With summer in full swing and my own summer vacation just around the corner, I know it's way too early to talk about school. However, my son is blissfully unaware that he is enjoying his last toddler summer before starting his first real pre-school this fall, and I'm feeling both a twinge of nostalgia at his carefree ignorance and a pang of anxiety as I think about a future filled with homework and report cards (I know -- it's ridiculous to be worried about that stuff, but don't bother telling me not to). Nobody likes to be graded, but it's an important part of assessing progress. Forrester has our own report card on retail, and it's time to send home the grades.

I recently took a look at the progress retail has made against achieving a smarter store, something Forrester originally reported on in 2002. While there are lots of "Needs Improvement" areas, which at first can be disheartening, there has also been a lot of progress, as well as some changes, along the way. For example, we originally defined a smarter store as one that uses technology to gather and use information about customers and products, but that focus has evolved. Today, retailers are instead looking to use technology more directly -- to enhance and differentiate their customers' experiences. But for the most part, the opportunities haven't changed -- just the approach. Let's take a brief trip around the store:

• Entrance/Exit -- Grade: Needs Improvement. The key to providing differentiated service to customers is knowing who they are when they first come into the store. But if consumers already fear RFID tags on products, the idea of tagging customers takes that fear to a whole new level. Alternatives can be just as invasive in their own way -- scanners that sniff out cell phone signals or facial recognition technologies, for example. While retailers desperately want to identify customers when they come in the store, they're sitting on these more invasive options while they wait to gauge consumer reaction to the latest potential invasion of privacy.

• In-Store Media -- Grade: Exceeds Expectations. Whether looking to monetize space in stores through advertising revenues or just improve customers' perceptions of the retailer's brand, retailers see business cases for in-store media that are exceeding expectations. Combine that with manufacturers on the hunt for new ways to reach consumers and media companies looking for new venues for their content, and you have a convergence of interest -- and activity (as we saw at the Digital Retailing Expo) around in-store media.

• Customer Devices -- Grade: Needs Improvement. The first generation of kiosks didn't work -- consumers didn't use them, and retailers continue to experiment with services and form factors to make them attractive, without finding that killer combination. In the meantime, the mobile devices that consumers bring with them into the retail environment offer new opportunities to deliver information to consumers while they're in the store. But privacy concerns -- and the potential for irritation -- constrain experiments in the US, leaving "opt-in" interactions like the Nike billboard in Times Square as the ones with the greatest opportunity.

• Checkout Systems -- Grade: Meets Expectations. The great POS refresh is past the halfway point, with fewer retailers planning a replacement in the near term. There are two implications: First, IT budgets tied up in POS rollouts become available for other things, and second, modern platforms for delivering new customer service capabilities at the point of sale have passed the "tipping point." Look for retailers to tackle these new capabilities next -- revamping loyalty programs to better differentiate and integrate at POS, and experimenting with new payment methods like biometrics and contactless payments.

Whether the grade is "exceeds expectations" or "needs improvement," retail is making progress toward the smarter store -- and doing so in ways that will become highly visible to the consumer in the next few years. As the big drains on IT budgets -- Sarbanes-Oxley and POS replacement -- wind down, expect to see more store-focused innovation ramp up. For example, Tamara Mendelsohn's upcoming research will take a look at what the next generation of kiosk will look like. It's an exciting time to be in stores!

Happy summer,


Nikki Baird
Senior Analyst

Research Referenced In This Issue Amazon.com 2005: More Innovation, More Competition (37081) Amway Japan Makes The Mobile Web Pay (37041) Choosing The Right Point-Of-Sale Migration Path (36612) Digital Signage Grows Up (37270) eBay Buys Shopping.com: Let The Consolidation Begin (37158) Expanding TV's Reach To The Retail Point Of Sale (37045) For TVs, Retail Is King . . . But Dell.com Is Coming (37053) Kiosk Industry Flails For Usability (36920) RFID Beyond The Supply Chain (37060) Segmenting Consumers By Technology Preference (36952) The Next Point-Of-Sale Solution (36918) The North American Consumer: Online Retail Update (36730)

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