Keep an eye out for retailers: They're already watching you

How the "Internet of Things" is changing retail

CINCINNATI - Macy’s Inc. is testing a new system of in-store kiosks that expand its inventory of handbags available to customers.

It’s just one more in a continuing evolution through which Macy’s – and other retailers - are blurring the lines between online sales and brick-and-mortar stores.

The new kiosks are being tested in 40 stores, including Kenwood Towne Center. If the system works with purses, Macy’s will expand it to other merchandise.

“What it does is give our smaller and mid-size stores a larger selection to choose from,” CEO Terry Lundgren told shareholders at the company’s annual meeting May 16, where the company had a kiosk on display. “You’ll be able to point and click and buy this item. In most cases, if it’s above a minimum (price) it will be delivered to you free.”

Macy’s is hardly alone in its use of technology that blend the digital world of tomorrow with yesterday’s physical infrastructure. It’s a developing universe that some have called the “Internet of Things,” in which objects embedded with sensors communicate needs, wants, ads, thoughts and transactions all the way up the food chain. Not to mention computer programs devoted to manufacturing, logistics, building maintenance and marketing.

Everybody’s Doing It

A recent report by Deloitte showed the digital impact on in-store transactions is “greater and growing faster” than previously thought. The consulting firm estimates digital technologies influenced 36 percent of all retail transactions in 2013. That’s $1.1 trillion in retail spending.

In the kiosk category alone, the pace of change is staggering.

Staples Inc. told investors May 20 that customers placed 400,000 orders on in-store kiosks in its first quarter, during which kiosks accounted for nearly 5 percent of total sales. McDonald’s Inc. told investors May 16 that it now has over 1,600 self-order kiosks in its restaurants

Panera Bread Co. in March announced it would spend $42 million on a new ordering and payment system that will let its customers place orders via smart phone or in-store kiosks.

Dick’s Sporting Goods, H.H. Gregg Inc. and Home Depot Inc. are all using kiosks as selling tools, the companies explained to investors in recent earnings calls.

Kroger uses kiosks to sell movies, process photos and let its pharmacy customers check their blood pressure, weight and glucose levels. In fact, kiosk retailer Outer Wall Inc. reported May 1 that its Redbox and Coinstar kiosks generated $55 million at Kroger stores in the three months ending March 31. That’s 9.7 percent of total revenue.

At the International Council of Shopping Centers convention in Las Vegas in mid-May, Spring Valley, N.Y. -based ITM Kiosks LLC hawked a high-definition touch screen product that displays ads and distributes coupons even as it collects cell phone data and takes facial scans to identify the gender of shoppers. The 42-inch-by-80-inch display panel provides a searchable mall directory and calls up retailers’ web sites, while asking shoppers for their email addresses to receive future discount officers. The kiosk allows mall owners to receive daily traffic reports and analytics on the shoppers drawn to its flashy screens.

The units sell for $8,000 to $15,000. The company is running a 30-mall pilot with Pyramid Malls in upstate New York.

“This generation, it’s natural for them to touch a screen and interact to get information,” said Ryan Wolfe, director of accounts for ITM. “Nobody clips coupons with their grandmother any more.”

From Kiosks To Beacons – The Mall Is Watching You

Cleveland-based Forest City Enterprises has been analyzing shopper behavior by tracking shoppers' smart phones since 2011. It uses the data in lease negotiations and to measure whether mall events are attracting new shoppers.

“You can see what percentage of the attendees were new to the center, or hadn’t been to the center in four or five months,” said William Ross, executive vice president for asset management at Forest City, with regional malls in Pittsburgh, Atlanta and several California cities. Ross participated in an ICSC panel that explored privacy issues from smart-phone tracking.

“Location appears to be becoming a commodity, a traded piece of data,” said one of the panelists, Cyrus Gilbert-Rolfe, vice president for Path Intelligence, a UK-based firm that contracts with Forest City to analyze shopper behavior through cell phones.

 

Gilbert-Rolfe said many consumers are willing to trade their location data for improved service and discount offers. He envisions a retail environment where “my phone is a proxy for me and there are more and more services available to my phone.”

