How Retailers Are Turning to Tech

With e-commerce gaining steadily, bricks-and-mortar outfits are embracing new technologies to keep shoppers happy -- and spending

Newbie shoppers entering a Food Lion in Mooresville, N.C., might think they've come to the wrong place. The shop looks more like an electronics emporium than a traditional grocery store. Customers bustle about brandishing handheld scanners. Information kiosks dish out maps on how to find any item, such as that lattice pie crust hiding between aisles 7 and 8. And near the pharmacy, a high-tech blood-pressure monitor takes shoppers' readings and keeps the data for a year.

While this Food Lion experimental store seems extraordinary, technologies assembled within it could become commonplace within two years as retailers prepare for a makeover as dramatic as any on the Mix It Up home-design TV show. Gone will be today's cashier stations, price tags, paper sales signs, pharmacy waits, and deli lines. Hold on to your cart, because your shopping experience might soon have little resemblance to anything you experience today.


  What's behind this shift to technology? With consumers growing more accustomed to the quick convenience of shopping on the Internet, bricks-and-mortar retailers are having to hustle like never before. They increasingly find that new technologies are often the only way to keep costs down while offering customers a better shopping experience. Buyers appreciate kiosks that can suggest the perfect recipe to go with white wine. And a self-checkout that halves the time spent waiting in line can be a big draw.

Add changing demographics, and the time is ripe for shopping to get a tech infusion. As the population ages, buyers look for technologies that offset their declining capabilities. Baby boomers, for example, like gadgets that make up for their deteriorating eyesight -- such as the hand-held scanner Food Lion is testing out that displays an item's price and description in larger type. "A lot of the high technology is really addressing some biological problems that our society is having," says Craig Childress, director of prototype design research at human-behavior consultancy Envirosell in New York.

"If you really want to be here down the road, you have to look at consumer trends and change accordingly," says Susie McIntosh-Hinson, a concept creator at Food Lion. As a result, the $3.6 trillion U.S. retail industry now spends about 2.1% of its sales a year on technology, up from 1.8% in 2001, according to IBM Global Services' 2003 survey of 78 chief information officers and tech managers.

"The retailer is going to know you -- your size, your brand preferences -- better than you know yourself"

Early results indicate the payoff can be sizable. New gizmos and software can speed up sales growth from about 5% today to 7% to 8%, says Marshal Cohen, chief industry analyst with consultancy NPD Group. Consider this: By recommending curtains that go with the bedding a customer has picked, an in-store kiosk can increase that buyer's spending by 25% or more, estimates Francie Mendelsohn, president of kiosk consultancy Summit Research Associates in Rockville, Md.And an interactive digital store sign that chipmaker Intel (INTC ) is working on might notice that a buyer has put a bottle of shampoo in his cart and suggest a conditioner that complements it.


  This type of technology has one drawback, however, which could slow its adoption. To make shopping more convenient, "the retailer is going to know you -- your size, your brand preferences -- better than you know yourself," predicts Cohen. That means buying habits, preferences, and personal data will be collected by retailers, potentially sparking privacy concerns. Already, some customers avoid preferred-shopper, or loyalty, cards and make purchases with cash only. As stores get more high-tech, retailers will need to persuade shoppers that they won't sell or misuse their data.

If retailers can ease concerns, the store of the future will unfold. You can catch an early glimpse at chains like Stop & Shop Supermarkets, which is testing a device called a Shopping Buddy. This gizmo is the size of a large purse that attaches to a shopping cart's handlebar. It sports a flat screen that can scan a customer's preferred-shopper card to reveal a list of past purchases. A shopper can then use the data to compile fresh grocery lists, and the Buddy will direct them to the aisles where the items can be found. Research shows that most customers leave a grocery store still having something they wanted to buy but couldn't find.

Made by tech companies Symbol (SBL ) and Cuesol, the Buddy can also suggest an entree to make for dinner and provide customers with a related list of ingredients and cooking instructions. And at three experimental Stop & Shop stores, it allows shoppers to place an order with the deli: Just hit "the usual" button to order your favorite chicken sandwich. The contraption will notify the shopper when it's ready to be picked up. Stop & Shop is about to roll the Buddy out chainwide.


  Other clever technologies will boost retailers' profit margins by encouraging customers to take on some of the work typically done by store workers. IBM Research (IBM ) has developed a special scale allowing shoppers to weigh their own produce and get a price printout, so they can move through checkout faster.

Using five factors, including the products' color, size, and texture, the scale's camera is so precise it can differentiate between two different kinds of apples, which is something most produce managers struggle with. (That's why in many stores different kinds of apples are typically sold at the same price.) With this scale, retailers will be able to charge more for some kinds of produce. Better yet, the scale's software -- the same one NASA uses to enhance space photos -- can even identify fruit and veggies through plastic grocery bags.

Self-checkouts, representing about 5% of U.S. cashier lines today, reduce staffing needs as well. Typically, such setups allow one worker to oversee four lines instead of one, says Mendelsohn. As these are rolled out en masse in the next two years, they'll either reduce the total number of people hired or free workers to greet shoppers or demonstrate new products.


  Another area where technology can play a pivotal role is by reducing fraud and identity theft, which costs consumers billions annually. San Francisco startup Pay By Touch has developed a fingerprint-based electronic wallet already used at several Roundy's and Piggly Wiggly grocery stores. To sign up, customers scan a finger and swipe their debit and credit cards at an in-store kiosk. The next time they come to a cashier, their fingerprint reading will open a customized screen, with a list of their payment options.

"We guarantee that no one else can be interpreted as being you," says Craig Ramsey, Pay By Touch's CEO. This technology also reduces transaction time by 34%, allowing stores to handle more customers with fewer employees, he says.

However, the bulk of innovation will happen behind the scenes. Cuesol, for example, has developed a device the size of a cell phone that attaches to the front of shopping carts, pinpointing their exact location within a store. Then the carts all show up on a computerized map. If a manager sees scores of consumers heading to the pharmacy, staff can quickly be sent there to reduce lines. Cuesol will begin testing the system at select Stop & Shop stores in three months.


  The jobs of the rank-and-file will get easier, too. Software giant Microsoft (MSFT ) is developing a location-based information database that workers can use to get answers to customer questions. If a shopper asks a salesperson in the TV section how to get cable service, the database might retrieve a local provider's number. But the same question, when asked by someone in an area selling various cables and hardware components, might generate an answer like "coaxial cable." "This will enable employees to get up to speed and become educated quicker," says Brian Scott, general manager for the retail and hospitality industry solutions group at Microsoft.

Of course, high tech won't solve everything. Much can be accomplished by simply making stores less cluttered and their layout more immersive -- like the cosmetics sections in department stores, says Tom Gibbs, Intel's worldwide director of industry strategy. And it's important to keep in mind that "people can only handle so much change," Gibbs says.

Still, retail technology is about to take a giant leap. And it promises to be a profound -- and profitable -- one for both retailers and consumers.

By Olga Kharif in Portland, Ore.

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