Local Retail Won’t Disappear — Mobile Will Transform the In-Store Experience

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smalltownE-commerce sales topped $1 trillion for the first time in 2012 and the recent struggles of once-dominant big box retailers have led many to think that technology will win entirely, an retail apocalypse is near.

But the belief by notable investors like Marc Andreessen that web-enabled remote commerce will simply absorb the physical economy underestimates the impact of mobility, and overlooks a more interesting question: What will buying things locally look like in 10 years? Beaten in both price and product availability by e-commerce players, local retailers will need to rely on the third-leg of the retail stool: in-store experience.

And in fact there are a number of startups currently building tools to help retailers avoid a losing battle in the price and product economies — which e-commerce dominates — and begin to develop a new “experience” economy built around mobile devices. The theory is that as e-commerce improves, and services like same-day delivery accelerate fulfillment, physical retail will cede the role of supplier, and will need to rely on consumer experience to remain competitive.

“The changes in the next five years in retail will be more profound and transformational than the last 100 years in retail have been because largely because of mobile,” Cyriac Roeding, CEO of Shopkick, a mobile loyalty application that awards points to consumers who walk into stores, told me in an interview. “I don’t think people will go because they need something. I don’t even think they’ll go because they want something. I think they’ll go because they want to feel better.”

In December, Nielsen reported that Shopkick’s mobile app surpassed Starbucks’ wildly popular proprietary app in usage to become the fourth most-widely used shopping app in the U.S. To date, the company has focused on enabling retailers to award “kicks” — a sort of universal loyalty currency — to consumers based on merely walking into the store thanks to a unique technology that uses audio signals to detect when Shopkick customers enter a location. But Roeding envisions the service as a porthole through which consumers can engage with a store in the same way that a consumer would interact with Amazon, delivering information and incentives in real-time on the customers mobile device.

By capturing, processing, and delivering information to customers as they browse a store, Roeding and others believe that retailers can recreate the personalized retail experience that big box economy destroyed. It’s mom-and-pop at scale.

“Over the last thirty years, retailers have figured out ways to deliver scale, discount pricing, and large inventory through big box merchants,” said Marc Ferrentino, CEO at Nomi, an early-stage startup working to build a CRM solution for retailers. “The tradeoff which we made as consumers was that we lost that personalization. We were cattle essentially.”

Ferrentino, a former chief technological architect at Salesforce, left the enterprise powerhouse with Wesley Barrow, a Buddy Media-turned-Salesforce sales director, and managed to raise over $3 million in seed funding in less than two weeks last December. At launch, the service captures data generated as a bi-product of customers’ wi-fi connections and helps provide retailers with analytics about their foot traffic. Ferrentino and his team want to do more than analytics eventually want to move beyond analytics to create a customer relationship management system that helps physical retailers create a single experience, and identity, for consumers both in-store and online.

Where analytics tend to lump and split, segmenting consumers into various buckets, the theory is that new tools paired with smartphone adoption should allow for retailers to create personalized experiences for each customer. “You start to realize very quickly that it’s not about creating a model for segments, but a model for people,” he added.

But that kind of personalization — the ability for Amazon to show me books on fishing because I just bought a rod and reel — is a harder nut to crack in physical retail. Physical retail needs to solve the same identity problem as ecommerce sites – how do we convince consumers to build an identity with our business – but in a largely inert, offline environment. That means taking the consumer from being anonymous and offline, to anonymous and online, to online and identified.

That’s where the smartphone comes in. Roeding believes that mobility is “the critical linchpin” to making this process work for retailers.

“It’s the only interactive medium that you carry around with you in a non-interactive physical environment,” said Roeding, a longtime mobile vet who founded CBS’ mobile efforts before taking a position as an entrepreneur-in-residence with Kleiner Perkins Caufield & Byers. “The challenge is how to use the smartphone to personalize the in-store experience it in that you’ve never experienced it before.”

Over the past few years, the industry has come up with three solutions to identity problem in local retail. The first is loyalty. Companies have borrowed from the analog days, and used rewards and incentives to convince people to create identities with the retailer. Others have digitized transactional processes like payment (Square, LevelUp) or reservations (Venga), and in doing so convince the consumer to create or share a digital identity with the business.

And then there’s the “check-in.” With it, companies like Foursquare created a way for consumers to share a digital identity with a businesses in a way that was fundamentally native to the mobile device. Personalization is an often overlooked asset of Foursquare’s closely-watched-yet-widely-misunderstood service, and one that lays the groundwork for the company’s fight against Yelp in local discovery.

Once the identity problem is solved — and I can take an action in-store and a merchant’s system can record, analyze and customize my experience accordingly — one would imagine that the pace of innovation would accelerate. In-store, that data could allow a merchant to pull out my size immediately, attribute the best sales staff to the highest spenders, or recommend items based on past purchases. Out of store, it could play into a retailer’s re-engagement campaign, customizing messaging based on not only what I bought, but I what I looked at as well.

The growth in smartphone adoption and wi-fi access paired with emerging technologies like Bluetooth LE should help accelerate adoption of these tools by both retailers and consumers, say Roeding and Ferrentino. Local is slow, and innovation will likely take some time, but an experience economy is coming to local retail. The question is whether the current ecosystem can adopt and adapt.

Steven Jacobs is deputy editor at Street Fight.