Starbucks and Google Join Forces – A Retail Disruption?

Hi all…

This piece was original published on my blog in Forbes, but by request, I am re-posting it here. It’s important to understand, I think, if you want to understand the state of the Retail Union.  I’m not talking about the speed factor…just the pure existence of customer–facing wi-fi (or any in-store wi-fi at all, really) and what it means for mobility applications.

The news is out.  Starbucks is replacing AT&T as its customer wireless provider. And Google is the new sheriff in town.  This is important for a lot of reasons.  While Starbucks emphasized that it expects Google’s network to be faster, given Google’s classic model I also expect it to be disruptively cheaper for the retailer.  And that’s good news for consumers too.

I’ve been shocked at how long it is taking the Retail industry at large to get going with wireless in stores.  My company conducts an annual benchmark into the state of in-store technologies, and even in our most recent study only 24% of survey respondents reported having wireless available for customers. Even more disturbing, more than 50% report having no wireless available in the body of the store at all…not for customers, not for employees, for no one.  And this is not a “small retailer problem” as some have suggested. Forty-four percent of retailers with more than $5 billion US in annual revenue have no wireless on the selling floor for anyone.  Of those who have it, only 13% of the largest retailers make wi-fi available to customers. That seems borderline ridiculous.  And the number has barely budged over the past five years. If the hospitality industry can do it, why can’t general retailers?

Mostly we’ve attributed this lack to two things: fear of data security breaches and cost. The first is a bit of a red herring: many companies provide data security and a firewall between customer-facing wi-fi and internal systems.  Those data security providers report brisk business across multiple industries.  The cost issue is likely the biggest bug-a-boo.  Retailers are notoriously thrifty (a kind word, I know), and what we call “the store multiplier” always acts as a deterrent to new expenditures.

The store multiplier is simple enough math.  Let’s say something’s going to cost $200 per month for each store.  If you had one or two stores, it’d be close to a no-brainer…but if you have 7,000 (as Starbucks does), that works out to over $1.4 million every single month.  That’s a mind-numbing number and it explains why in-store technology always seems just a bit behind the times.

It doesn’t help that the media and certain retailers have popularized the concept of “showrooming.”  In the theory of showrooming, consumers use a store to take a look at a product, while they glibly search on-line with the smartphones for the lowest price, and buy the item elsewhere. While there is some data to support this notion (IBM conducted a study in late 2012 for one), other data seems to indicate that customers using their smartphones in store actually spend more than those who don’t. Still, showrooming can be a great excuse for a bad quarter. It can also be a way to avoid the serious conversation about ways to really engage the customers while they are in the store.

Retailers are actually recognizing and coming to terms with the problem. Eighty-eight percent of RSR’s store survey respondents agree that in-store technology helps stores compete with the on-line experience. Allowing customers to communicate with friends via wi-fi, or check out product reviews, and yes, even prices are a key part of that technology. Most recognize that they don’t have to price match…they just have to be “competitive.”

So Starbucks has just helped Google put a huge stake in the ground.  I’m hoping to see wi-fi available to customers in more stores in the coming year.  Any market Google decides to enter gets disrupted by its pricing strategies.  Here comes disruptive wi-fi…coming to a store near you.