Beacon TRENDS in the Retail Space 2015 Beacons are seen as the best solution for improving in- store retail experience. Major retailers are jumping on the beacon bandwagon. A beacon ecosystem is forming. The US beacon installed base is expected to expand rapidly. Consumer response is key to further penetration. DEBORAH WEINSWIG Executive Director Head Global Retail & Technology Fung Business Intelligence Centre deborahweinswig@fung1937.com Fong Lau Coordinator, Management Theories & Business Models Fung Business Intelligence Centre fonglau@fung1937.com 1
beacon TRENDS in the Retail Space 2015 HIGHLIGHTS: Beacons are seen as the best solution for improving in- store retail experience. In an attempt to replicate an e- commerce experience in their physical stores and to facilitate omnichannel marketing and Big Data collection, retailers have been among the first adopters of beacon technologies. Major retailers are jumping on the beacon bandwagon. In 2014, half of the top 100 retailers in the US tested beacons. In addition, a number of major retailers, notably Macy s, are already putting the technology into full- fledged implementation. A beacon ecosystem is forming. Hardware vendors, solution vendors, smartphone platforms, third- party apps, retailers and end users have begun to create beacon ecosystems. The US beacon installed base is expected to expand rapidly. As retailers are moving quickly to adopt beacons, the US beacon installed base is forecast to reach 4.5 million by year- end 2018, with nearly 80% of them (3.5 million) in use by retailers. Consumer response is key to further penetration. Consumers lack of familiarity with the technology, together with concerns about data security and privacy, are major forces keeping beacons from broad adoption. Retail is struggling and I think the way you fix retail is by creating experiences in a physical store environment that you can t replicate without being in the store, and beacons can play a role in that. Asif Khan, president and co- founder of the Location Based Marketing Association (LBMA) 1
WHAT EXACTLY IS A BEACON? Beacons are transmitters that bring proximity awareness to mobile devices. They are small wireless devices that constantly broadcast radio signals to nearby mobile devices. An appropriately designed mobile app can detect the signal and react, triggering a location- based action in the app. Beacons use the Bluetooth Low Energy (BLE) technology, which is known for requiring lower energy consumption on the mobile devices. Apple s iteration of the beacon technology is trademarked as ibeacon. Currently, ibeacon is not yet being produced as a stand- alone physical product, but exists as a standard that is compatible with Apple s ios. Compared with Android s beacon implementations, ibeacon integrates better with iphones and IPads, and can wake up relevant apps even when they are not running in the background. Solutions such as Zebra Technologies Zatar provide Internet of Things (IoT) platforms that allow connection of any device and create device homepage for enterprise applications, of which beacons are an integral part. FIRST WAVE: IN STORES AND PAYMENTS In an attempt to replicate an e- commerce experience in their physical stores and to facilitate omni- channel marketing, retailers have been among the first to adopt beacon technologies. In- store retail applications include: Proximity marketing pushing contextual notifications with offers and content Indoor navigation directing consumers within a certain venue User analytics utilizing beacons to collect consumer data and analyze consumer behavior. More specifically, beacons allow retailers to know the number of consumers entering their stores, the path that the consumers take within stores, how often they visit and how long they stay Contactless payments allowing customers to make hands- free payments Facebook s recent adoption of beacon technology signals the next wave of beacon mainstreaming. On January 29, the company announced it would begin testing a service named Place Tips, which delivers information about shops and landmarks to users who are nearby, in part by using beacon technology. Place Tip s trial will begin in the coming weeks starting in New York, in locations including the Strand Book Store, The Burger Joint at Le Parker Meridien Hotel and Dominique Ansel Bakery. MAJOR RETAILERS ARE JUMPING ON THE BEACON BANDWAGON Retailers scale the use of beacon technology because they realize that a digital experience has the biggest impact when used at multiple points along the path to purchase. According to Deloitte Digital s The New Digital Divide report published in 2014, conversions increase 40% when consumers use digital both before and during shopping in- store when compared to not using digital at all (Figure 1). The lift is significantly lower if digital is used only before (+20%) or during (+27%) shopping in- store. 2
