It’s lunchtime. Time for a sandwich and one-on-one time with your smartphone. You have shopping to do. With one thumb wrapped around your sandwich and the other on your phone, you poke around and find that gift you want to buy for your sister, comparing coupon codes and free-shipping offers. By the time you get back to work, you’ve checked your sister off your holiday shopping list. Boop. Done.
Shopping like this is commonplace now, but it has really only been a few years since mobile shopping became a thing. After all, it’s only been a decade since the power of cyber-shopping was acknowledged with the anointing of Cyber Monday. Yet when this post-Thanksgiving online shopping day was named in 2005, high-speed Internet was wired pretty much only into workplaces, not homes or cellular towers. And the iPhone hadn’t even been born yet.
A lot has changed since Black Friday’s sibling Cyber Monday showed up—and more changes are ahead. The days when we crowd into big-box stores are predicted to become more the exception, not the norm. Personalized pricing and services will become the standards in a retail world that blurs the line between virtual and in-store shopping.
This 2015 holiday season, more shoppers than ever before will use their mobile devices, according to a recent survey by the National Retail Federation, which reports that 21.4% of smartphone owners will use them to conduct holiday business.
One of the contributors to the dramatic rise in mobile retail—which is shifting business models for both online and storefront retailers—is the company Branding Brand. Started by three classmates from Carnegie Mellon University, the Pittsburgh-based company is the leading provider of mobile sites and apps for the Internet Retailer Top 500, which includes the likes of Brookstone, Crate & Barrel, and Ralph Lauren, just to name a few. The company was founded when Cyber Monday hit the terrible twos.
Shop like It’s 2005
So how did Cyber Monday even get started? In the early years of the millennium, lunchtime shopping gave rise to the nationwide shopping day. Here’s what happened: Office workers who hadn’t quite finished their shopping on Black Friday went to work on Monday and used their lunch break to take advantage of their companies’ high-speed Internet to buy a few items. Online sales spiked nationwide between noon and 3 PM, following the lunch hour from the East to West coasts.
Retailers began to take note of the sudden increase in sales. In November 2005, Shop.org of the National Retail Federation put out a press release that gave the phenomenon a name. The headline proclaimed: ‘Cyber Monday’ Quickly Becoming One of the Biggest Online Shopping Days of the Year.
“It wasn’t a marketing ploy,” says Kathy Grannis Allen, senior director of media relations for the federation. “It was a genuine trend that existed, and we were giving it a name.” The press release noted that 77% of online retailers had reported the year before that their sales had increased significantly on the Monday after Thanksgiving.
Of course, as soon as the day had a name, retailers began marketing their products and sales for Cyber Monday. In the ensuing years, sneaking in holiday shopping on the office computer was still a primary means of snagging Cyber Monday deals. The Blackberry and PDAs were on the scene (“Crackberry” was deemed the 2006 Word of the Year by Webster’s New World College Dictionary), but shopping wasn’t a chore those devices were equipped to handle well, if at all.
Then Apple revealed the iPhone. Techies in the computer and communications industries, including three CMU graduates, jumped into the deep ocean of possibilities that the new device could be used for—like mobile shopping.
Attention Smartphone Shoppers: Meet the Faces behind Your Screen
By the time the iPhone became one of the must-have gifts of the 2007 holiday season, the three friends who met at CMU were exploring what entrepreneurial fun they could get into next. They had already helped successfully transform a class project into College Prowler (now Niche), a review site that shares college rankings and statistics and connects current students with prospective ones through social media. They mused over how to combine the lessons they learned from that startup with the new world of smartphones.
“At College Prowler we realized the power of social—connecting college students with prospective ones. How could we help businesses with the same challenges?” recalls Christopher Mason (TPR’01). He and classmates Christina Koshzow (DC’02, HNZ ’03) and Joey Rahimi (TPR’01) figured that they could build mobile websites that would connect retailers with prospective consumers, allowing for two-way communication via social media and sales directly on mobile devices.
The trio called their new company Branding Brand because they wanted to become the brand that helped brand names with their online and mobile branding. They rented a former music store in Pittsburgh’s Oakland neighborhood for $200 a month in exchange for promising to renovate the space, which meant that after spending hours building a business in the virtual world, they spent even more hours replacing flooring, repairing leaks, and doing the hands-on work of turning the old store into an office.
