Retail Trends for 2012

As technology continues to change the way we do business, retailers must weigh the benefits of being ahead of the curve versus the risks, and the disadvantages of falling behind.

By Erin Rigik, Associate Editor.

In a scene from the futuristic movie “Minority Report,” Tom Cruise’s character walks through a shopping mall while 3-D screens scan his eyes and display customized ads that call his name and showcase products tailored just to him.

While such concepts may have seemed farfetched, if not down right unnerving, when the movie debuted in 2002, digital signs that use facial recognition to target ads based on perceived age and sex have already arrived. The Venetian resort in Las Vegas, for example, is already using facial recognition in digital displays to tailor restaurant and entertainment ads to those walking past.

“The future is already starting, and when something is already starting we know it’s going to happen,” said business strategist and technology futurist Daniel Burrus, the founder & CEO of Burrus Research Associates Inc., and author of New York Times Best Seller “Flash Foresight.”

And the future—or should we say the present—is about to take c-stores by storm. While we won’t be seeing facial recognition equipped digital signs at the roller grill in 2012, mobile phone technology is set to offer a whole new world of capabilities that can help do everything from lower interchange rates and present new revenue streams to target individual customers.

“Every year we say it is going to be the year of technology, but I think 2012 is going to be the year of more useable technology than we’ve seen in the past,” said Frank White, director of marketing for Seven Hills, Ohio-based EZ Energy, which has 69 company-operated stores in Ohio and Pennsylvania, 17 of which are ampm franchise stores, and 23
contract dealer locations.

Smart Phone Revolution
A fundamental shift in computing is happening all around us. Decades ago, our primary computing device was a mainframe computer, which then grew powerful enough to become a desktop, which then led to the introduction of laptops and electronic tablets.

EZ Energy, for one, is planning to roll out iPads as a tool for its field agents and category managers to help efficiently manage tasks. But it is cell phones above all else that are poised to make the biggest impact in the coming years.

“The new primary computer is becoming your p

hone,” Burrus said. “But unlike the past, your phone is with you all the time and it’s your personal phone. That is a big deal because the phone is becoming your wallet, your purse, your car keys, your credit card, and that represents some opportunities for c-stores.”

Some 85% of the phones sold in 2011 have been smart phones, Burrus noted, while phones without Internet access, dubbed “dumb phones,” are slowing slinking into obscurity. Convenience stores and travel centers are taking note. Top quartile chains like Thorntons, Rutter’s and Pilot Flying J are rolling out smart phone applications—known simply as apps—to appeal to an evolving customer base.

The most valuable piece of technology to retailers right now, is the ability to create your chain’s own mobile app, which as Richard Crone, founder and CEO of Crone Consulting, explained “puts your brand in their hand.”

Mobile promises a shift to a customer relationship management (CRM) model that lets retailers know exactly who their customers are, and lets customers opt in and define how they interact with the retailer, including what brands, what products and what locations they want to have specific communications with, Crone noted.

“The one who enrolls is the one who controls,” Crone said, meaning whomever enrolls the customer for a mobile app controls the dialogue, can control tender steering for reducing payment costs and can gain new revenue by leveraging that information.

Product manufacturers are already enrolling customers in apps. If suppliers enroll the customers before retailers, then they’ll be the party pulling the strings by presenting retailers with consumer profiles and looking for expanded in-store opportunities to leverage that information. But retailers have the opportunity to also build a controlled base and gain valuable information to leverage to suppliers. In other words, the race is on.

“In the old school model it was location, location, location,” Crone said. “In the mobile world it’s locating, locating, locating. That means locating the store with a mobile app, locating the products that they want, locating the best offers and incentives and locating the payment type that is beneficial to retailers and the consumers in order to build loyalty.”

Retailers work hard to get the right location and stock that store with the right products. “Now the location is in the palm of the customer’s hand and that’s where they need to take their brand,” Crone said.

Cash or Cell Phone?
The technology to accept secure mobile phone payments is another area ready to take flight. “Chase bank is offering a way for people to transfer money between cell phones,” Burrus said. “They were doing that in Kenya three years ago, so the idea of mobile payments is not new on the planet, it’s just new for the U.S.”

The reason is that while America was diving into the credit card era, in countries, such as Japan, credit cards never caught on, meaning stores never installed the infrastructure needed to process them. So when near field communication (NFC) came along allowing payments with a mobile phone, Japan quickly installed the technology. But in the U.S., it would have required the expense of ripping out old equipment and installing new systems.

