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These Retailers Are Profiting From the Smartphone Revolution

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Forget everything you've heard about social-media trends. These days, mobile devices are the real drivers of retail sales, at least according to a new study from Deloitte. But before we delve into the juicy details, let's first take a look at the ways in which technology is changing the retail landscape, and how investors can grab a piece of the action.

A new wave of shoppers
Today's consumer is more informed thanks to the rise of smartphones and advancements in mobile technology. As a result, retailers have to work harder than ever to build brand loyalty and connect with customers. Unfortunately, some retail chains are finding it difficult to remain competitive in this new retail environment.

It's no secret that big-box companies including Best Buy (NYSE: BBY  ) and Wal-Mart have suffered lately at the hands of so-called "showrooming." The electronics retailer in particular saw its most recent quarterly profit decline by 91%. Yet for much of 2012, Best Buy brushed off the growing threat posed by online merchants such as (Nasdaq: AMZN  ) .

Because Amazon doesn't have a physical storefront, it's able to keep overhead costs down. Ultimately, this allows the e-commerce giant to offer consumers more competitive pricing on similar products sold in stores like Best Buy. Last winter, the e-tailer changed the game again when it released a smartphone app that let shoppers compare prices of in-store products with those listed on Amazon's online marketplace.

Armed with such mobile apps, consumers can hunt the best bargains. In fact, new research from Yankee Group suggests that "46% of U.S. consumers use their smartphones to check prices and reviews while shopping at retail stores." But what Best Buy and others don't understand is that this doesn't have to be bad news for bricks-and-mortar businesses.

Embracing change
The companies that are most responsive to change will be the same ones that thrive in the years to come. Some of the top U.S. chains are indeed using the disruption of smartphones to increase in-store sales and drive more traffic to their stores. Target is especially proactive in its efforts to adapt to the changing world of retail. The discounter started aggressively expanding its mobile reach in 2010 with initiatives such as My TargetWeekly, which lets consumers customize alerts for special in-store product promotions.

Not to mention, Target took its partnership with Shopkick to the next level earlier this year, when it made the smartphone couponing app available in all 1,764 of its U.S. stores. Today, Target's mobile strategy consists of everything from a dedicated mobile site and SMS loyalty program to special iPhone, iPad, and iPod Touch shopping apps.

And it isn't just fashion retailers that are getting ahead with smart tech strategies. Starbucks (Nasdaq: SBUX  ) is also capitalizing on mobile retail trends and has done so for years. The coffee giant encourages repeat business with its My Starbucks Reward program, which it promotes through targeted SMS text-messaging campaigns. Starbucks also targets tech-savvy customers with mobile barcodes, augmented-reality apps, and mobile-payment solutions. 

Appealing to the mobile customer is a smart plan if you believe new data from Deloitte. As the research indicates, "By 2016 smartphones are expected to contribute $689 billion in retail store sales." This is particularly good news for brands such as Target and Starbucks, which are early leaders in mobile commerce. Moreover, the study shows a whopping 48% of smartphone users admit that their phones influenced their decision to buy a product while shopping in a store.   

Show me the mobile money
It's also becoming easier to use our phones to pay for in-store purchases thanks to mobile point-of-sale technologies from companies such as Square and eBay's (Nasdaq: EBAY  ) PayPal. Last month, the payment processor inked a deal with Discover Financial Services that will bring PayPal's digital payments platform to 7 million U.S. retailers next year. PayPal has been actively testing its point-of-sale systems since last year, when it partnered with Home Depot (NYSE: HD  ) .

Together with PayPal, nearly 2,000 Home Depot locations now offer shoppers the choice of paying with their mobile devices. This is especially appealing for merchants like Home Depot, because PayPal's system operates at a lower transaction cost than most traditional electronic terminals do. As more customers begin paying with smartphones, these mobile initiatives should create lasting value for the early adopters.

There's no doubt that mobile technology is having a transformative effect on the in-store shopping experience, and perhaps no company embodies that sea change better than Amazon. The Fool breaks down every key angle of the world's largest e-tailer in its brand new premium research report on Amazon.

Fool contributor Tamara Rutter owns shares of Amazon and Target. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice.

The Motley Fool owns shares of, Best Buy, Apple, and Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Apple,, eBay, and Home Depot, creating a bull call spread position in Apple, and writing covered calls on Starbucks. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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  • Report this Comment On September 11, 2012, at 10:36 AM, tweenthelines wrote:

    Great article. I have shopped on Amazon and bought elsewhere. The good retailers and their stores will survive and thrive. To wit: Best Buy fell down, not because of Amazon, but because of poor inventory and floor personnel. Customers will always want a quality store.

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