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Privacy Invasion Moves Back to the Real World

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Although a report in yesterday's New York Times highlighted the practice, the truth has been out there for months. Nordstrom (NYSE: JWN  ) had a trial program where it used video surveillance and Wi-Fi signals in smartphones to track customers in the store. It wanted to use the data to help it connect with customers, and then to sell them more things. The company posted announcements about the program in stores, and after complaints, it ended the program in May this year.

The issue is just the tip of the iceberg for consumers and the general public, and if the uproar surrounding online privacy is any indicator, the yelling may have only just begun.

The value of a lingering glance
Two major companies, Google and Facebook, have already made a career of making your interactions valuable. Google parses your email to give you better advertising, while Facebook uses the contents of your wall and interactions to do the same. The business is incredibly lucrative, and the potential to move that value into the physical space is undeniable.

Retailers have been doing these sorts of studies for a long time. Usually, a company will hire an external consultant, who will count the number of customers coming into a store, watch their movements throughout the store, and often give the customer a survey after his or her visit to get more detail. The reason we're quick to raise our concerns once the surveillance is automated has to do with its infallibility.

The speed camera parallel
In a similar program, speed cameras across the U.S. have come under fire for being mechanical, among other things. Drivers don't get a chance to talk to their accuser, and there is less opportunity to explain the circumstances of the infraction. In the store, shoppers are faced with a similar dread.

If you spend three minutes looking at tires, you might be branded a tire shopper. Spend three minutes in front of the laxatives, the pregnancy tests, or the liquor, and the fear is that, in some systems, you're just that kind of shopper. The lack of gray area makes us very hesitant in the physical world.

Online, we're actually pretty willing to be stalked. Google searches, cookies and other tracking software, shopping histories, and other technology, all add to the picture that we paint of ourselves. The value of that picture helped Google rake in $43.6 billion in ad revenue last year.

Nordstrom's gamble
Nordstrom had to know that what it was attempting could set people off. The fact that it posted information in stores about the pilot program, along with instructions on how to opt out, shows that it was aware of its consumers from day one. The fact that it stopped the program speaks to its consumer-centric strategy. The backlash from customers came, even though the company was aggregating the data above a personal level -- it would never know that it was you in front of the tires.

The system didn't pay off for Nordstrom, but the company behind the tests, Euclid, has already been used in thousands of other locations with other companies' customers. In the long run, being tracked while you shop is going to become the norm in larger businesses. Of course, leaving your smartphone at home will make it much more difficult for companies, but there may still be some oversight. For now, customers need to be on the lookout to protect the rights that are important to them. Nordstrom's capitulation showed us that consumers can make a difference in retail surveillance.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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9/23/2016 4:03 PM
JWN $51.57 Up +1.08 +2.14%
Nordstrom CAPS Rating: ****