Not anymore.

“You do not have to do this using a hardware-based approach like near field communication. NFC was developed 12 years ago when we didn’t even carry cell phones with data plans and maps in them,” Crone said.

Starbucks, for example, has launched a mobile payment app completely independent of banks or third-party intermediaries using bar code technology. Consumers just load their gift card into the app and it presents a barcode reader that can be scanned at checkout. “They didn’t have to go through the carrier or device manufacturer. They could use the open channel on the phone,” Crone explained.

And more advanced approaches continue to debut. For example, technology exists for customers to use the camera on their phone to read barcodes.
If c-stores launch apps to allow mobile payments, they have the opportunity to use tender steering, where they lead the enrolled customers to the form of payment that is most beneficial to them. Starbucks, which Crone noted has the most successful retail payment app launched to date, saw a whopping one million transactions in just the first month, and in the first three months registered more than four million transactions.

One in four Starbucks’ transactions is made using the Starbucks gift card, and about one-fourth of those customers are using Starbucks’ mobile app to make purchases, Crone said. That reduces Starbucks’ costs considerably because even if customers fund that prepaid card with a credit card, after the original interchange to load the card no interchange fee is charged when the card is swiped because a private label gift or credit card is a friendly tender—interchange free.

But more importantly, mobile payments make the customer connectable by default. “The real value for Starbucks is that their customer is contactable before, during and after every sale,” Crone said.  This data allows retailers to profile those customer preferences based on where they purchase, what they purchase and when they purchase. That information is also valuable to CPG’s. “There is a whole new revenue stream that comes from providing information from that enrolled base,” Crone said. “But you don’t get to play in any of that if you’re a c-store unless you enroll the customer for your own app.”

Enhancing Loyalty
Loyalty programs have seen a surge in membership in recent years, but in 2012, “loyalty is going to become a must-have,” said EZ Energy’s White.
To stay ahead of that curve, EZ Energy’s EasyTrip stores rolled out OpenStore Dashboard by GasBuddy in October. “We’ve had pretty good initial success even with limited advertisement for it,” White said.

Gas Buddy gives EasyTrip a centralized social media marketing platform that includes a free mobile app, store specific Website, exclusive deals and specialized offers made available via these mediums. “Customers can text in to join, or folks that visit our Facebook or Twitter pages can opt in as well, so it centralizes all of those platforms into one segment and gives us one way to communicate with them simultaneously,” White said.

EZ Energy was attracted to the app’s ease of use, as well as the opportunity to push promotions to several different media outlets at one time. “It also gives us individual store Web pages,” White said. “If we want to advertise in a specific market— which is key for us because we have a couple different markets we’re working in—it gives us a chance to customize the promotions to the stores.”

White noted that as more chains opt for loyalty partnerships and reward offerings, such as the Giant Eagle Get-Go partnership, Family Express’ F.E. Perks and Speedway’s Speedy Rewards, “it would be a disadvantage for anyone who doesn’t have loyalty. Loyalty doesn’t necessarily mean a price rollback program, but a way to capture your customers’ attention to keep them coming back.”

EasyTrip is taking loyalty a step further by partnering with Outsite Networks and Catalina Marketing. “The Catalina coupon program ties into your point of sale and is partnered with national vendors, proprietary products and also vendors we sign up to deliver bounce back coupons to our customers right at the point of purchase,” White noted. As soon as customers make a purchase it awards the designated coupon EasyTrip aligns with that purchase for them to use on their next visit.

With the loyalty platform from Outsite Networks, which the chain is currently testing in one of its markets, EasyTrip will have the ability to give rewards for merchandise, offer bonus clubs and also fuel rewards at its locations.

Burrus agreed that loyalty marketing has an increasingly important role. “We’re starting to see more c-stores that have frequent user programs that are built in electronically with no paper involved, so people come back and use, perhaps, points to make purchases in that convenience store,” he said.

Some businesses are looking at loyalty points that are liquid, meaning the points can be used as actual money, allowing customers to buy things using those points with their phone. “Think of hotels and frequent flyer points that could be converted instead of being just used in one way,” Burrus said. “Now they could be used in many different ways because they are tied into this mobile solution.”

