Can smart stores save the high street?
Can the technologies that have fuelled the success of e-commerce platforms revitalise high street retail?
14 June 2017
The growth of online e-commerce platforms has been eating into the revenues of high street retailers for years now, to the extent that we may be inclined to take the demise of the high street as inevitable. But what if the same technologies that have fuelled the success of those e-commerce platforms could revitalise high street retail? It may sound counter-intuitive that the big data technologies of the online world should succeed in brick and mortar stores, but that is precisely what is being trialled by many innovative retailers.
The enduring appeal of bricks and mortar
It is worth remembering that despite the impressive success stories of the leading online retailers, in 2016, the UK spent a total of £358 billion on retail sales, of which only 15.7% on e-commerce sales. So, despite the convenience of being able to order at a click from a PC or phone, the real life experience of walking into a real-world shop still clearly holds an appeal for many shoppers. Steve Yankovich, head of innovation and new ventures at eBay, puts it well in an interview with Fast Company: "People still want to use their five senses, not just the one sense you use when you're doing e-commerce". If brick and mortar retailers have this advantage over e-commerce, they have as a rule lacked the high degree of personalisation that has characterised online shopping. But can internet technologies be used to enhance the real world shopping experience to match the level of ease found online - delivering the best of both worlds?
Making the online magic work offline
The ability of online platforms to track customer's browsing habits and collate data from millions of users has provided them with detailed profiles of their customers, enabling them to offer a more tailored experience. When customers walk into a physical store, without an app or browser to track their clicks, are those real world stores doomed to be passive, de-personalised displays of wares for the customer to navigate? The answer of smart store pioneers is a resounding "no" – there are many ways to leverage those online technologies in a physical environment, with a little innovation and ingenuity.
One key thing to replicating the personalisation strategies of online e-commerce is the ability to track consumer's shopping habits. Retailers have been tracking what customers do in their stores for a long time - using the humble footfall counter or loyalty cards to monitor long-term spending patterns. But the emergence of smart phones has broadened the possibilities: retailers can now use signals from consumers' devices to track their movements down the aisles - recording how they move, where they pause to browse products, how long they spend in each part of the store etc. If the customer is willing to download the store's app, which collects more detailed personal information and user tracking functionality, the retailer can further enhance the granularity of the data. This data can then be collated and analysed to improve store layout and target individual consumers with personalised promotions.
In-store tracking, however, doesn't stop at wi-fi signals and voluntarily downloaded apps: advances in facial recognition software has given rise to technologies that not only identify and track the consumer throughout the store, but can determine gender, age and even mood. Ekaterina Savchenko of Synqera, a Russian start-up developing in-store communication technology, explains their version of this software: “If you are an angry man of 30, and it is Friday evening, it may offer you a bottle of whiskey” . NEC, the IT services provider, has also started deploying a facial recognition system in Japan that matches new and returning customers.
Smart vs creepy
These technologies, impressive as they are from the technological point of view, raise an issue that could shape the development of smart stores: how comfortable are consumers with this level of surveillance - this precise mapping of their data, their locations, their faces, even their emotions? The challenge for smart stores will be deploying the same sort of data analysis that was pioneered online in a way that is both acceptable to the customer and within the boundaries of data privacy legislation.
In particular, consumers may feel less comfortable when they feel a lot of their data is being collected, but are unsure who has access to it and why it is being collected. Retailers are increasingly using a number of intermediaries, dubbed 'smart-store enablers', which offer analysis services to extract value from their collated data. Some of the data collected could also be sold on to third parties who intend to use the data themselves. This sort of indirect re-use may sit uncomfortably with many customers. While they might be happy receiving targeted promotions from their favourite high street retailer, they might feel less at ease if others, such as insurers and credit agencies, had access to information on their spending habits and used it for their eligibility, price premiums, or asses credit-worthiness.
