Retailing, the High-Tech Way


When you last went to the grocery store, did you take a long time deciding whether you should purchase that box of Tide detergent? And by chance, did you place back on the shelf the Bounce softening sheets after scrutinizing the box? Did you then pick up a competing brand? All these actions may have been monitored for Procter & Gamble (PG) to help it translate your behavior into ways to better package and position its Tide, Bounce, and Downy brands to capture more of your business.

How is all that information collected? The minute you enter some stores, motion sensors and cameras are detecting your every move and expression. Then it's all digitized and scrutinized. "We don't want to rely on intuition anymore. We want to base all our decisions on facts," says Simon Angove, president of Brickstream, which studies customer behavior for Best Buy (BBY), Bank of America (BAC), CVS (CVS), P&G, and others.

"DRAMATIC SHIFT." While sensors and video cameras are just starting to make their way into some banks and supermarkets, retailers have been collecting data on customers for years, capturing their purchase decisions from loyalty-card programs and credit cards. Now retailers are starting to use all that data like never before to help with everything from scouting new store locations, to analyzing customer whims, to adjusting the temperature in the store so that it really is a cool place to shop (see table below).

"There has been a dramatic shift in the past 18 months where retailers are viewing technology as a must-have, rather than a nice-to-have," says Tom Madigan, vice-president for retail at Oracle (ORCL). "Technology is really becoming the competitive differentiator."

And that's sending retailers on their own shopping spree. Companies in the sector plan to spend an average of $76 million each this year on technology, up 18% from $64 million in 2004, according to AMR Research.

SEARCH DISCOVERIES. For retailers, the must-have data are customers' purchase histories. That information reveals much more about their habits than a lot of other data that retailers used to rely on, like demographics. By analyzing transactions and even how people are searching on Web sites, companies can readjust their product offerings on the fly.

Consider retail giant Wal-Mart (WMT). It uses software to monitor what its customers search for on its Web site. It noticed that a lot of people were visiting wal-mart.com in search of products for their pets. But the retail giant was carrying those goods only in its bricks-and-mortar stores. In March, after seeing that "pet merchandize" was the top search query from its Internet shoppers, Wal-Mart expanded its online offering to include pet goods.

"Pet merchandise has consistently been a top search component at Walmart.com, and by complementing what our Wal-Mart stores already offer, we're making it possible to buy great pet items without pet-store prices," says Tricia Doty, Walmart.com's director of merchandising, home, and family.

TAILORED FOR WOMEN. Wal-Mart is pioneering another technology. As of January, it requires its top 100 suppliers to put radio-frequency ID tags (RFID) on all shipments. The move was heralded as the most important tech development for retailers since the bar code. The tags already help Wal-Mart with reordering, stocking, and keeping track of purchases. RFID tags continually gather information as products move from shelves to the check out counter. It also curbs shoplifting and boosts store productivity. Consultant Accenture estimates that RFID technology could reduce the cost of checking inventory by 65%, in part, by eliminating the need to physically count boxes.

Retailers like $27 billion Best Buy are even tailoring shopping to individual customer needs. After years of building up the electronic-goods retailer by carrying the latest cool gadgets, in 2004 Best Buy started to focus on the customer. By analyzing its shopper base and buying trends, the retailer discovered that one population was underserved: Women.

So last year, it launched 68 concept stores in California and Nevada where personal assistants provide female shoppers with information angled to their needs. Rather than throw stats at them, say, about the number of pixels in a digital camera, these representatives walk women through the camera's use and how it applies to their needs. "We are enabling her transformation into a big-time electronics buyer by talking her language," says Nancy Brooks, a Best Buy vice-president.

IN AND OUT QUICKLY. Best Buy must be on to something: In the first quarter, net income soared to $170 million, compared with $114 million a year earlier, and revenue increased 12%, to $6.12 billion from $5.48 billion a year earlier, well ahead of the $5.98 billion in sales analysts expected.

