UK: How Retailers Are Using Technology To Survive (And Thrive!)

Summary and implications

Retailers are adopting innovative technology as a core strategy to survive in the tough economic market. We have observed a number of key technological trends emerging in the retail sector which benefit retailers, landlords and consumers. This article summarises some of the innovations, and their legal risk and implications, which may help some players survive and thrive.

Key trends

Emerging technologies are being employed to improve the consumer's retail experience. These also benefit businesses through gathering and sharing data about the demographic of consumers and their buying habits. Here are some examples:

Virtual changing rooms

Topshop, John Lewis and other retailers are trialling "virtual mirrors" at flagship stores. This technology uses built-in cameras to capture moving images of a consumer which are then superimposed with clothing over the on-screen image; consumers can "try on" clothing without getting undressed. Marks & Spencer have also successfully deployed this for make-up through a "virtual makeover counter". A consumer identifies a style or range of products they like and the virtual mirror suggests other complimentary products the consumer may wish to purchase. Images can be shared on social media or via email. Some retailers have enabled the mirrors to double-up as a kiosk enabling stock availability checks and facilitating online orders.

Point of sale technology

Another trend not yet fully exploited (but growing rapidly) is the use of mobile point of sale terminals. Unlike self-service kiosks, this still requires in-store staff. Benefits include cutting queuing time and increased sales as the store is able to bring the point of sale to the consumer, making the sales process simple and efficient. This technology was pioneered by Apple and is used in all of its retail stores. Other larger retailers such as Nordstrom in the US, have also successfully used mobile point of sale terminals.

Electronic payments

Year on year, the proportion of payments made by cash compared to electronic card payments has fallen. "Near-field communications" has been widely adopted in the last year to deliver payments wirelessly via the Visa contactless platform. This e-payments trend is set to continue with the rise of smartphone mobile payments. According to a report published by the Payments Council in August 2013, such payments will become the major payment channel. It is envisaged that by 2022, the number of payments made by this method will quadruple to an estimated 1.5bn payment transactions in the UK alone. As new mobile phones are released which incorporate this technology, consumers will demand compatibility at point of sale terminals in retail outlets. Electronic payments inevitably contain vast quantities of personal data about the consumer making the payment. Smart retailers are capitalising on the opportunity to learn more about their customers and their shopping habits. Early adopters of this technology have partnered with mobile network operators to share data for use in direct/tailored advertising and in-store promotions. They are incorporating loyalty schemes and using the data to cross-sell more effectively.

"Tracking" customers

The final key trend we have seen is tracking customer traffic. Brick-and-mortar retailers have, for some time, been disadvantaged in relation to the data and information they collect on consumers compared with e-commerce operators.

To tackle this problem, innovative technologies are being developed and deployed by larger retailers in their physical locations. One such technology, known as "tracking", uses smartphone wi-fi signals to track shoppers as they move through a store or a shopping centre. Using this technology, retailers can count the number of consumers entering a store, identify which parts of a store are most popular and gather data about shoppers' behaviour which can be useful for future marketing and product promotions. Shopping centre owners can also use this technology to identify larger trends, such as how the placement of advertising affects consumers' movements within a shopping centre, which retailers complement others, how many consumers are repeat visitors and their visit frequency. Some retailers are using this data to offer additional services, such as sending reminders about promotions or the expiry of parking bays. Another value to the information collected is the understanding it provides about the relationship between consumers' movements within a shopping centre and turnover at particular stores.

Key legal risks

The use of these technologies in the retail sector presents considerable legal challenges. Quite simply, the present data protection regime does not facilitate the collection and use of data in such vast quantities and in as much breadth.

One of the more difficult legal challenges is obtaining appropriate consent from a shopper to use their data for the particular purposes that retailers intend. For example, consumers may not expect to receive targeted marketing material after using their smartphone to pay for an item in-store. This could be seen as an unwanted service or use of their data. Care is needed by data controllers to ensure the data collected is used lawfully and that consumers' rights to opt out of such marketing are preserved. Similarly, consent of the individuals may be an issue in relation to "tracking" consumers' movements through a shop or shopping centre. Any retailer or landlord considering using this technology should review the need to alert shoppers (e.g. by signage) and anonymise data collected, if necessary. These steps will mitigate the risk of breaching current data protection laws in the UK and EU.

There are a large number of data protection issues relating to the storing, processing and transfer of the data collected using these new technologies. In particular, to ensure compliance with current UK and EU laws, any data sharing partnerships should be subject to a written data transfer agreement setting out the roles of each party, the types of data to be transferred and how the data will be stored and processed. It is vital that data protection advice is sought in relation to internal policies and contractual provisions before any new technologies are deployed.

Another key legal task is to ensure that, in the rush to acquire and use such consumer data, there is clarity about who has what rights to use, own, distribute and compile data and databases derived from its collection. Robust contractual provisions are crucial to avoid future disputes and ensure rights are as intended as between landlords, retailers, technology providers and consumers.

Conclusion

The emerging trends present excellent opportunities for retailers, landlords, shopping centre owners and consumers. Early adopters of these technologies may well see the greatest benefits, but, in the present legal environment, they also face the greatest risks. Given the many legal and commercial/reputational risks involved (such as data protection issues, intellectual property rights allocation and cyber security), care is required. Appropriate contracts, internal policies and legal safeguards should be put in place to ensure full compliance. Nabarro can assist you with advice in these matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.