Online Retailing: The Mobile Allure

Ten years ago, a typical 17-year old girl in Scott Thompson's neighbourhood south of San Francisco would have spent Saturdays hanging out at the shopping mall with friends, says the 54-year old father of three. Today, his own daughter of that age "never, ever, ever" sets foot there of her own accord.

"My wife in fact has to drag her to get her to go to the mall this time of year to help her buy stuff for friends and relatives. She just doesn't want to do it," Mr Thompson says.

What has changed is the way smartphones and tablet computers have accelerated the integration of the internet into our lives, he says – and, as president of PayPal, the online payments system owned by auction site Ebay, he is well placed to know.

Mr Thompson's company operates among an array of online price trawlers, product review sites, discount coupon hawkers and social networks. This cacophony of internet shopping options has – for people such as his daughter, and legions of others older than her – all but replaced the mall.

The transparency and convenience of "mobile commerce" have given Americans the upper hand over retailers, according to Mr Thompson, who echoes the connect-and-inspire ideology of Silicon Valley when he says: "The consumer ultimately holds all the power." Indeed, for many traditional retailers, rising competition from the internet has capped sales growth, squeezed profit margins and forced them to re-evaluate how they use their store space.

But a closer look at the world's largest e-commerce market suggests a more complex picture, in which some iPhone-toting shoppers – whether they want fair prices, greater choice or no hassle – are sacrificing as much to the internet as they gain from it. Online life has evolved to the point where many consumers this Christmas have implicitly signed up to a new but often unrecognised trade-off between the benefits and costs of America's fastest-growing way to buy.

Christopher Elliott, a consumer advocate and author of forthcoming book Scammed, says: "Companies benefit from the perception that if you're a good consumer and you do your homework, everything will be fine. But what they don't tell you is that in a digital age they can quietly manipulate the information we get to such an extent that being an informed consumer is an illusion."

Facebook managed to trigger a privacy outcry four years ago when it launched an advertising system called Beacon, which broadcast users' purchases on other sites to friends on the social network without their permission. It apologised and tightened controls before eventually closing the system.

"That was totally crossing the line," says Sucharita Mulpuru, an analyst with Forrester Research. But today, she adds: "You see people going as far as they can to get close to that line."

What is beyond dispute is that, 16 years after Jeff Bezos created e-commerce by founding Amazon.com, the way America shops is being changed profoundly by the confluence of mobile devices and ultra-fast broadband with the trouble-free delivery of goods to homes and an online awakening of traditional retailers.

Americans spend more than $2,000bn shopping every year, and online spending remains a small proportion – 8 per cent in the first nine months of 2011, according to ComScore, the market research company. Two areas where it still has a limited role are groceries and luxury goods.

But overall online shopping is expanding inexorably, up from just 4 per cent of retail spending in 2004. In the past three years millions of Americans have begun to shop online for shoes and clothes, which sceptics said would never happen because consumers needed to try before buying.

In November and the first half of December, online sales jumped 15 per cent from a year ago to $30.9bn, according to ComScore. On Cyber Monday, a post-Thanksgiving day when retailers offer online discounts, purchases from mobile devices grew sharply from 2.3 per cent of all internet spending in 2010 to 6.6 per cent, according to IBM.

Less widely understood is the influence of online research on offline transactions, as more consumers browse the web and create a shortlist before heading out to buy from a pre-selected store. According to estimates by Forrester Research, for every $1 spent online, the internet influences $3 spent in stores.

What concerns traditional retailers is the reverse: smartphone shoppers who breeze into their stores, ignore the staff, size up a few products, then scan the barcode of their chosen item into a software application that locates other outlets where they can buy it at a lower price. The popularity of this process, known as "scan and scram", is being fuelled by the prolonged weakness of the US housing and jobs markets, which has made price-conscious bargain-hunters out of much of the population.

It is easy to see why traditional stores feel threatened. The rise of Amazon, in particular, is a big reason why US sales at electronics chain Best Buy, at bookseller Barnes & Noble and at general retailer Walmart have barely grown in the past two years. At another level, however, the cyber-retail experience – disorganised as it is – poses a formidable challenge to consumers.

Internet evangelists say the ease of access to a wide range of prices online demonstrates knowledge is power. But Paco Underhill, a retail anthropologist who founded consultancy Envirosell, says: "The internet distributes information. It doesn't distribute knowledge or wisdom."

