What's Next in Connected Stores

From digital dressing rooms to multi-channel attribution, retailers are closing the gap on online and offline customer experiences.
Customer Experience

The days when brick-and-mortar stores were closed off from other retail channels with limited insights into their customers' behaviors are ending. Innovative retailers are beginning to apply real-time insights to improve store operations and better engage customers.

With the advent of wireless sensors, RFID tags, in-store analytics, and other technologies, traditional stores are gradually becoming connected stores. There isn't a clear path to modernizing a store, however, and retailers must experiment to find what works for their customers. Here, we look at some of the most promising (as well as challenging) aspects of creating a connected store.

The Digital Dressing Room
Retailers are increasingly experimenting with technology and data-driven offerings to create personalized experiences for in-store shoppers. For instance, luxury clothing designer Rebecca Minkoff's flagship store in New York City is outfitted with interactive screens that provide additional assistance.

In the fitting room, shoppers can tap the mirrors, which are powered by eBay, to activate product screens that recognize the RFID-tagged clothing in the room. As shoppers try on the clothing, the mirror displays suggested items that complement the clothing on one side of the mirror. If the customer is unsure about a particular item, she can save her fitting room session to an app and purchase the item at a later time at the store or online.

On the backend, store managers are able to track whichitems were taken into the fitting room, what was purchased/not purchased, and which styles resonate with its audience.

On the show floor, shoppers can tap interactive mirrors to flip through look books of outfits or place an order for coffee or a glass of champagne while waiting for an available dressing room. To place a drink order, shoppers must enter a phone number, which store associates use to communicate with them when their drink and dressing room is ready.

While the Rebecca Minkoff brand is largely known for its handbags, the connected store has led to a boost in clothing sales. Within six months, the company saw 6 to 7X increase in ready-to-wear sales which it attributes to its enhanced in-store experiences, notes Emily Culp, senior vice president of e-commerce and omnichannel marketing at Rebecca Minkoff, in a video about the company's connected stores. The company has also opened connected stores in Los Angeles, San Francisco, and Chicago.

Sephora Flash
Sephora, the cosmetics giant owned by LVMH, is trying out its own digitally connected store. Last year, the company opened a new boutique called Sephora Flash in Paris. In a statement, the company points out that at 100 square meters, the boutique is much smaller than its average stores, which are typically 400 square meters. But the company makes up for the lack of physical space with a digital catalog.

Here's how it works: Upon entering the store, customers pick up an NFC-enabled card that serves as a virtual shopping basket. A limited selection of products are available on the store's shelves, alongside screens with a digital catalogue of more than 14,000 products. If an item is not in stock at the store, customers can supplement their physical shopping basket by adding the order to their digital basket with the card.

Shoppers can also find more information about a product, such as a perfume, by placing the tester, which is equipped with an NFC tag, on a reader and adding the item to their virtual basket. Both physical and digital purchases are paid for at the checkout counter in the boutique. Plus, customers can choose to have online items delivered to their home or pick them up at the Sephora Flash store.

While Sephora's massive flagship stores are still popular shopping destinations, maintaining such stores is expensive. Blending physical and online shopping experiences in smaller outposts allows brands to supplement the benefits of shopping in a brick-and-mortar store with a website's virtually limitless inventory. Unsurprisingly, Sephora has said it plans to open more Flash locations in areas where the larger stores don't have a presence.

Although connected stores show promise, examples like Rebecca Minkoff and Sephora are still in the minority. There are numerous challenges to adopting new technology in a way that's sustainable and profitable. Companies should be wary of implementing technology solutions without a long-term strategy for integrating those systems into the organization, warns Nikki Baird, managing partner at Retail Systems Research.

When it comes to adopting Internet-enabled devices, many "retailers are being unrealistic about how quickly the technology will be adopted and make a significant impact on their businesses," Baird says. "The challenge for retailers is that IoT is a platform technology, with many applications across almost every organization within a retailer. But if too many divisions run off and pilot and test their own individual use-casesthe retailer will end up with islands of IoT and no ability to leverage its investments across the company or even across the customer journey."

Dipping a Toe into Dynamic Pricing
Dynamic pricing is another strategy that retailers are experimenting with. Airlines, hotels, and e-commerce titan Amazon are already accustomed to changing prices based on a variety of factors. Brick-and-mortar retailers are also entering the dynamic pricing fray with digital tools.

Consumers expect brick-and-mortar retailers to keep up with online retail. Whether they're shopping online or in-store, 82 percent of U.S. consumers say they expect a retailer's prices to be the same, according to a 2015 survey of shoppers conducted by Accenture's retail division.

Electronic price tags and shelf labels now make it possible to change prices within seconds, providing online-like functionality in a physical location. Beacons also allow retailers to deliver coupons in real time to logged-in shoppers via an app. In fact, electronic shelf labels are expected to become a $2 billion industry by 2019, according to ABI Research.

However, while retailers would like to exercise the same flexibility with prices as a company like Amazon, few companies have figured how to actually implement it successfully, Baird maintains. "Part of the unrealistic expectation is driven by the fact that most of the competitive action for dynamic pricing is perceived as coming from Amazon, and so the interest level is high without a strong understanding of how non-Amazon retailers might actually implement it," Baird notes.

Brick-and-mortar retailers are also limited in the degree to which they can match the dynamic pricing strategies of online sites. While Amazon may change its prices multiple times in one day, customers would be aggravated to find that the price of the flat-screen TV they bought from a store that morning had dropped in the afternoon. While consumers may say that they expect brick-and-mortar retailers to match the prices of online retailers, putting those expectations into practice also requires careful planning.

Addressable TV ads and Stores
Indeed, engaging shoppers with "shiny new technologies makes for some pretty flashy headlines," writes Forrester Research analyst Adam Silverman in a blog post, but "iron-clad digital store success stories are few and far between."

Smart retailers, Silverman continues, will combine data from sources like online behavior, in-store analytics, supply chain, and labor planning to make operational decisions in real time.And while no one has completely solved the puzzle, retailers are making incremental progress in connecting data to gain a full understanding of their customers.

For example, retailers are uncertain whether TV ads send targeted viewers into their stores. PlaceIQand Acxiom'sLiveRampare tackling that issue. The companies recently unveiled the results of a consumer behavior model that is designed to connect addressable TV ads to actual store visits. The companies conducted a number of campaigns for a variety of brands in the retail, tourism, and automotive industries.

In analyzing the campaigns, PlaceIQ combined its location insight and store visitation measurement capabilities with Rentrak's household and TV audience measurements, and LiveRamp's data onboarding and connectivity services to match the audience segments. Over the course of several weeks, the TV ad campaigns showed a strong correlation with a 70 percent lift in visits to retailers, a 50 percent lift in visits to auto dealerships, and a 20 percent lift in visits to targeted tourist destinations.

"Most businesses don't know what their customers do outside of their stores, but now they can make a connection between households that were served ads about certain products and store visits," says PlaceIQ Chief Strategy Officer Derek Thompson. "This can help retailers, for example, start to understand who their customers are and how far they've traveled to reach their stores, which can better inform their messaging strategies."

A connected store means something different to every retailer but as these examples show, those that are designed around the customer's behavior and preferences are likely to have the most success.