How retailers track your every move in exchange for coupons and convenience

Attention shoppers: Your data has never been more valuable.

Once upon a time (in February 2020), you could walk into a store, casually browse its wares, and try things on, making sure they fit and felt right before you decided to buy them. Maybe you joined a few friends for social interaction over coffee at the in-store cafe. You could even buy things in relative anonymity using cash.

Online shopping eschews this experience in favor of data-driven convenience. Physical stores were already losing ground before the pandemic drove customers away, and now they’ve had to accelerate their efforts to build out their online and contactless offerings before they’re put out of business for good. Curbside pickups, mobile apps to order and pay for products, even virtual changing rooms have become routine and are likely to continue long after the pandemic ends.

That’s not necessarily a bad thing for customers. Brick-and-mortar stores with expanded digital sides have a larger selection, provide personalized recommendations and deals, and give you the ease and safety of shopping without having to leave your living room. But taking shopping out of shops means customers can’t feel, smell, or taste products before they buy them, or ask a real human salesperson for advice or information. Some things can’t be reproduced inside a mobile app.

Another major and meaningful downside is the continued loss of your privacy. Retailers love data, and their online arms can give them a lot of it about you and your shopping habits. The more a retailer knows about its customers, the more likely it is it will be able to sell them its product. This was true long before the internet existed, but the internet has given companies the ability to collect so much more information about their customers and how to advertise to them.

The changing retail landscape isn’t just about the end of flagging brick-and-mortar stores; it’s also about the growth of data-driven retail. Stores can collect and use customer data that inform every stage of the shopping process, and they’re getting better and better at it — which in turn means that customers are more likely to buy more things and give stores even more data. Anonymous shopping is fast becoming a thing of the past. The future of the department store — assuming it has one — is here, and it wants to know everything about you.

Data collection that gives customers nothing in return is going out of style

Retailers have many ways to acquire data about their customers, some of which is more obvious and mutually beneficial than others. They might purchase “insights” from location data providers that track foot traffic into and out of their stores — or into and out of their competitors’ stores. Many of these location data companies acquire their data through trackers placed in the code of unrelated apps, with customers being none the wiser that they’re there at all. Cellphone providers have also been caught selling customer location data to seemingly any company that’s willing to pay for it.

Retailers may also use data brokers to market products based on whatever demographics or interests those brokers have assigned to you from whatever data they’ve collected about you. Oracle’s Data Directory, for example, includes more than 150 companies that help businesses target their ads to people based on categories such as income level, homeownership, political affiliation, and hobbies. For instance, a retailer can send a list of customers to a data broker and have it matched with its “new parents” audience segment, allowing the company to send diaper ads or coupons to customers who are very likely to need them.

Several years ago, Nordstrom got in trouble with customers when it revealed people were being tracked via strategically placed sensors that picked up their phones’ wifi signals as they walked through the company’s stores. These services can collect the unique and unchangeable ID numbers from devices, allowing them to build a profile of the device’s owner over time and repeat visits. Device manufacturers now make this kind of tracking more difficult by obscuring permanent device IDs, and Nordstrom ended its wifi location tracking a few days after mass outcry from customers who didn’t like the idea of being surveilled while getting nothing in return.

“That was not a very popular amenity with customers,” Jason Goldberg, chief commerce strategy officer at Publicis, told Recode. “Usually, when retailers would get caught doing that, there were negative ramifications. Today, retailers are less into installing things to exclusively track you and more into installing things that provide some amenity to you — and in the process, also give them more visibility to how you’re shopping.”

Customers are opting into data collection that gives them something back

There’s a reason why seemingly every brand has an app and wants you to use it as much as possible, or encourages you to create an account and log in whenever you browse its website. This way, they can collect a ton of user data, usually tied to personally identifiable information that customers provide when creating accounts — names, email addresses, home addresses, credit card information — which can be reliably connected to a specific customer and tracked over time.

Apps can even track users’ movement through stores. Tiny Bluetooth beacons, which transmit signals to any Bluetooth-enabled device within a certain proximity, can detect devices through store apps to get a sense of where a shopper goes and how much time they spend looking at certain products or in certain sections.

“Because you’re using their app in proximity of beacons, they can correlate the data that’s coming over the wire pretty easily to you,” Sean O’Brien, founder of Yale’s Privacy Lab and principal researcher at ExpressVPN’s Digital Security Lab, told Recode. “So some retailers don’t have to rely as much on third parties as I’d say they used to maybe five years ago.”

In these cases, however, customers must opt in to the tracking process by downloading and using the apps. To encourage customers to use apps as much as possible — and create personally identifiable accounts on those apps — retailers offer discounts and services the customer wouldn’t otherwise get. Macy’s and Target, for example, both spell out in their privacy policies that their mobile apps may use Bluetooth to help customers “find nearby products or receive real-time offers” or “find nearby products for you, get you real-time deals, [and] auto-sort your shopping list.” These perks also encourage customers to return to the stores or buy more to take advantage of those deals.

