glean shopping habits is not any “more intrusive than what online retailers do,” according to Rasch.
Still, while consumers are willing to trade some privacy for the convenience of shopping at a Web store, “people are much more wary of an in-person monitoring device,” Cecere said. “Expectations are much lower online.”
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