The Future of Retail

More than 95% of browsers leave e-commerce sites without buying. Brick-and-mortar stores enjoy a much higher conversion rate: on average some 20% of shoppers at fashion boutiques make a purchase, 50% of those who enter electronics stores buy merchandise, while only 5% of people who go to the grocery store leave empty-handed. The key, as every brick-and-mortar retailer knows, is to get people into the store. But “if foot traffic is the number one objective of every retailer in the world, how come people are only rewarded for purchases and not just for visits?” asks Cyriac Roeding, a scheduled speaker at DLD14 and the CEO of shopkick, which created a shopping app for smartphones and tablets that compensates customers for entering stores. “Nobody has a clue who just walked into their shop. The only time they become aware of who you are and your presence is when they swipe your credit card. When you are saying goodbye that is when they say hello.”

Not for long. A new generation of simple, easy-to-use, low-cost devices offered by companies like Silicon Valley-based shopkick are enabling merchants to connect to their customers’ mobile phones as soon as they step into shops, opening the door to a wide range of personalized shopping experiences that are designed to combat a practice called “showrooming” — where consumers browse in-store and then buy online at the cheapest possible price.

What’s more, “this year, retailers will start leveraging and converting their retail footprint into logistical assets to enable shoppers to buy anywhere they want: in-store, on mobile, and on the Web, and get fast delivery, or pick-up in store the same day,” predicts PayPal CEO David Marcus in a blog post.

In this new omnichannel world merchandise and promotions will not only be consistent across all retail channels, adapting to consumers who want to use different channels simultaneously; the offers will be personalized according to a specific consumer’s purchase patterns, social network affinities, website visits, loyalty programs and other data-mining techniques.

Such technologies will allow brick-and-mortar retailers to come full circle. A hundred years ago when you walked into your neighborhood store the shopkeeper would say hello, ask you how your kids are and inquire if you enjoyed whatever you had purchased the week before. As chain stores took over from Mom-and-Pop stores, shopping became impersonal. Not only did the shop not know you, the salespeople were often clueless and unfriendly. So, when e-commerce sites appeared, offering the convenience of browsing and buying from your armchair at home — sometimes at a discount — with targeted, more personalized offers, the incentive decreased for people to get in their cars and visit shops.

“When you shop online a site knows every detail about you: who you are, where you live, where items are shipped to, what items you look at on their site and where you go after you leave,” says John Lunn, global director of PayPal’s developer relations. “In a real-world store you could enter every day for a week and they wouldn’t know. Real-world stores have to get access to data about consumers if they are ever going to compete with online.”

That is where new technologies, called beacons, which allow connected devices to communicate seamlessly, come in. For a consumer with a mobile phone who opts in, simply walking into a store equipped with beacons will trigger a vibration or sound, alerting the store not only that she has entered but transmitting information about who she is, why she is there and what she is seeking. Given this context, real-world retailers can then turn the shopper’s visit into a personalized, digital interactive experience.

Shopkick, which was launched in 2009 and recognized as a 2013 World Economic Forum Technology Pioneer, developed beacons for in-store use that stick to walls or other flat surfaces, and have a battery life of five years. Its beacons — which are based on ultrasound technology — emit an audio signal above the range of human hearing. The phone’s microphone picks up the signal, detects it, and decodes it. Once a store recognizes that a shopper has entered it offers “kicks” or rewards. This presence technology has already been deployed in 10,000 stores in the U.S., helping major retailers learn what consumers like to do and helping shopkick become one of the most popular shopping apps in the U.S. (Over six million U.S. consumers already use it.)

Incorporating Apple’s iBeacon, which uses Low Energy Bluetooth (BLE), into its shopBeacon technology will allow shopkick to take things to the next level: it can remind people to open the app by sending a push notification and allowing relevant offers to be made inside specific departments of a store, since BLE technology can communicate through walls.

Now shopBeacon can welcome a shopper when she enters a store and show her location-specific deals, discounts, recommendations, and rewards, without her even having to remember to open the app. It can also tie at-home browsing to in-store presence — if a shopper “likes” a specific product in the app, shopBeacon can remind her when she enters the store that sells it. It can also deliver department-specific offers — so a special offer on the boots she liked will show up at the most useful time — while she is in the shoe department, says Roeding.

Shopkick deployed the first iBeacon/BLE-based presence signal at any major retailer on November 20th last year. It is currently live in a closed beta trial at Macy’s Herald Square, New York and Union Square, San Francisco stores.

