The New Mobile Economy

As American consumers adopt hand-held shopping, are retailers all thumbs when it comes to “m-commerce?” Jeff Prine texts

Gucci updates fans with its iPhone app

The key to retail success has always been summed up in three words: location, location, location. But the rise of the Internet and e-commerce has turned the concept of location into a vast, unseen, almost limitless world. While over the last decade of experimentation, retailers have had to come to terms with finding “locations” where consumers can shop 24/7 in the comfort of their own homes. Now at the brink of the 21st Century’s second decade, the latest location on everyone’s mind is a mere few inches square: hand-held mobile phones.

These days there’s a Krakatoa-sized eruption in research about mobile commerce, aka m-commerce, an overly broad term that refers to everything from downloading the latest application, or app, to selling physical goods to consumers over a mobile web accessed through their mobile phone handsets. Some of the latest research includes:

• The mobile retail market will be worth $12 billion by 2014, up from $4.1 billion in 2009, according to Juniper Research 2010 study.

• Mobile commerce in the United States rose from $396 million in 2008 to $1.2 billion in 2009, reports ABI Research, an emerging technologies research firm. This year, it will increase to $2.4 billion and by 2015 the figure could increase to $119 billion worldwide.

• By year’s end, there will be some 5 billion mobile phone users worldwide—that’s a 500% increase since 2001, a United Nations report states.

• By 2013, 53 million Americans will be doing their banking via mobile phones, up from 10 million in 2009, The TowerGroup estimates.

• Ebay, the No. 1 U.S. mobile retailer, projects goods sold through mobile apps to more than double to $1.5 billion this year, yet the auction website only claims a 3.3% share of mobile commerce sales worldwide. Amazon may be second with a 1.5% share.

• Consumers use of mobile coupons will generate close to $6 billion globally in retail redemption value by 2014, up from some $2 billion this year, Juniper Research reports, and expects expect number of mobile coupon users to surpass 300 million by 2014.

• Mobile Internet penetration hit 17% by the end of 2009—the same adoption rate that personal computer Internet usage hit in 1999, Juniper also found. By 2014, that penetration could reach 39%.

• Nine out of 10 Americans have mobile phones (a 17.9% increase from January 2006), the National Retail Federation (NRF)’s Mobile Retail Initiative study found. About 42% of mobile phone users want a mobile phone with Internet access.

While there’s undoubtedly plenty of exaggeration going on about mobile commerce, one thing is certain, a day of reckoning on mobile commerce is fast approaching. As Chris Brassington, ceo of Starfish Consultants wrote in his essay “Statistics of Just more Lies?” on Huggingtonpost.com: “No doubt whatsoever—m-commerce will be bigger than e-commerce within five years.”

To App or Not to App?

Contrast those consumer figures with a recent study from Forrester Research and Shop.org, NRF’s digital division, which surveyed more than 108 retailers about their mobile strategies. The result: 84 retailers reported they had some kind of mobile presence but only 2% of their online sales were generated via mobile devices. Two-thirds of these said they didn’t have a mobile strategy or are still in the early stages of adopting them.

“Retailing these days can indeed seem overwhelming,” says Neil Strother, analyst at ABI, “Retailers have just now settled into online businesses, then had to layer in social media marketing to that, and now there’s mobile commerce being piled on top of that. The big question is ‘what’s the right course for my brand?’”

Mobile optimized websites, like this one from Target, permits consumers to access hand held shopping from virtually any mobile phone with a web browser.

As fast as the figures are coming out, so are new retail apps ranging from Walmart, Target, JCPenney, Macy’s and The Gap to some aimed at luxury consumers from Gucci and Tiffany & Co. Strother says “we’re in the heyday of phone apps,” with 2.4 billion apps downloaded last year. ABI predicts a peak of 7 billion by 2013 and then a slow decline.