“You can build customer loyalty,” O’Brien said. “These are other tangential effects that are really helpful for businesses as well.”

This data isn’t just useful for stores targeting products to individual customers. It also gives them lots of information about how customers in aggregate are using and interacting with their stores, which can then be used to predict customer behavior or supply chain issues and plan or adjust accordingly. This has especially come in handy during the pandemic.

“Companies that made investments to build out a data lake of information that they know not just about their customers, but about different product SKUs linked to the supply chain, linked to inventory planning — all those sorts of investments then support the ability to be more agile and resilient at a time like this, when you need to quickly anticipate changing demand for certain products, changing customer traffic patterns and shopping patterns,” Christian Beckner, senior director of retail technology and cybersecurity at the National Retail Federation, told Recode.

Some retailers even use their data and customer relationships to lure in advertisers, who are increasingly turning away from third-party sources — for example, web browser cookies or data brokers — and leaning into first-party data, which stores have collected directly from customers. Retailers that provide this service tell advertisers they can provide better feedback than traditional digital ad services on who sees their ads and whether they’re purchasing those wares.

“Walmart has an initiative with over 1,000 employees called Walmart Media Group, Kroger has one, and Target has one called Roundel,” Goldberg said. “They all are trying to become advertising networks. And one of their core advantages over other advertising networks is they have first-party data that includes your purchase behaviors. So the financial benefit to them of collecting that information is now much higher because they can monetize it by selling it to advertisers.”

How the future of retail will continue to leave the smaller players behind

While many retailers were already pursuing initiatives to build out their e-commerce offerings to stay competitive with online-only retailers, the pandemic has created an even greater demand for those services. Retailers that can ship products directly to customers’ homes or offer curbside pickup of purchased goods have a distinct advantage over retailers that don’t. And retailers that allow customers to browse and buy products in their stores with as little contact as possible do, too.

“Things like buy online, pick up in store or curbside, or being able to do in-store returns for e-commerce transactions — all those types of things that companies have been working on prior to Covid built the foundation for being able to operate in this environment where people are reluctant to go into stores,” Beckner said.

Augmented reality applications that allow customers to virtually try a store’s offerings have gone from gimmicky to necessary, as most people are no longer able to shop in person. Macy’s app uses augmented reality to show customers what Macy’s furniture looks like in their own living rooms; Ulta’s lets customers virtually try on makeup; and Kohl’s turned to Snapchat to give younger customers a way to try on clothes from home. But retail experts aren’t sure how successful these efforts will be, and privacy experts aren’t thrilled with the personal information they collect.

“I think this is something that’s more of a nice-to-have,” Beckner said. “I don’t think it’s something that is a real competitive driver for retail businesses.”

And then there are the human-free or human-reduced stores that companies like Amazon and Walmart are experimenting with. The stores use a variety of surveillance technologies to keep track of products and customers, who use their apps to purchase goods or get more information about them while also minimizing their contact with other people. Customers can feel safer when they shop, and retailers get more data about them. But it’s also leaving behind the retailers who don’t have the resources to innovate.

“Nike, Walmart, Amazon are all flagship examples of retailers that have redesigned their stores to be kind of mobile-first physical stores,” Goldberg said. “The downside there is like the smaller retailers that should also be doing that are just in too much financial jeopardy to invest in it right now. So even though they might recognize that would be a smart long-term play, they’re more worried about making their rent.”

The biggest stores have to worry about rent, too. While Walmart, Target, and Home Depot have thrived during the pandemic, offering customers easy access to some of the most in-demand products — from food and toilet paper to 12-foot-tall skeletons — traditional department stores have continued their downward slide. J.C. Penney, Lord & Taylor, Neiman Marcus, and Century 21 all declared bankruptcy during the pandemic. A month before Covid-19 was officially declared a pandemic, Macy’s announced it would close 125 stores and lay off thousands of employees as part of a three-year “Polaris” strategy to “focus our resources on the healthy parts of our business,” including loyalty programs, digital growth, and rethinking the size and features of its physical stores (less mall, more small).

So, what will the department store look like when this pandemic is over and it’s safe to browse indoors again?

You can meet your friends at the in-store cafe — group selfies encouraged! But be sure to tag the store’s Instagram account, which features fresh looks you can buy directly through your social media account. Also, order and pay for your coffees ahead of time via the mobile app, both to avoid annoying lines and to get 10 percent off as long as you’re a member of the loyalty program — which, by the way, tracks your purchases.

You can also browse the store’s limited but rotating selection. There are new exclusive items every week — subscribe to the newsletter so you don’t miss the latest. If a shirt you saw on the website isn’t in stock, that’s okay! You can “try” it on using the virtual mirror and have it sent to your house with same-day shipping, which is free for loyalty club members. And if it doesn’t fit, that’s no problem — you can fill out a return form in the app and drop it off using curbside return.

Everything cashless, everything easy, and everything monitored.

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