Driving New Business
While connectivity with customers is a challenge, the technology exists for retailers to quite literally push customers toward their stores. Geolocation is technology shows the real world location of a person when they are using the Internet. Geo information systems are being used more and more to help customers find what they’re looking for based on their current location.

“Let’s say it’s 10 p.m. and I need some triple A batteries. I ask my phone, and there may be a c-store close to me that sells them, but if they’re not connecting their inventory to the Internet, they don’t show up, so I will go somewhere else,” Burrus warned.

Technology is increasing moving in this direction. GPS-based systems, for example, used to just give us directions to an end destination. “Now they are becoming so integrated with the car that they can detect when you’re low on gas and say, ‘The gas station at the next exit has the cheapest gas between here and your destination,’ or can point out the nearest tire shop if it detects your tires need service,” Burrus said.

To be part of this revolution, “our systems need to be connected to the cloud, where all that data resides so people can have access to it,” Burrus said.
The key is for c-store owners and executives as well as franchise owners to realize the value in the upgrades. “It is allowing us to connect to these new opportunities,” Burrus said. “We need to ask better questions if we’re the part of a chain, such as, ‘Hey, can people find us? Are we visible? Are we going to be part of the electronic wallet? Are we going to be first or are we going to be last.’”

Burrus is quick to note that change is good when we’re prepared. “We need to pay more attention so we aren’t caught by surprise, because we can then see the opportunities available to us.”

 

Weighing the Risks of Mobile Payments

The new LexisNexis’ 2011 True Cost of Fraud Study found the most recent growth in acceptance of mobile payments is from small merchants. In 2011, about 7% of small merchants surveyed accept mobile payments, up from 2% last year. A stagnant 13% of large merchants also accept mobile payments.
Currently, the mobile Web browser is the most commonly accepted payment method, followed by apps. Text SMS and contactless payments are the least used. However, no payment method receives a clear vote of confidence from merchants in terms of safety.

“From a fraud perspective, mobile could go horribly wrong for merchants because there is so much private data on those devices—the whole risk profile changes. But it could also go horribly right because people could get notified all the time as new technologies allow individuals to work with merchants to protect themselves,” said Jim Van Dyke, president and founder, Javelin Strategy & Research.

Mobile inherently raises risk factors that don’t exist in traditional channels, such as in person or online, according to Jim Rice, director of market planning, retail and communications markets for LexisNexis. Retailers embarking on mobile, therefore, are making sure the approaches they’ve taken to manage risk on their traditional channels are solid, because those can help mobile, “but they’re also looking at new ways to handle the mobile channel and really identify the risk in that as well,” he said.

When going mobile, think about what fraud solutions and risk strategy you have in place, and where your fraud methods can extend across payment types. Making sure you have a way to know your customer’s identity quickly and in a noninvasive way is crucial in preventing identity crimes.

 Switching to Self-Service

While mobile applications are increasing at retail, self-service at convenience stores may not be far behind. A May 2011 consumer survey conducted by The NPD Group for NCR Corp. polled a representative sample of 400 U.S. consumers and found that the majority believe self-service technologies, such as self-checkout and kiosks, improve the store experience. According to the study:

• Two in three consumers would prefer to have self-checkout available when they shop in a physical store. Chains like Home Depot and Lowe’s are now investing in the technology.
• More than half of consumers find having the option to use self-service kiosks or self-checkout is important for creating a positive experience.
• Almost 46% of consumers want stores to offer more self-service options, like self-checkout or kiosks, to improve their shopping experience.

“Grocery stores have the longest history with self checkout, but we’re finding people are so familiar with the technology that it’s easy to introduce into c-stores,” said NCR’s Rick Chavie, vice president of retail marketing. “What we’ve seen at chains where we’ve implemented it is that consumers can prefer stores with self-service checkout because they know they can get in and out fast. It also leaves more time for the c-store operator to do other things inside the store such as stocking shelves.”

While grocery stores were the first to lead the self-checkout trend, Walmart has followed suit, as has CVS and other drug stores. In the c-store sector, Quick Chek has also implemented self-service checkout. And it is likely more retail stores will follow in the coming year.

In 2012, look not only for more self-service kiosks, including for lottery, but also software that allows customers to check out with a mobile phone right at the pump—then check their loyalty points balance and access a digital coupon on their phone in real time, Chavie said.

“With customers so used to managing transactions, self-service is a logical next step. It’s where all the different segments of retailing are headed,” Chavie concluded.