Conversions increase 40% when customers use digital before and during shopping in- store Figure 1. Digital s Impact on Conversion during the Shopping Process Source: Deloitte Digital. The New Digital Divide, 2014. Notes: Conversion rate is defined as traffic divided by the number of sales transactions (in case of a store traffic is defined as the number of walk- in). Lift is defined as the percentage increase in conversion from the baseline. In the context of this study, lift represents the increased percentage from standard conversion rates (i.e., when digital was not used before or during shopping journey). An effective digital experience has to be pertinent to the moment, and the proximity- aware mobile apps enabled by beacon technologies provide retailers with the best solution to provide contextual information. 3
According to BI Intelligence, a research service from Business Insider, half of the top 100 retailers in the US tested with beacons in 2014. In addition, a number of them are already putting the technology into full- fledged implementation. Below are some of the most notable developments: Macy s Lord & Taylor and The Bay Stores Duane Reade American Eagle & Aerie Stores Hillshire Brands Alex and Ani In fall 2014, Macy s deployed beacons in nearly 800 stores throughout the US in partnership with Shopkick, a location- based coupon dispenser app used by top national retailers including Best Buy, Sports Authority, JC Penney and Target. In July 2014, the Hudson s Bay Company rolled out beacons at 130 Lord & Taylor and The Bay stores in the US and Canada via Swirl, an ibeacon marketing platform that integrates with Zebra Technologies MPact platform and is already being used by brands like Timberland and Kenneth Cole for tailored in- store experiences. Duane Reade, which is the largest drugstore chain in New York City and now owned by Walgreens, updated its app in May 2014 by integrating beacons in 10 selected locations. More than 100 American Eagle and Aerie stores in the US launched beacons in February 2014, also via the Shopkick app. Hillshire Brands implemented ibeacons in 10 US cities to track shoppers journeys through the aisles of its grocery stores so it could send discount coupons or ads for their craft sausages when the shopper approached that section of the store. The ads and coupons were delivered via apps such as receipt service Epicurious. Jewelry retailer Alex and Ani has installed beacon technology in all of its 40- plus stores with the help of Swirl. A BEACON ECOSYSTEM IS EMERGING Like all major innovations in the digital economy, there are multiple players involved in implementing beacon technology. These players include beacon hardware vendors, beacon solution vendors, smartphone platforms, third- party apps, retailers and end users. Beacon hardware vendors End users Beacon solution vendors Retailers Smartphone platforms Third- party apps 4
It is not always easy to fit all the beacon players neatly into these categories, as some of them offer beacon management and consulting services in addition to producing hardware and/or maintaining software platforms. The top names in this space are listed below: Beacon hardware vendors Top hardware vendors include Estimote, Gelo, Signal360, ROXIMITY, Footmarks, Kontakt.io, Onyx Beacon, Gimbal, Glimworm Beacons and Radius Networks. Beacon solution vendors Smartphone platforms Third- party apps Key players include PayPal, ButeLight, inmarket, GPShopper, Zebra Technologies, Pinpoint, Pushmote, Beacondo, Proximity 5, etc. BI Intelligence estimates that, as of May 2014, there are about 260 million ios smartphones (90% of the iphone installed base) and 310 million Android smartphones (23.9% of the installed base) in use around the globe capable of scanning for nearby beacons. Altogether, beacons are compatible with about one- third of active smartphones globally. Consumers don t usually download apps for most of the retailers they visit, so retailers who use beacons often have to reach consumers via third- party apps. One major player