By Leena Rao
As online retail sales continue to soar, brick and mortar stores are seeing margins dissipate. Online holiday sales are expected to grow 15 percent to $37.6 billion this season while retail sales in physical stores are only expected to increase by 3.8 percent to $469.1 billion. Best Buy (NYSE:BBY) recently reported a 29 percent drop in profits because of discounts and sales of top grossing electronics. The fact is that the electronics retailer was probably forced into offering deeply discounted deals in order to compete with e-commerce giant Amazon (NASDAQ:AMZN). And it doesn’t help that Amazon is now offering discounts to consumers on any product purchased via its price comparison mobile app, another huge blow to physical retailers.
Brick and mortar retailers need to figure out a way to compete with Amazon and other e-commerce giants that doesn’t eat into margins. Deals and coupons simply aren’t enough. And as former Apple (NASDAQ:AAPL) retail chief Ron Johnson has said, retail isn’t broken, stores are. So how are retail stores going to survive? While mobile may be the technology e-commerce companies are using to jab physical stores, it is also the technology that may save these stores. Personalization and data are the two key factors that could save retail stores; and the vehicle by which these technologies can be utilized is via the mobile phone.
2011 has been pegged as the year of mobile shopping by both technology companies and retailers. Now more than ever consumers are carrying around phones that enable them to access apps, discounts, price comparison information, payments mechanisms and more. comScore recently reported that two-thirds of all smart phone owners performed some sort of shopping activity on their phones, including comparing products and prices, searching for coupons, taking product pictures or locating a retail store.
In fact, slightly more than one in three purchasers used their smart phone to make a purchase while in a store. When they enter retail stores, these consumers are carrying their mobile phones and using these devices.
E-commerce companies have been quick to capitalize on this trend while brick and mortar retailers have not caught on in quite the same way. As mentioned above, Amazon is incentivizing customers to use its PriceCheck mobile app. Customers can walk into a brick-and-mortar retailer, use the app to scan the barcodes of a desired product, and access Amazon’s prices for that product. More often than not, Amazon’s prices are lower, and if a customer places the item into the app’s virtual basket, a 5% discount will be applied to the product within 24 hours. Price Check app users can use the discount on up to three products.
Simply offering coupons aren’t going to be able to combat Amazon’s tactics, because not only are these deals going to eat into retailer margins but these incentives can’t necessarily bring shopper back to a store repeatedly.
Brick and mortar stores need to figure out not only how to drive traffic, but also how to increase the purchase amount and conversion rates, create loyalty and return customers and more.
Cyriac Roeding, founder of location-based mobile shopping app Shopkick believes that the mobile phone is key to the future of commerce for stores. In case you aren’t familiar, Shopkick automatically recognizes when someone with the free Android or iPhone app on their phone walks into a participating store. Once a Shopkick Signal is detected, the app delivers reward points called “kickbucks” to the user for walking into a retail store, trying on clothes, scanning a barcode and other actions. These rewards can be used towards purchases.
Rodeing says that the role of the physical store will change in the future. What online stores cannot offer (which brick and mortar outlets need to realize) is the one-on-one personalization and personal treatment that a physical store with employees can. And in-store shopping brings immediate gratification because a customer can take home the item with them as soon as the purchase is complete.
And mobile is how you bring personalization back to the in-store purchase experience. The challenge, he explains, is to make this experience worth the consumer’s time and money.
eBay (NASDAQ:EBAY) is also trying to help physical retailers drive traffic into stores via its Red Laser barcode scanning apps, which now integrate in-store listings, prices and availability from Milo. As eBay’s Jack Abraham (who founded Milo) says, brick and mortar retailers need to be where their customers are, and that decision-making is now happening on phones.
“There are clearly companies that are positioning themselves as destroying brick and mortar retailers but we’re positioning ourselves to be an ally for the retailers,” he says. eBay recently launched a new campaign, where consumers who spend $100 at Toys “R” Us, Dick’s Sporting Goods and Aeropostale (NYSE:ARO) using PayPal, will get a $10 voucher to spend in store.
