United States: ‘Brick And Mortar'…Or ‘Brick And Mobile'?

Last Updated: January 28 2019
Article by Cecilia Y. Oh and Hunter M. Glenn

Brick-and-mortar retailers are rapidly diversifying their shopping, checkout and payment methods in an effort to combat the erosion of sales to online channels and to provide an improved experience for their consumers. As a result, when a customer enters a store, they may encounter everything from self-checkout kiosks to store-specific mobile applications, scan-as-you-go devices or even sales clerks toting smartphones that can complete the transaction in the middle of an aisle. Recently, however, more and more retailers have been making plans to implement the "just walk out" model, which allows consumers to, quite literally, just walk out with their items once they are done shopping.

In these cashierless stores, consumers scan their smartphone app to enter. Then, the customer may browse the aisles as they typically would. As the buyer shops, the store, using the same type of technology and sensors employed by self-driving cars, identifies the shoppers, their items and what products are moving off the shelves. Once the consumer has finished, they are free to exit, and their purchase is billed to their account with the retailer.

It is no wonder that these models are becoming increasingly popular, as it is attractive to both consumers and retailers alike. In fact, it is so attractive that, by some estimates, these automated technologies could account for 35 percent of retail sales in the next 20 to 30 years. From the consumer's perspective, grab-and-go retailers offer a streamlined process and allow buyers to quickly enter a store, grab what they need and get back to their daily routine, without having to wait in a long checkout line. This "friction free" shopping experience is designed to entice consumers to get out and shop more, thereby increasing not only the frequency of in-store visits, but, ultimately, sales volumes. Studies have long hypothesized that credit cards and cashless transactions encourage consumers to spend more, boosting the store's profits.1

For the retailers, using these models is attractive for a number of reasons, including helping to lower labor costs due to the smaller number of employees required to maintain the store. The smaller labor force also offers the potential for the store to expand its business hours, without increasing safety concerns for employees working the late-night shift. The lack of cash kept on the premises, along with the store's wide use of video cameras and other authentication technology, could make a store less attractive for certain types of crime that frequently occur at brick-and-mortar stores, such as a theft and robbery. Additionally, these models help avoid the administrative and logistical troubles that can accompany keeping cash in a store including accounting, running cash back and forth to the bank and ensuring registers are stocked. According to one estimate, "such hassles cost retailers an average 9.1 percent of sales, ranging from 4.7 percent at grocery stores to 15.5 percent at restaurants and bars...compare[d] to the 2 to 3 percent transaction fees credit-card companies charge merchants."2 Finally, though the consumer might feel like a shoplifter as they adapt to the process, because of the sophisticated software tracking the store's goods, the grab-and-go model also helps to prevent theft.

However, these benefits are not without their own set of risks. There is a wide range of potential issues that retailers should consider before launching their own cashierless technology, including the following:

  • increases in interchange rates if these transactions (which would otherwise be considered "card present") are interpreted as "card not present" exchanges;
  • claims of discrimination by certain classes of people who are unable to fully access these technologies (e.g., persons with disabilities and those without access to mobile devices, bank accounts or other prerequisites);
  • labor disputes arising from the elimination of jobs;
  • consumer privacy concerns (e.g., invasion of privacy claims in connection with the tracking of customers' browsing, risks associated with the collection and processing of high volumes of intimate personal data and unexpected behavior of artificial intelligences);
  • compliance with regulations governing authentication technologies and other security controls (e.g., use of biometrics to authenticate customers entering retail locations);
  • compliance with regulations involving the sale of age-restricted goods (e.g., alcohol, tobacco, firearms, etc.);
  • loss management and fraud detection issues, including the allocation of liability among technology vendors in connection with technology failures;
  • other issues relating to relationships with technology vendors, including ownership of customer relationships and customer data, data use restrictions and participation in future revenues resulting from retailer contributions to the development and "training" of artificial intelligence engines;
  • protection of intellectual property, including patents, trademarks and data;
  • whether existing insurance policies adequately address this changed business model; and
  • all of the more typical issues associated with procuring and deploying new technologies, such as technology use rights, implementation plans and costs, service levels, business continuity requirements and warranties, indemnities and limitations of liability.

There is no doubt that there is a revolution coming to the way consumers buy goods at brick-and-mortar stores. These new strategies help retailers better meet customers' need for speed, create novel shopping experiences and incorporate technology into their stores. However, as retailers begin to put their own touch on this new approach to commerce, they should be sure to consider the potential risks that may accompany the new technology.


1 https://www.nytimes.com/2016/03/27/your-money/credit-cards-encourages-extra-spending-as-the-cash-habit-fades-away.html

2 https://www.usatoday.com/story/money/2018/11/28/holiday-shopping-more-retailers-just-saying-no-cash/2063747002/

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