Smartphones Have Big Impact on Retail Profits

Retail sales have picked up but the increase is lower than expected, suggesting consumers are still being cautious in their spending. That caution is fueling an increase in smartphone shopping, according to analysts, and may be impacting retail earnings as buyers find the lowest possible prices.

Retail sales showed positive growth in January, rising 0.4 percent according to the U.S. Commerce Department—an improvement on sluggish December figures. It is the biggest gain since October.

Confidence is improving too as the country comes out of one of the worst economic downturns since the Great Depression.

In a national survey conducted Feb. 8–12, the Pew Research Center reports that a majority (54 percent) now believe the economy is already recovering or is on the road to recovery, compared to 44 percent in 2011 and 35 percent in 2010.

It’s a battle between bricks and clicks. Joel Naroff of Naroff Economic Advisors

Excluding autos, retail sales were up further at 0.7 percent in January, according to the data, but the results were still less than anticipated by financial analysts.

“The figures were disappointing,” said Joel Naroff of Naroff Economic Advisors. He believes consumers are still scarred by the economic downturn and are erring on the side of what he describes as “shop ‘til you are tired” rather than the more upbeat “shop ‘til you drop.”

Naroff says with less disposable income, consumers are using the Internet and their smartphones in their search for the lowest possible prices.

Consumers have to buy only what they need, Naroff said, “they have to spend their money carefully and cautiously.”

“The smartphone buying and the apps—everything that lets them search and compare prices—only makes it that much easier for them to do it.”

Smartphone Surge

Confirming what trendspotters have predicted for 2012, the smartphone is becoming an increasingly important aspect of U.S. retail.

There are over 90 million smartphone users in America and, of those, two-thirds used smartphones for shopping-related activities, according to digital researchers comScore in a study of over 30,000 mobile phone users last year.

“Fueled by smartphone adoption, mobile is becoming a central part in the shopping funnel for many consumers,” said Mark Donovan, comScore senior vice president for mobile, in a statement.

Smartphones are transforming the in-store shopping experience, the comScore survey noted. A substantial minority, one in three, of mobile shoppers use their phones to access real-time information while shopping in a brick-and-mortar store, comparing prices, looking for coupons, snapping photos of products, or finding retail locations.

According to online consumer researchers trendwatching.com, smartphone shopping and apps to match are not only changing the landscape of shopping but also the digital technology to service it.

They describe the next frontier as “visual info-gratification” labeling what they term as “Point–Know–Buy” as an emerging consumer trend for 2012.

The technology, already available but expanding fast, allows smartphone users to bypass text and literally point their phones at an item to find out about it.

Apps are growing in variety with those available already enabling keen shoppers to find out where the item of clothing that someone is wearing in front of you was purchased, the cheapest available price for it, and how that item, or any sign or label in front of you, may be translated into a different language.

While the technology is still developing, trendwatching says, “Any real-world object (if not person) will soon be able to be ‘known’ by on-the-go consumers equipped with smartphones, which can be pointed at anything to retrieve/find related information on a whim.”

Online here to stay

Naroff acknowledged the growth in online shopping and says he has been warning the retail industry about it for years.

He says department stores may become like big social centers for viewing products, where shoppers, much as they do now, can look at an item and try it on in comfort. Or they may become collect centers where people who have ordered online can pick up their item and see new product lines.

Till then “it’s a battle between bricks and clicks,” he said.

Naroff believes Internet and smartphone shopping may be contributing to a slower retail recovery, although he points to concerns about gasoline price rises as having a more definite impact.

As consumers increasingly source the lowest prices for goods, however, profit margins for the big retailers will be dramatically reduced, he said.

“You don’t have products that you can hide that have very high profit margins … so all goods are being priced down to lower profit margins and that is just adding even more pressures on retailers.”

Smaller retailers are the ones feeling it the most, he said, as the larger retail chains focus on volume over selective high-profit goods.

Online shopping “is really where we are heading in retailing,” Naroff said.