PayPal is developing its own beacon technology to help real-world retailers give consumers a better experience. It is promising that in 2014 consumers will be able to pay at stores hands-free, thanks to its own system, which is called PayPal Beacon. Consumers who opt in will not only be checked in within milliseconds; their photo will then appear on the screen of the point-of-sale system so they can be greeted by name. Paying will only require a verbal confirmation: no wallet, no credit card and no requirement to even touch your phone. The motivation for merchants is that today’s legacy cash registers are not Internet-connected, putting bricks-and-mortar stores at a competitive disadvantage.

Real-world retailers have been struggling to keep up with online merchants for some time. Early efforts by the brick-and-mortar stores to reach out to shoppers with digital services were clunky, even laughable. For example, in the early days of the Internet one of France’s major department stores launched a website that allowed Internet users to connect to the physical store online, via a webcam. Say you wanted to buy a necktie. Sales assistants on roller-skates would go to the appropriate department and hold up various models to the webcam until you found what you wanted. The service was not only difficult to scale: the website was down whenever the physical store was closed.

But retailers are getting a lot smarter about how to compete. For example, IBM has partnered with Fluid, a U.S. company that specializes in using technology and design to transform shoppers into buyers, to develop an Expert Personal Shopper. This service, powered by IBM's Watson (see the cover story) allows consumers to ask product questions in context, both online and via kiosks in retail stores. Fluid’s Watson-enabled app would draw on product catalogs, customer loyalty data, sales histories, user reviews, blogs, relevant magazines and publications and travel documents to give users personalized relevant information.

And if retailers play their cards right they might just end up having the last laugh. “Omnichannel is a chance for brick-and-mortar stores to strike back at e-commerce-only brands,” says Hjalmar Windbladh, CEO of Wrapp, a Swedish social gift-giving start-up that has expanded into the U.S. “The key is not to force consumers to buy offline or online but to look for customer acquisition tools that are channel agnostic.”

Wrapp is offering just that: it brings social commerce to retail by enabling social gift cards on mobile. These cards spread through mobile and social platforms, both for special occasions like birthdays and for more general purposes and are redeemed at real-world retail outlets or online. (Some 30 million of these gift cards have been issued since the company launched two and a half years ago.)

Windbladh stresses that retailers should see the gift cards and the friend-to-friend marketing as tools to increase sales across channels. “When you have an H&M gift card from your friend and you arrive in the parking lot of the mall and you are reminded that it is going to expire in four days it will push you to go into an H&M store rather than that of a competitor,” says Windbladh, giving the retailer a chance to upsell. And, if you are nowhere near an H&M store when the gift certificate is about to expire you can be reminded that the gift certificate can be redeemed online. “It is all about intent and context and the ability to use online or offline,” he says.

Retailers that have their own exclusive products are in the best position to compete against online-only sites, according to Windbladh. When you buy online, returns are a big problem. Retailers can allow customers to return things they bought online in real-world stores, avoiding shipping costs. Once consumers are lured inside the store there is a good probability that the retailer can sell them something else because conversion rates inside stores are much higher. And in the physical store, if they are out of your size, the sales clerk can check whether it is available online and offer to ship it to the customer for free.

What’s more, says Windbladh, there is a good opportunity for real-world retailers with nationwide coverage, such as Media Markt, a German chain of stores selling consumer electronics with numerous branches throughout Europe and Asia, to more efficiently compete with big e-commerce players, by, for example, offering to deliver the TV you just bought online to your home within two hours instead of several days or even weeks. “If you live in Munich, Media Markt knows it has four in a store nearby and instead of shipping centrally from another city in Germany they can get a local company to drive it a couple of blocks to your house within two hours for a fee," says Windbladh. Or, they could offer to hold it for you in the store and you can pick it up yourself at no additional fee, knowing that if they can get you into the store there is a good likelihood that they can sell you more.

Windbladh sees speedy delivery as an important weapon in the battle with online-only sites.

But online merchants aren’t standing still. Already e-commerce stores have opened bricks-and-mortar stores with very little stock. The idea is to enable customers to see the designs up close and then order them to be delivered to their homes or a destination of their choosing within an hour. In October eBay announced an agreement to acquire Shutl, the UK-based marketplace that uses a network of couriers to deliver local goods within an hour of an online purchase. The Shutl service will be used so eBay can offer its successful eBay Now experience (currently live in the U.S.), which allows customers to have items shipped to them based on their GPS location.

With both real-world and on-line retailers competing in 2014 to deliver more personalized, contextual and efficient services across different channels, the real winners are likely to be consumers.