Retailers want to track your every move

(MoneyWatch) It may surprise Nordstrom (JWN) shoppers to learn that the upscale department store chain uses their smartphones to track them as they move through a store.

It shouldn't, because the practice is increasingly widespread. The Nordstrom program has been in place for about nine months in a 17-store trial, according to retail trade website StorefrontBacktalk.com. Meanwhile, the technology vendor behind the pilot is working with 35 other top 100 U.S. retailers on similar systems. And other major retailers, whether openly or not, have also been exploring new ways to track consumers.

Retailers have a lot to gain from such information. But the multiple technologies that allow such tracking raise significant privacy questions, particularly as most consumers have no idea it is happening, and there are schemes to move tracking beyond the bounds of a store's walls, creating the potential for a commercial Big Brother.

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The tech vendor that is working with Nordstrom on its tracking system is a company called Euclid Elements, whose chief operating officer co-founded the firm that Google (GOOG) would acquire and turn into Google Analytics, its web traffic tracking system. The company's technology watches for phones whose Wi-Fi is turned on, which allows it to follow the movement of the phone's unique network identifier.

Location, location, monetization

Information about how customers use and interact with stores is important for retailers. Do people generally go to look at linens before they shop or consumer electronics? Every connection and association, combined with advanced data analytic techniques, can suggest new approaches to store layout and merchandising. Even a relatively small retailer like Philz Coffee in San Francisco can benefit from the data it can collect, as CNET reported in the fall of 2011:

Euclid installed sensors in all 12 Philz stores. After eight years in business, Jaber is learning things he never imagined. He knows, for instance, that customers on average spend 43 minutes in his store in Berkeley, yet only 15 minutes at the one in the SOMA neighborhood of San Francisco, something known as dwell time.

Armed with such data, Jaber says he can consider changes. Maybe he should pull a sofa from the San Francisco shop to make more room for customers in line. In Berkeley, he could add more food since people are lingering. He can even figure out the menu items since he knows what time of day people hang out the longest.

According to Euclid, it deliberately restricts the degree of movement detail that it provides to retailers, as StorefrontBacktalk reports:

"We're making trade-offs on location granularity," said Euclid CEO Will Smith. "We're not telling them which aisle they were in. We're talking more like which floor people are on." Asked why the geolocation data isn't more specific, Smith said, "Because retailers won't pay us for it."

But Euclid is just one vendor and one approach. Swarm Solutions can "provide personalized offers based on shopper attributes and intent" via consumers' mobile devices. Nearbuy Systems and Nomi are two other competitors.

Analytics firm ShopperTrak RCT uses automated video analysis to track consumers in stores, although it has explicitly said it does not focus on people's faces. But it doesn't take a broad leap to see how advances in computerized facial recognition could link movement to identity.

In one door, out the other

The privacy issues surrounding retail tracking get bigger the minute someone leaves the store and goes to another store with compatible technology. Vendors say they will respect privacy, but the temptation to look follow and analyze a consumer's broader movements is enormous.

Look at Amazon's patent application for a system to track people through mobile devices, project what path they will follow and their next destinations, and then display appropriate ads, coupons or other marketing, either on the mobile devices themselves or on displays that individuals are likely to see on their routes.

For stores, the potential benefits if tracking a consumer's every move are significant. And these days the Internet and mobile technologies make it possible to do just that. Meanwhile, a federal appeals court recently ruled that there is no right to privacy for phone location data. For consumers, the emerging reality seems clear: Prepare to be followed.