July 5, 2016
This analysis is by Bloomberg Intelligence analysts Anurag Rana, Jennifer Bartashus, John Butler, Chen Grazutis, Michael Halen, Caitlin Noselli, Seema Shah, Mariam Sherzad and Jitendra Waral. It first appeared on the Bloomberg Terminal.
Analytics and mobile are increasingly leading retailers to divert capital spending from stores to develop tools to better understand customer behavior and customize merchandise. The rise of predictive analytics can combine internal customer information with social media data. Meanwhile, mobile apps make merchandise more easily accessible.
Model and investor David Gandy says there’s more to be achieved in mobile shopping. Photo: Bloomberg Media
While these technologies may provide significant competitive advantages, not all retailers have the capital to implement them. This analysis explores how tech is revolutionizing retail.
Mobile to boot computers to be primary shopping device by 2020
Retailers must create a seamless mobile shopping experience to gain market share. Mobile offers convenience and access, which are at the forefront of consumers’ minds.
- More than 310 million smartphones will be in use by 2019 vs. 242.9 million in 2014, according to IDC
- About 42 million U.S. consumers will exclusively use their mobile devices to go online by 2020, up from 27.8 million in 2015, eMarketer estimates.
This jump represents a huge market opportunity for retailers willing to invest in technology.
Larger smartphone screens spur retailer mobile commerce growth
The rising use of smartphones for shopping underscores how important it is for Amazon, Target, Victoria’s Secret and other retailers to provide a better user experience, including navigation, search, upload and refresh time.
Smartphone screens have gotten bigger, expanding to about 5 inches or larger vs. 3 inches for early models. This makes it easier to browse and buy from retailers’ apps and mobile-commerce sites.
With bigger screens on models like the Samsung S7, it’s easier to browse and buy on your phone. Photo: SeongJoon Cho/Bloomberg
About 20% of 4Q online sales came from a smartphone vs. 10% in 1Q14, according to Custora data.
- Screen size for the first Samsung Galaxy smartphone, the GT-I7500, was 3.2 inches in 2009
- The new S7 screen is 5.2 inches.
- Apple’s original iPhone screen was 3.5 inches in 2007
- iPhone 6s has a 4.7 inch screen and iPhone 6s Plus has a 5.5 inch screen.
Investment critical to drive retailer gains in mobile commerce
Retailers may continue to shift more capital spending to support electronic and mobile commerce growth, even if margins are hurt.
J.C. Penney plans to gradually ramp up capital spending to $400 million from $320 million at year-end 2015 and allocate more to technology infrastructure.
Abercrombie & Fitch’s investments helped mobile account for 40% of online sales at year-end. Kohl’s is also focusing on mobile growth.
According to Internet Retailer, 303 of the top 500 mobile retailers have apps, up from 269 in 2014.
Focus on mobile commerce delivers higher sales for Kohl’s, peers
Greater retailer investment to support mobile commerce is also aiding store traffic and resulting in higher conversion to sales. New York & Co., American Eagle, J.C. Penney and Kohl’s all cited higher conversion rates from mobile in their 4Q15 earnings calls.
Mobile-phone conversion rates for Kohl’s improved 59% in 2015 vs. the prior year. While phone generated sales, it represented a small piece of Kohl’s revenue. Enhanced customer experience through advancements in mobile may help sales grow further.
“I think I’m most proud of the fact that our overall conversion rate for the year approached 4% for all devices, but our conversion rate on the phone, which is a lot lower than desktop and tablet, improved 59%. So, our investments in improving the app especially was definitely well received by the customer… There is 11 million downloads of our app and growing, so that’s a big portion of our IT investment going forward as well.”
– Wesley S. McDonald, 4Q15 Earnings Call, Kohl’s, via Bloomberg Intelligence
Wal-Mart, Target, Kohl’s traffic gains show mobile app payoff
Retailers are tapping technology to find new ways to engage shoppers once they enter their stores or as they plan to visit. Target recently added manufacturer’s coupons to its Cartwheel app, giving coupon clippers or shoppers seeking more savings an easier way to find and redeem discounts.
The Cartwheel app drew 85% more unique visitors in June vs. the prior year, according to ComScore.
High-quality mobile ordering apps fuel restaurant share gains
Several restaurant chains with high-quality mobile apps, including Domino’s, Starbucks and Taco Bell, gained market share in 2014 and 2015. The chains attracted customers, particularly millennials, with mobile ordering, mobile payment and/or loyalty programs that enhance the diner experience, boosting customer satisfaction scores.