Why? For one thing, new technologies and the development of “mobile or wireless websites” which can do the same things apps do but without having to download them onto smart phones like iPhone and Android. That would create a potentially much larger consumer base. With mobile optimized websites, just about anyone who has a mobile phone could access, shop and even purchase since nearly all mobile phones have at least a rudimentary browser, Strother explains.

Phone apps are great vehicles for loyalty, rewards and coupons programs with a retailer or brand’s fan base. “But some users don’t want to download apps for every store and deal with technical issues like updates,” Strother says.

Additionally, consumers may be wary downloading some apps and coupons. While there are cool benefits in having a retail app that tracks your purchases and even whereabouts and sends personalized offers or discounts based upon a consumer’s likes, that convenience comes with a price: privacy. Some consumer advocacy groups have already petitioned the Federal Trade Commission to set guidelines on what kind and how mobile markets use personal information they collect.

Another issue: how secure an m-commerce purchase is another issue to surmount. Many banks now offer banking by phone and PayPal and other online pay services also have added mobile versions. “While banking by phone is probably going to be the breakthrough model for mobile commerce, a phone is still a long way off from being a wallet or ATM,” Strother says. “There’s a big difference between buying coffee from Starbucks or ordering a pizza by phone and purchasing a handbag for $200 or more.”

Yet a range of industries are expanding mobile offerings everything from airline boarding passes to grocery store coupons can be scanned from mobile phones. “But it’s still in its early stages,” Strother says, noting that when he tried to use a Target mobile coupon, it didn’t work. “There are some bumps in the road” since retailers have to have POS technology in every door to handle mobile coupons and incentives.

Targeting the“Text Me” Generation

Although there are many “early adopters” downloading apps of all sorts, one consumer segment is ripe for pickin’: the 18 to 35 year olds. “This is the important demographic. They have been sending texts, downloading apps and posting on social networking sites for years. Now as they enter the job market, they will be carrying those behaviors over into other parts of their lives, including mobile shopping,” Strother adds. Coincidentally, it’s the same generation that many retailers, especially department and specialty stores, are trying to cultivate via a wide menu of phone apps.

“When you examine consumers as a whole, there’s a clear gap between what a 25 and 55+ consumer thinks about mobile commerce,” says Marshal Cohen, chief analyst at NPD.

When NPD Group recently surveyed 65,000 consumers about their mobile phone habits, 86% said they own and use their mobile phones for other things than making a call. More than 90% of users below age 35 said they text using their phones, “and the numbers decline to about 30% for the 65+ demographic,” Cohen says. About 11% of the respondents said they own a smart phone with the penetration being strongest in the age 25 to 34 demographic, men in particular.

While just 7% of the total reported using their phones to make a purchase through their phones, the figure increased slightly to 11% for consumers under age 55.

“When we asked why they hadn’t use the phone for making purchases, most respondents didn’t even answer our choices about security or not understanding how to purchase on their phones,” says Cohen. Instead 47% answered “other”—mostly citing “lack of interest” or “not needing to.”

NPD also asked what products and services consumers might be interested in purchasing through their mobiles. “While overall interest in any category was below 20%, the figure increased significantly higher for the under age 35 segment—including teenagers: 39% said they’d be interested in using their mobile at the box office, followed by 25% at retailers,” Cohen adds.

What may be even more important than the numbers, however, is the changing buying habits of American consumers, who Cohen says the new tradition in shopping is to spend more time during the week shopping and researching online before they even set foot in a store, usually on weekends. “Consumers are already primed to shop a retail landscape that isn’t a physical location,” he says. So taking that behavior into a mobile web would be an easy transition.

“All of this provides retailers with a challenge about what they need to do,” Cohen says.

“Social networking is a mirror to what is happening with mobile commerce. Those who show a lack of acceptance are going to be behind the curve. Modern innovation is what’s driving retailing into the next decade is. It’s past time to take these innovations, like mobile commerce, to the next level.”

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com