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Is Traditional Retail Dying?

As CEO of a company that is working to level the playing field between online and physical retailers, I take special notice when established brands like Sears and Best Buy announce widespread store closings. Contrary to seemingly popular opinion, I don’t see announcements like these as proof that retail stores are dying. I believe, in fact, we are in a cultural and economic shift that will make physical retail stronger than ever — even as it forever changes how we discover, compare and purchase products.

There is no doubt that social and mobile technologies are profoundly changing consumers’ shopping habits and expectations, and the pace of this change is startling.  Even in our sluggish economy, online shopping in 2011 grew 15% over the previous year. Retail giant Amazon sold $1B through its m-commerce site and mobile applications in 2010, and that figure was forecast to double in 2011.

Currently, 35% of Americans own web-enabled smartphones, a number which is expected to skyrocket in the coming years. On Christmas day 2011 alone, 6.8 million iOS and Android devices were activated. Interestingly, from this rather large sample, half of smartphone owners say they have made some form of purchase using their mobile phone, highlighting the power of the mobile device in today’s retail landscape.

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This purchasing behavior represents a change that empowers not only consumers but online retailers, who enjoy numerous economic and logistical advantages over mall stores and mom and pop shops. Lower overhead costs and tax advantages enable online merchants to offer sometimes significantly reduced prices on everything from apparel to appliances. Because of this, it’s no wonder people are beginning to ask if retail stores can survive in this increasingly tech-powered environment.

For traditional stores to compete, they need to use technology to improve aspects of the in-store shopping experience that consumers care about, like:

  • Quality of customer service
  • What the store looks and feels like
  • How products are displayed
  • The experience of trying and buying a product

Seemingly, online retailers have an unfair advantage when it comes to using technology to improve their businesses. They are powered by sophisticated analytics and tracking tools that provide deep and useful insights into online behaviors and patterns. For example, online retailers know, in near real-time, how many folks have visited their store and how many have been there before. They know specifically which sections of the site have been visited and what and brands are of interest. Additionally, online retailers know how long consumers shopped, when they visited, how frequently they visited, and whether or not certain deals or ads attracted them to the store. In exchange, the consumer gets lower prices, greater selection, and a more convenient shopping experience that can be endlessly improved.

In comparison, offline retailers simply haven’t had the analytical tools at their disposal to understand customer movement at this level to deliver a tailored, personal shopping experience.  And delivering this top-notch, physical experience is key to retail success in the future.

Like many consumers, I appreciate the convenience of shopping online, but I love walking into a store and feeling the energy of other shoppers and interacting with the merchandise. This physical experience cannot be duplicated on the web (no matter how social it gets) and is only possible through visiting the store. If we empower physical retailers with tools to better to understand their customers, I believe they will respond with innovations that delight consumers and distinguish the real world shopping experience from the online world. In other words, they won’t die, but in fact thrive.

Why does this matter?

Despite the explosive growth of e-commerce, online sales represent just 7% of total U.S. retail sales, meaning the large majority of shoppers still spend in stores.  As a consumer, I am not ready to see these retail stores disappear and don’t want our downtowns to die because mom and pop shops can’t compete. 

So what’s the solution? 

By implementing a very simple technology to monitor shopping behavior via wifi, smartphone signals, physical retailers can successfully bridge the gap between the online and offline world.  By utilizing this mobile phone technology, retailers have the ability to view anonymous, aggregated shopper traffic data that will help them make data-driven business decisions to better serve their customers.  With these statistics, retailers can:

  • Measure customer loyalty;
  • Improve store layouts;
  • Make better staffing decisions;
  • Reduce wait times in checkout lines;
  • Create more attractive window displays;
  • Adjust store hours based on actual foot patterns; and
  • Make the merchandise people are looking for more accessible.

The smartphones and portable devices many of us carry around act as small radio towers emitting signals into the air. By using in-store sensors that recognize nearby wifi signals retailers can tabulate foot traffic patterns through the physical space. Unlike some analytics tools used by online retailers, the key in malls and physical retail environments is to develop a solution that never collects any personally identifiable information. As shoppers walk by, and then through a store, retailers don’t know who they are, rather where they are in the store.

With this in place, everyone stands to win — consumers get a better shopping experience and retailers are able to compete with the online world by making their customers happy.

But despite the myriad benefits consumers stand to gain, some are understandably uncomfortable with the technologies that make these business insights possible in the offline world.  As technology marches forward at a relentless pace, it’s easy to feel trampled upon and concerns about privacy and transparency make consumers uneasy. 

As a heavy user of the internet, I, like many consumers, am very aware of how my privacy is being protected, or not protected. This is why privacy should be the core driver of how mobile technology tracking providers develop and deliver services.

Some people immediately embrace the benefits of this next-generation technology and see it as inevitable and welcome progress. Yet others will be alarmed, seeing this as a possible privacy issue.  We live in an increasingly data-driven world with real benefits and real risks for consumers and retailers. As an engineer, I don’t believe that consumer privacy has to be compromised to deliver powerful business insights to retailers.

When the video cassette recorder (VCR) became commercially popular in the 1980s, many predicted movie theaters would be put out of business. In the end, the film industry was strengthened by the new technology and the demand for films it created.  I predict the same will be true for retail stores.  Though we cannot know all the ways the technologies we are creating today will change the industry, I believe we will come to appreciate and value the physical shopping experience even more, and retail will thrive.  

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