Traditional brick-and-mortar retailers don’t have a lot going for them these days. On the one hand, high unemployment and stagnant wage growth is sapping the purchasing power of the average consumer, and on the other, the rise of e-commerce is giving those consumers more information and choices than they’ve ever had before, making competition all the more fierce. As I detailed in a recent article, store managers have been fighting back by trying to re-create in physical stores the sort of analytics available to e-commerce firms. Firms like RetailNext can use security-camera systems to give retailers a tremendous amount of information about customer behavior in stores, allowing retailers to finely tune staffing levels and product placement. Other firms, like Euclid Analytics, provide the same information by identifying customer smart-phone wi-fi signals.
And while these analytics firms provide invaluable intelligence to retailers that is enabling them to improve their operations and boost profits, privacy advocates are worried about how far companies will take these technologies. After all, it’s one thing for a retailer to have a general idea of how many people are in the store and how, in the aggregate, consumers are interacting with the store; but it’s another thing entirely for a retailer to be able to identify a customer individually and tailor pricing and service based on his in-store behavior and financial history.
Pam Dixon, executive director of the World Privacy Forum, says that although most of the focus in the media has been on how companies are tracking us through Internet browsers and smart phones, there is actually more danger of invasions of privacy occurring in physical retail outlets, mostly because consumers are unaware of the extent to which they are being tracked. “This is an entire business model that has sprung up that I think maybe three people in the entire country know about outside the industry,” she says.
And though analytics firms and retailers claim they aren’t using technology to personally identify shoppers or pair that information with financial histories, it is very much possible to do so. In 2010, the Association of Marketing in Retail produced a voluntary code of conduct for marketers and retailers to use as a guide in their tracking and marketing efforts. The code outlines the various tracking capabilities available and rates them on a scale from low risk to high risk. According to the code of conduct, a low-risk tracking method would include “infrared or laser or laser beam motion detectors” that can give retailers an idea of how many people are in a store and where they are traveling but “are not able to track or record individual consumer paths.” The high-risk end of the spectrum includes methods that allow retailers to individually track consumers by recognizing a smart phone wi-fi signal or through interpreting visual data from facial-recognition technology.
That kind of tracking is, according to Dixon, unethical and contrary to shoppers’ expectation of privacy. “Legally, stores have the right to put up security cameras, but the consumer expectation of privacy is being circumvented here,” she says. “Because when a consumer looks into that camera, they expect it’s being used for security, not marketing purposes.”
According to Mark Eichorn of the Division of Privacy and Identity Protection at the Federal Trade Commission, the FTC has been monitoring this type of consumer tracking but hasn’t found that firms are using facial-recognition software to create individual profiles of customers. Last December, the FTC held a workshop on facial-recognition technology in the retail space; Eichorn says, “We didn’t hear from anybody saying they have a business model where people were using surveillance cameras to identify people.” Instead, businesses are using the software to get aggregate information on the number of people or the general age or gender makeup of people in a retail setting. “We would be very concerned about the use of cameras to identify previously anonymous people,” he says.
But the problem, according to Dixon, is that we can’t be sure how retailers are using this technology, because they’re not required to disclose those details. And even if retailers were using facial-recognition software to identify individual shoppers and combining that information with other data like financial histories, there is nothing necessarily illegal about doing so. The FTC can penalize companies that engage in deceptive or unfair conduct, but the agency has never brought any enforcement action against retailers for this type of tracking, so it’s unclear how courts would interpret these statutes as they relate to in-store tracking.
Bill Gerba, CEO of the digital-signage company WireSpring Technologies, helped the Association of Marketing in Retail create its code of conduct. While his company doesn’t facilitate the kind of tracking technologies described above, he has been interested in the move toward tracking in retail and has written extensively on the subject. He thinks consumers should be informed about these marketing tactics but believes most retailers are too wary of the public backlash to use facial-recognition software to individually identify their customers. He also believes most companies are relying on smart-phone apps to track customers’ locations and push relevant marketing material. This method of tracking allows retailers to offer an explicit opt-in prompt when a user downloads the app, mitigating many of the privacy concerns. “Retailers see this as a nice compromise, and it prevents the customer from being bombarded by digital signage or greeters coming up to talk with them by name. It’s only existing in their mobile phone, and if they don’t like it, they can unsubscribe from the app,” Gerba says.
But even if most retailers are shying away from using facial-recognition software to its fullest potential, the chance that some are, without our knowledge, grows greater as the technology becomes more sophisticated and affordable. And because retailers are implementing this type of tracking on their private property, a consumer’s legal rights to privacy are very limited. But privacy advocates say that even if this kind of tracking can’t yet be legally stopped, consumers should at least be made aware of what’s going on. Says Dixon: “I think it’s absolutely crucial for these companies to come clean with the public and disclose what is happening.”
How do you feel about retailers’ efforts to track consumer behavior? Weigh in through our online poll, and be sure to join us on Friday, Sept. 21, at 12:30 p.m. at business.time.com for a live Google+ Hangout discussion of privacy and in-store tracking.