How To Personalize The Experience: Data!
How brick and mortar stores are going to be able to personalize and make the in-store shopping experience unique is through data, in my opinion. It’s no longer about creating a mobile web site or offering coupons; the experience centralizes around making customers feel as if they are being treated like a VIP just by walking into a store. And how brick and mortar stores are going to do that is the same way Amazon was able to create a business out of personalized e-commerce.
Some retailers are attempting to use video and heatmaps to try to see how people shop, what they are buying and more. But this data is limiting because while stores can figure out what is working when it comes to placement, advertising, and marketing of products in-store, retailers still don’t know who is buying and how to get them to return.
Personalization really gets interesting with transaction data. Shopkick recently teamed up with Visa to allow consumers a way to receive rewards points for retailers at the point of sale when they use their Visa credit cards. This is part of closing the redemption loop. The redemption loop starts when a consumer sees an ad or an offer for a merchant, and is completed when the consumer makes a purchase and that purchase can be tracked back to the offer. Thus far startups, tech companies and credit card companies have started to use transaction data as a way to close the redemption loop and drive future purchases but this is relatively new to brick and mortar retailers.
With the Shopkick deal, brick and mortar retailers could see what items a consumer purchased and deliver discounts, and special offers based on purchase behavior. And this can be delivered via the mobile phone.
Of course, this would all have to be an opt-in experience for shoppers considering the privacy implications. But many consumers use the personalized experience of Amazon when buying books, electronics and others items, so why not replicate this in the physical world?
This means more partnerships with credit card companies like Visa (NYSE:V), MasterCard (NYSE:MA) and American Express (NYSE:AXP). Online payments giant PayPal also sees this as a huge opportunity for physical stores. PayPal announced an in-store payments technology both via mobile and point of sale systems that is currently being tested on a ‘friends and family’ basis in a national retailer in two markets.
The opt-in offering will include location-based offers, making payments accessible from any device and offering more payments flexibility to customers after they’ve checked out. Users will have the ability to access realtime store inventory, receive in-store offers, and real-time location-based advertising from stores. While exact details are still unclear, it sounds like PayPal will use location and transaction data to help in-store retailers improve the experience for consumers.
PayPal is partnering with a at least 20 known top-tier retailers, which will be unveiled in 2012. We hear about the initial retailer as soon as this year.
PayPal’s Anuj Nayar tells me candidly that retailers are desperate for this offering. “The fact is that most retailers have no idea about customers until they are leaving the store and that comes down to data.” He says PayPal is working with in-store retailers to create a suite of tools and technologies that help use technologies to level the playing field when it comes to data.
One thing that is clear is that retailers need to jump on the mobile, personalization and data bandwagon very soon. Online retailers are only getting more aggressive (i.e. Amazon), and it’s only a matter of time before online retailers start to ramp up their existing personalization offers even more.
Roeding says that physical retailers who doesn’t focus on mobile in the next six months are going to face a major problem in the next year. But it goes beyond just created a dedicated site and mobile app. Brick and mortar retailers need to find a way to be in as many mobile applications as possible, such as ShopKick, PayPal, and eBay, where potential customers are deciding what to buy and where.
Abraham echoes these thoughts, explaining that retailers need to be part of search results, especially in mobile search results. “If they don’t, they risk getting lost in the age of the post-pc era,” he says. eBay is building out its own predictive data capabilities with the recent acquisition of Hunch, and we can expect more data-focused features to be rolled out soon.
As for which brick and mortar retailer is going to be the first catch on the mobile and data wave when it comes to in-store shopping, my bets are on Wal-mart. The retailer has been particularly aggressive on the technology front, buying social and mobile ad targeting company OneRiot, and social media startup Kosmix. Wal-Mart (NYSE:WMT) is already experimenting with a number of in-store mobile services, including things like NFC, barcode scanning and in-store geo-fencing.
There’s no doubt that 2012 could be a pivotal year for brick and mortar stores. But they need to act fast and start providing a unique experience for customers or risk being left in the dust by Amazon.