Questions also arise not just about who might have the data, but exactly what data they are tracking. The Radio-frequency identification technology (RFID) used widely in the retail sector is able to track the location of small electronic tags found on product labels by picking up the distinct frequencies they emit via radio waves. However, few may be aware that the tags can continue to be tracked well after the consumer has left the shop. Concerned by the potential intrusiveness of this technology, the European Commission agreed, in 2014, on new technical standards on RFID chips, as well as advice to retail associations to promote customer awareness. While it isn't a requirement, the European Commission also issued a recommendation that companies deactivate any RFID tags at point of sale, unless they obtain consent to continue.
Alongside tags and video tracking, another possible source of information could be audio recordings. Already some institutions have launched, and use, monitoring listening devices for their staff safety. Would it not be valuable for a retailer to further pick up on shoppers' conversations, feed the audio data through natural language processing and extract from it detailed pictures of customer sentiment? Would many consumers feel that this is a step too far? The deeper the data collection goes into the substance of shopper's communications, the harder it may be for the consumer to agree that there is a reasonable trade-off between privacy and consumer experience benefit. Audio from the Amazon Echo Alexa device has recently been used as evidence in a murder trial. While Amazon argued that it had no duty to disclose this information (as it happens, in the relevant case, the defendant consented to disclosure), it was clear that the recording, and all the relevant data, existed and was available for retrieval. There may be a thin line between audio processing and surveillance.
A question of balance
While customers know they are sharing information when entering into a real-life smart store, the extent of the ongoing data collection might be unclear. Of course, this is a problem shared with the online world - many people similarly will not be aware of the digital footprint they leave when using e-commerce websites. However, in real life this can sit more uncomfortably with the customer. Cookies that track some specific data points online (clicks, likes, location etc.) may seem less invasive of privacy than potentially broader real-life capture technologies, especially when they involve audio or video.
Of course, not all consumers find being tracked in-store to an extent unsettling. In fact, when the benefits of enhancing the customer experience are highlighted, many respond favourably. Amazon has set up a trial store, called Amazon Go, which tracks customers and the items they pick up and will then charge the customer directly to their account on exit, without having to go through a cash desk process. According to a survey carried out by Shorr Packaging Corp, 84% of respondents said they would enjoy the type of shopping experience offered by Amazon Go more than the traditional type. The same survey also found that millennial respondents were five times more likely than baby boomers to be "extremely likely" to shop at an Amazon Go store. If retailers get the balance right, therefore - shoppers may buy in to a measure of tracking.
Securing informed consent
From a data protection law stand point there is the potentially tricky general issue of actually obtaining informed consent in a physical, rather than an online, environment - terms and conditions about data collection will have to be brought to the customer's attention. Customers are unlikely to want to repeatedly read and sign consents upon entry into a store. While consumers frequently click "I agree" without thinking twice on e-commerce websites, this might be an element that is harder to convert to real life.
Consumers therefore might be able to get more comfortable with in-store tracking where they can give informed consent, but this raises a number of separate issues. Around how consent is obtained, one particularly tricky problem is where the shoppers are children, or children even merely accompany their parents into a store. Where a company targets data collection efforts on children under the age of 13, the UK Children's Online Privacy Protection Act 1998 requires consent from their parents, and the data must then be deleted within 30 days of use. Data privacy rules relating to children are particularly fraught from a reputational perspective.
The high street strikes back
The retail sector has already embraced many forms of technological innovation – and the smart store is evidently something both retailers and consumers see benefit in. Smart store technology is essentially a way of deploying certain data collection methods that have already proven their worth online in a new environment. The danger that smart store innovators will need to keep front and centre in their designs is the risk of triggering a backlash from privacy-conscious shoppers against overly invasive forms of data collection. But if they can get the balance right and use the data to enhance the shopping experience and find seamless ways to inform shoppers about the scope of the processing of their data, they may find that consent is readily forthcoming. Armed with smart store technologies done right, the story of the high street may turn from one of inevitable decline to a levelling of the playing field.