Taco Bell’s app and website are both oriented toward personalization. Photo: David Paul Morris/Bloomberg
Digital ordering has other benefits, including faster throughput inside the stores and higher average tickets for delivery orders as customers have easy access to the entire menu.
Apparel retailers may be slow to adopt latest technologies
Dwindling sales, weak in-store traffic and increased competition have weighed on many apparel and department store retailers’ results, leaving them with little capital flexibility to explore new technologies.
While internet retailers have found solutions to drive higher customer conversion through data analytics, the transformation by brick-and-mortar retailers will be led by those who can afford the new software and hardware installations, which are expensive.
Growth in consumer hardlines sales tied to technology adoption
Adoption of critical technology, including data analytics, is mixed within the consumer hardlines sector, which includes home improvement and furnishings.
Early adopters such as Williams-Sonoma, Lowe’s and Ulta Beauty have seen sales growth by using customer data to create more personalized and targeted direct marketing. Retailers such as Bed, Bath & Beyond and Ethan Allen delayed capital spending on technology, resulting in weak sales and margins as they struggle to resonate with tech-savvy millennials.
Among the many retailers using analytics is GNC, which is working with Dunnhumby to segment its 7 million Gold Card members to boost one-on-one engagement and drive profitable sales. Customers known to Pier 1 Imports through analytics are at all-time high spending levels.
Amazon, internet retailers are most advanced analytics users
Internet-based retailers such as Amazon.com are at the forefront of advanced analytics, using the latest machine-learning technologies. Given that most of these retailers are cloud-based, adding analytics capabilities is easier than for large-box retailers that are still in the process of moving to an agile IT architecture.
These predictive analytics programs combine internal customer information with data from social media platforms such as Twitter and Facebook. This helps companies better understand their customers.
Athletic retailers use analytics to boost customer engagement
Athletic and activewear companies such as Under Armour are using consumer analytics to improve their products and customer experience.
Athletic brands that have benefited from the recent popularity of “athleisure” continue to invest in products in an attempt to monetize data collected from various tracking devices.
Under Armour has a culture of breaking barriers, which has resulted in a consistent strategic direction. Photo: Luke Sharrett/Bloomberg
These are embedded in items from wristbands to running shoes. Under Armour recently announced partnerships with HTC and IBM that will build on its prior acquisitions of fitness applications.
High-end retailers more likely to embrace new technologies
High-end and luxury branded retailers may be quicker to adapt to new customer-centric software and technologies given their inherently higher profit business compared with discount stores.
Intel’s new radio frequency identification technology, which Levi Strauss is testing, enables store associates to find any item’s exact location, in real time, to improve in-stock displays and boost customer satisfaction. Fitting-room applications are another area to highlight, assisting customers in finding desired product.
Embracing new technologies to better manage inventory is beneficial for retailers sales and margin expansion. Ralph Lauren, Lululemon and Macy’s are piloting fitting room applications to improve conversion and customer satisfaction.
Customer-centric technology may deliver higher sales, margin
Retailers investing in new technologies can boost sales and margins by improving customer experience. Ralph Lauren, Lululemon, Nordstrom and Macy’s are piloting fitting-room applications.
Macy’s, for example, is testing a mobile app that customers can use in fitting rooms to request sizes and other items. Limited capital spending and the need to upgrade legacy systems pose challenges to adoption of new technologies
Manufacturers and retailers with higher spending budgets are more likely to try new technologies.
Smarter, more connected: It’s not your father’s retail industry
Falling data storage and sensor prices are providing retailers greater insight into their customers and businesses, enabling them to better manage their inventory and improve engagement with shoppers.
Data gathered from these sensors can also help retailers gauge foot traffic, helping predict labor needs and optimal product location. Analytics on real-time data is becoming a major factor in determining retailer success, and could lead to higher customer retention and cross- selling opportunities.
Security spending may stay strong despite weak retail sales
Rising cyber-attacks, especially in the retail industry, are driving greater investments in data security and enhanced security architectures. This spending will likely remain strong despite weak retail sales over the last few months.
End-to-end data encryption at the point-of-sale terminal and additional security features at the hardware level may drive the higher spending. Increased use of connected devices and cloud-based software will create additional demand for advanced security safeguards.
– Compiled by Shannon Doubleday | July 5, 2016