SFGate: Big Brother tactics track shoppers at stores

December 15, 2011 | Coverage

Retailers have a case of Web envy.

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 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 6-month-old tracking system prompted him to move best-selling items to another part of his Miami store, boosting sales 20 percent.

As increasing numbers of shoppers migrate to the Web, retailers are using the new technology to boost sales and keep market share.

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. 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, a San Francisco security firm that made its first product for the CIA, 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.

T-Mobile 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 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's RetailNext, which is also working with Cie. Financiere Richemont SA's 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 executive, said.

Market data provided by Bloomberg News.

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