We surveyed some local malls to see if beacon technology is deployed here. Tri-County Mall and Kenwood Towne Centre say they’re not using beacons. Northgate and Florence Mall did not return calls.

The Federal Trade Commission has been studying the technology . Some consumer advocates call it spying. Industry trade groups argue consumers benefit as long as companies are transparent

about how they use the data and allow consumers to opt out of being tracked.

Here’s how it works: Every smart phone has a unique identifier known as a MAC address (media access control) that can be picked up by beacons that communicate with phones over Bluetooth or Wi-Fi. These 12-character ID numbers aren’t tied to personal information, but they can be interpreted so retailers know whether the cell phone passing their front door belongs to a man or a woman, a Baby Boomer or Millennial, or what stores they shopped before coming to Macy’s.

Kroger uses heat sensors to track the movement of shoppers through its stores, using the data to reduce wait times in check-out lines. Kroger also pioneered the use of loyalty cards to track the buying patterns of its customers, who have downloaded more than 500 million digital coupons on the Kroger smart phone app.

Retailers Hungry For Shopper Data

San Francisco –based Euclid Analytics told the ICSC privacy panel that it now has 5,000 units tracking cell phones in 30 countries and collecting 10 billion measurements daily. It scrambles MAC addresses to keep shoppers anonymous and allows smart phone users to opt out of their tracking systems.

But as tracking systems become more prevalent, several technology providers at ICSC said consumers are demonstrating an increasing willingness to trade their personal information for VIP treatment.

“This is a complete game changer,” said Mike Toadasco, project launch manager for PayPal Beacon, a “hands-free” payment system that allows retailers to customize offers for loyal customers.

“You could walk into a casino … and they know who you are when you walk in,” said Toadasco, at an ICSC presentation May 19. “If restaurant A is packed and you’re standing in line, they know you haven’t moved in 20 minutes. So they send you an offer for a free glass of wine and say, ‘We’ll seat you right away in restaurant B.’”

The key to the new technology is consumer control, Toadasco said. By allowing consumers to opt out – or better yet, requiring them to opt in to the new technology – companies will avoid “the creepiness factor” that many observed in the movie, “Minority Report.”

 

 

In one scene, Tom Cruise’s character, John Anderton, is bombarded by personalized advertising messages as he walks through a mall. One screen tells him he “could use a Guiness right about now.” Another identifies him as an American Express member since 2037.

“This movie was supposed to take place in 2050,” Toadasco said. “While it is creepy in many ways, how they presented it in the movie, that technology itself is possible with beacons.”

Macy’s is one of 15 retailers now using Shopkick, whose ShopBeacon app steers discount offers to consumers who opt in to have their cell phones recognized in stores. As WCPO reported last November , Macy’s announced it would test the app in New York and San Francisco. Since then, Shopkick has announced new partnerships that’ll activate ShopBeacon at thousands of stores nationwide, including Target, Old Navy, JC Penney and American Eagle.

The company claimed in a February press release that it has delivered $25 million rewards to shoppers and generated sales for retail partners in excess of $800 million.

Back to Macy’s

Numbers like that will make the growth of such technology inexorable. And these are but a few of the ways in which retailers are blurring the lines between transactions that happen online and in stores.

“We shipped a lot of inventory from the northern stores to the southern markets in the last few months,” Lundgren told reporters May 16. Because of harsh winter weather, “we just were not selling a lot of shorts in Chicago. So, we were shipping them to Miami and it was fine.”

Macy’s made that possible with a multi-year technology initiative that established fulfillment centers in all of its 650 full-line department stores. Now, if merchandise is out of stock in Kenwood, RFID technology (radio frequency identification) allows the company to find the item in another store or one of Macy’s “megacenter” warehouses. Macy’s is investing $170 million in its fifth megacenter in Tulsa, Okla. The logistical improvements enabled rapid deployment of its new Buy Online Pick Up in Store initiative. Piloted in 10 stores last fall, Macy’s plans to roll it out to all stores by this summer.

While it may seem expensive to ship a tank top from Tulsa just to book a transaction in Tampa, it beats the alternative: Not making a sale.

“Paying for freight is less expensive than paying for the markdown you’re about to take on inventory,” Lundgren said.


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