You're Being Followed... but That Might Not Be a Bad Thing

Photo: Flickr/Roberto Verzo

It's a fact of the Internet that when you're online, you're most likely being tracked. That's especially true while shopping online. Now, brick-and-mortar retailers are getting in on the action by monitoring their customers' habits within their stores. Here's what you need to know, and how investors can profit from a little spying.

Hall monitors
When you enter your local mall or big-box retailer, management may not have to keep an eye on its security monitors to keep track of you. If you have Bluetooth enabled on your phone, or join the store's WiFi network, there's a good chance that a monitoring system is watching your every step.

By using the close-range communication technology, retailers can monitor what area of the store you head to first, how long you stay there, and where you go next. They often employ companies like iInside, a location analytics company, to track and analyze customer behavior.

With the type of service offered by iInside, your motions are collected, encrypted, and anonymized before being sent to the retailer. So even though someone might be watching you individually, the overall trends are really what retailers want to know.

Among the retailers that have spoken out about the use of this monitoring technique are Nordstrom (NYSE: JWN  ) , Cabela's (NYSE: CAB  ) , and Family Dollar (NYSE: FDO  ) . Though other large retailers, like Target and Wal-Mart, disclose that they use data collected by their security monitors, they have been less willing to discuss additional data collection techniques.

Benefiting from spying
As online shopping has cut into the share of retail sales for brick-and-mortar locations, the use of tracking services has become increasingly popular. Not only does the information show a retailer how many customers are frequenting the stores, but also what departments are most popular, what promotions are drawing attention (and sales), and areas that need to be improved.

Taking the technology a step further, customers with individual store apps may also receive personalized recommendations for products once they enter a store. Though this is beyond the passive monitoring that watches for trends, the personalized ads give retailers another opportunity to interact with customers once inside their doors.

The information provided by the tracking data allows retailers that are still focused on physical locations to optimize their stores. Not only that, but it allows them to better track their employees, increase customer service rates, and make checkout lines more efficient.

Photo: Flickr/Grant Wickes

Saving time
This type of tracking isn't just happening in stores -- airports now allow customer monitoring services to monitor passengers through their halls. According to iInside chief product officer Patrick Blattner, for every minute you're stuck in the security line at the TSA counter, it equates to a dollar of revenue for the airport (via retail shops).

In traditional retail stores, the data has discovered a trend that often leads to wasted time: lane hopping. A review of data from iInside's client data showed that customers will switch checkout lanes opportunistically 18%-20% of the time, with 9%-10% switching twice. The result usually adds another two minutes and 14 seconds to the customer's wait time.

So, by using technology to anonymously track customers' movements, airports and retailers are able to see how changes could improve efficiency -- ultimately leading to consumers saving time. Because no one likes standing in line.

What this means for investors
Ultimately, the goal of this tracking technology is to improve efficiencies and boost profits. If retailers can find small advantages from monitoring its customers within the store locations, they can exploit that knowledge and profit from it. For investors, the use of this information should be a welcomed sight, as anything that could help big-box retailers regain some ground from online shopping is a big win.

Two stocks changing the retail world
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Jessica Alling

Contributing writer for covering the financial sector with an emphasis on the insurance industry.

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