Bank customers, too, are benefiting from new technology. Remember when the lines at your local bank were so long you could balance your checkbook while you waited? The customer is certainly king at many branches of Bank of America and Wells Fargo (WFC). They use a service from Brickstream that helps manage how long customers wait. When sensors show that more than five people are in line for a teller, bank managers get automatically beeped so they can put on extra tellers.

Brickstream found that more often than not, bank customers don't even walk into a branch if they see more than five people in line. They'll get irritated if they wait more than five minutes. And they'll say service is bad if transactions take longer than five minutes. "We found that five was the magic number for banks," says Brickstream's Angove.

CUSTOM COUPONS. Then there's the loyalty card. Think it's low tech? It may be, but the data it generates is a thick vein of gold for retailers. Using the latest data-mining techniques, they can extract information that will help them stock their stores, discount products, and woo you back into their shops with sales on the product they know you like.

Loyalty cards, issued by pharmacy stores like CVS and Duane Reade and supermarkets Kroger (KR) and Albertsons (ABS), are one of the most popular gauges of shopping habits. Most of these stores offer special discounts only to card users.

And each time you use it, you're helping the store take note of your shopping list. No wonder you'ave been getting coupons for just the kind of cinnamon cookies or organic yogurt you like -- the store knows that you bought them on a previous visit. And maybe you noticed that the customer toting a baby in front of you got different coupons for diapers and baby food. It's called targeted marketing -- and it's being used more and more by supermarkets.

INDUCEMENTS TO SPEND. Loyalty cards help get customers in the stores. But once they arrive, retailers want to keep them happy. That accounts for the explosion in ambiance technology -- automatic lighting, electronically controlled sensors that keep the store comfortably cool, and even digital music piped in via the Web.

The goal: get consumers to spend more time browsing in the store and spend more money. Services are now available that let stores use satellite, Internet, or cable to download the latest in-store music that matches the demographics of the area that they serve and that can even blend store promotions into the music selections.

For the discerning clothing shopper, technology is helping them match colors -- even basic black. It might sound pretty simple, but it's difficult for a store clerk to know which brands carry the exact shade at a department store so you can match your favorite pants with a jacket from another designer. Since each designer and brand have its own code for colors, store clerks have no way of knowing which one is an exact match.

CLOSELY WATCHING. But that day isn't far off. Oracle is starting to test a program for Nordstorm that would let clerks match colors from different designers. "It won't be long before a store clerk can suggest a Donna Karan jacket in the exact same shade of black as the Ellen Tracy silk blouse you just bought," says Oracle's Madigan.

Whether retailers watch their customers closely in the store, track their loyalty-card purchases, or help them match colors, the shopping experience is getting a high-tech makeover.

A Sampling of Retail's New Tech

It seems retailers are on their own shopping spree. Companies in the sector plan to spend an average of $76 million each this year on technology, up 18% from $64 million in 2004, according to AMR Research. Check out what some retailers are doing with their new tech wares:

IHOP Restaurants

The restaurant chain uses sophisticated mapping, demographic, and modeling software to measure how many homes around a potential location are occupied by families, the chain's primary customer base on weekends. These tools help IHOP identify a potential location within seconds, instead of what used to take weeks.

Wal-Mart

Wal-Mart uses software to monitor what its customers search for on its Web site. In March, after noticing that "pet merchandise" was the top search query, Wal-Mart introduced a new online channel offering pet goods.

Best Buy

Using data-mining technology to analyze its customer base and buying trends, the retailer discovered that women were being underserved. So last year, it launched 68 concept stores on the West Coast, where personal assistants help female shoppers with detailed information on the products they have on their shopping list.

Bank of America

Bank managers get beeped when lines for the tellers have more than five people waiting, alterting the managers that they should put on extra tellers. How do managers know this? The bank uses a service from Brickstream, which tracks customers via video monitors and sensors.

By Pallavi Gogoi in New York


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