in this category is location- based coupon dispenser app Shopkick, which has its own ibeacon hardware shopbeacon. Another big name is mobile- advertising app Swirl. RETAIL TAKE- UP OF BEACONS IS GROWING RAPIDLY Beacon applications in retail will continue to expand rapidly in 2015 and beyond as retailers strive to enrich in- store customer experiences. A recent Boston Retail Group survey found that retailers are focusing their strategic initiatives on efforts to improve in- store mobile marketing tactics, collect real- time data from store registers, and help identify customers walking into stores. Few of them are actually doing any of this today, though most of them plan to roll out such efforts within the next five years (Figure 2). Beacon technology ranks high on the list of new technologies that can readily address all of these demands, which we expect to be a key driver of beacon adoption over the next several years. Business Insider s research service BI Intelligence expects Top 100 US retailers will have beacons in 32% of their locations in 2015, up markedly from 8% in 2014 (Figure 3). As retailers move quickly to adopt beacons, the number of beacons installed in the US is projected to reach 4.5 million units by year- end 2018, with 80% (or 3.5 million) of them in use by retailers (Figure 4). Most retailers are planning mobile commerce initiatives to improve in- store customer experience over the next five years 5
Figure 2. Mobile Commerce Initiatives to Improve the In- Store Customer Experience (North America, March 2014) Use Mobile Markelng 28% 62% Collect Real- Time Data From POS 16% 63% Inilalve in place today Plan to do in five years Idenlfy Customers Walking In Store 3% 72% Source: Boston Retail Group Top 100 US retailers are expected to put beacons in 32% of their locations in 2015, up markedly from 8% in 2014 Figure 3. Percent of US Retail Locations with Beacons (Top 100 Retailers) 85% 32% 8% Source: BI Intelligence E2014 E2015 E2016 6
The US installed beacon base is expected to expand rapidly in the next five years Figure 4. Forecast of US Retail Installed Beacon Base (2013 2018) 4000 3000 2000 1000 0 500% 3,456 300% 300% 200% 200% 1,152 384 4 24 96 E2013 E2014 E2015 E2016 E2017 E2018 600% 500% 400% 300% 200% 100% 0% US retail beacon installed base (thousands) YoY Growth Source: BI Intelligence CONSUMER RESPONSE WILL DETERMINE RETAIL PENETRATION With all that being said, there are a few barriers that may potentially hinder growth of beacon technologies, and many of them are related to the response from the end- users i.e., consumers. For beacons to work, especially in Android devices, consumers are required to give several layers of permissions. They have to turn on Bluetooth, accept location services on the relevant apps, and opt- in to receive notifications. Many consumers simply find taking all these steps too much of a hassle or too confusing. Adding to the challenge is the fact that so many beacon companies are acting within silos, each with their own platform, which doesn t communicate with other beacons. Customers may also balk at signing on to beacon- enabled marketing tactics because of data security and personal privacy concerns. While users have to opt- in or give permission for a company to track their location, retailers must tread carefully when putting to use data gathered from these sources. They risk consumer backlash if these efforts begin to be viewed as invasive or creepy. Though many shoppers will want to share this information in exchange for deals and an improved shopping experience, there are others who simply want to remain anonymous. 7
HOW MUCH DO BEACONS COST? Another issue keeping beacons from wider adoption is the price tag, but employing the technology may not be as costly as one would think. Below are some ballpark figures for reference: Hardware: $10 per beacon (32 square feet coverage, 6 months battery cycle), which translate to $0.63 per square foot per year Management: $42k per year for a full- time employee per store, or even multiple stores Deborah Weinswig, CPA Executive Director Head Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: +852 6119 1779 deborahweinswig@fung1937.com Marie Driscoll, CFA mariedriscoll@fung1937.com Christine Haggerty christinehaggerty@fung1937.com John Harmon, CFA johnharmon@fung1937.com Amy Hedrick amyhedrick@fung1937.com John Mercer johnmercer@fung1937.com Lan Rosengard lanrosengard@fung1937.com Jing Wang jingwang@fung1937.com 8