Just to reach the information, consumers must choose between multiple free scanning apps such as Ebay's RedLaser and Amazon's Price Check; between aggregators such as NexTag and coupon pedlars such as Groupon; between internet-only retailers such as shoe seller Zappos and the increasingly sophisticated sites of bricks-and-mortar rivals.

Wendy Liebmann, chief executive of WSL Strategic Retail, a consultancy, says: "People are overwhelmed by options and the challenge of being smart about spending the limited money they have. They're exhaus­ted, stressed and overwhelmed."

For some, an awareness that the right product must be out there somewhere now means that if you do not find it you have failed – and the ubiquity of internet connectivity has enabled the search for it to seep into all corners of our lives, from work and travel to beach and bed.

April Lane Benson, a psychologist who treats compulsive shopping disorder and wrote about it in her book, To Buy Or Not to Buy, says it is easy to get sucked into online searches. "I was looking for a pair of bronze metallic shoes. I found 72 pages of them. In two hours, I went through 25 pages, ordered four pairs, and called it a day. It started out fun but it got ridiculous." In the end, she returned all the shoes.

For other people, she says, the 24/7 free-for-all of unlimited choice is "infinitely pleasurable".

Many internet entrepreneurs say that, for those overloaded by information, the solution is "curation" – creating an intermediary layer of professional connoisseurs to pick items for consumers. For example, online US fashion sites, such as Gilt Groupe, Rue La La, Ideeli, HauteLook and MyHabit (owned by Amazon) present themselves as curators of invitation-only clubs. In doing so, they gloss over their role as outlets for unsold stock from traditional forums – and prove that millions of people are ready to buy heavily discounted fashion from the internet.

Their great innovation has been to sell a limited range against a countdown clock in daily sales advertised using urgent email alerts that turn shopping into a game. According to Ben Fischman, chief executive of Rue La La, three years ago online retail was "sterile, perfunctory" – but "flash sale" sites such as his emerged as technology improved and entrepreneurs asked: "How do we create excitement? Addiction?"

Joel Bines, a retail consultant at AlixPartners, says such sophisticated marketing techniques put the retailers in charge. "Consumption used to be: 'I have a need, I will consume'," he says. "The flash sales sites have created both need and consumption. It wasn't in my consciousness that I need a faux ostrich gym bag, but I get the email from Gilt Men and not only does it look good, it's at a smart price."

Mr Elliott, the consumer advocate, says retailers are assailing us with an even broader array of messages in ways we do not recognise. "Is the tweet you just saw from a friend really an endorsement – or a paid-for ad? What about the text message with a coupon code you just got on your mobile?" he writes in his book.

Then there is the well-rehearsed debate over online privacy. Just as consumers can gain access to an endless selection of merchandise online, retailers can gain access to endless data about browsing and buying histories – and even the movements of those who use location-based apps such as Shopkick and Foursquare.

Internet advocates argue that their use of such data helps rescue consumers from information overload because they allow retailers to personalise the products they recommend to consumers through direct emails and other forms of "push marketing".

Facebook, a trove of personal revelations, is seeking ways to turn online conversations about products and brands into advertising opportunities. Indeed this month a federal judge in San José rejected a bid by the social network to dismiss a case that accused it of violating Californian law by telling users which specific companies or products their friends "like". But for the time being, most talk of "social commerce" is hyperbole: just 0.6 per cent of buyers were referred from social networks on Cyber Monday, according to IBM.

Nonetheless Sharon Zukin, a sociology professor at The City University of New York and author of Point of Purchase, a book on shopping, says: "Our entire bodies and histories are being opened up and colonised and stored by the very people who want to sell us things. Online shopping is becoming a master of these technologies of simultaneous coercion and seduction."

However, when Prof Zukin recently warned her undergraduate students of this prospect, she says: "They were blasé." This illustrates a vital point: attitudes to the internet are divided between those who grew up online and older people who have integrated the web into ways of life established before it existed. Whether devious retailers are manipulating naive seasonal shoppers or capricious consumers are toying with helpless retailers, the two groups draw the line between right and wrong in different places.

Back in California, reflecting on the rapid decline of the ritual teenage trip to the mall, PayPal's Mr Thompson says: "It's just fascinating that in such a short period of time a behaviour that was so well ingrained in that age bracket has just turned completely."