At first it was slow going. Mason, the CEO, worked to persuade potential clients that m-commerce (mobile commerce) was the way of the future and that desktop websites used for e-commerce (electronic commerce) were too clunky for mobile phones, so new platforms were needed. But many business executives weren’t sure whether any of their customers would ever want to buy stuff using phones. Eventually, Dick’s Sporting Goods signed on, leading to a mention in a 2009 Wall Street Journal article. Phone calls followed to Branding Brand from national retail executives who were starting to witness the widespread adoption of smartphones. The callers must have liked what they heard from Mason and his colleagues. Today, Branding Brand has 120 employees, more than 200 clients, including several national retailers, a bigger office in Pittsburgh’s trendy South Side, and a location in New York City.
Holiday Shopping, 2015 Style
This year, many holiday shoppers will forgo their office computers for their smartphones. “A lot of people are at work, and they’re not supposed to be using their work computers to purchase things, but they want to get in on a deal,” Mason says.
Even if smartphone shoppers don’t actually push the “confirm purchase” button, many will likely use their phones to browse for ideas or sales. A recent poll by CivicScience found that 45% of those who plan to do the majority of their holiday shopping online frequently use their smartphones to research products. And, in a report by Nielsen, among Millennials, 92% of whom own a smartphone, 66% use the Internet to purchase hard-to-find items.
Mobile commerce is expected to increase throughout the holiday season, as well as during everyday shopping year-round. In calendar year 2015, m-commerce sales are forecasted to rise 32.2%, according to eMarketer. By the end of 2016, about 25% of total e-commerce sales are expected to come from m-commerce.
Mobile commerce is a bright glow for retailers in the midst of a mediocre economy that still hasn’t completely rebounded from the financial crisis of 2008. “The recovery has been modest at best,” says nationally renowned economist Allan Meltzer, who is a CMU professor of political economy. “The long-term growth of the economy depends on investment, and there’s been no investment.” Until the economy becomes more robust, he doesn’t expect retailers to have banner holiday sales years.
During the 2015 holiday season, total retail sales are forecast to increase a slight 3.7%, but online sales (including mobile) are expected to increase between 6% and 8%, according to the National Retail Federation. The e-commerce and m-commerce landscape is shifting the pace of holiday shopping. Even though Cyber Monday and Black Friday have names, these days aren’t necessarily the highest-yielding sales days for retailers.
“Retailers still appreciate the power of Cyber Monday,” says Allen of the National Retail Federation. “But it’s no longer just about shopping on Black Friday or Cyber Monday. Retailers are promoting some of their best deals on days that aren’t those. The ability for consumers to shop any time of the day has dramatically altered when, where, why, and how [retailers] offer holiday promotions. The deals and promotions are all season long now.” Actually, the promotions are being touted all year long by Shop.org’s website cybermonday.com, which offers “365 days of incredible online deals,” she adds.
Mason says the beauty of m-commerce is that it can take some of the stress out of holiday shopping. “Mobile has created an opportunity to buy without friction,” he says. No need to camp outside stores or stand in long lines. No need for managers to ask employees to work on Thanksgiving and through the night into Black Friday. Case in point: REI, a privately held sporting goods chain with 140 retail stores, has opted to stay dark on Black Friday, giving its employees a paid holiday in the spirit of the season. But it shouldn’t put a dent in its $2 billion of annual revenue because its website is always open for business.
Retail Forecast: Phone-Friendly Stores, Personalized Prices
Does the growth in mobile and online shopping mean that traditional shopping on foot will become passé? In some ways, yes. Experts are saying that the future of retail is in blending virtual and in-person shopping. Sure, you can shop on your phone during your lunch break for your sister’s holiday gift. You can also pull out your phone in the store aisle. Not sure whether those headphones are a good deal? Use a barcode scanning app or do a quick web search on your phone.
“The gap between what is physical and what is virtual is blurring very fast,” says Rahul Telang, professor of informations systems at CMU and codirector of the Initiative for Digital Entertainment Analytics (IDEA) team, which conducts research on issues pertaining to companies dealing with digital media content.
With m-commerce in the mix, he notes, some online retailers are actually introducing physical stores into their business models. After 20 years in business, online retail giant Amazon opened its first-ever store in November. Amazon Books, located in Seattle, is selling handheld copies of books with the highest ratings on Amazon.com. The format of the store assumes that shoppers will bring their smartphones with them. Instead of price tags, displays include barcodes that shoppers must scan to see prices—prices that are the same as those online, which can fluctuate.
Fluctuating prices and personalized pricing will be prominent in the future, Telang predicts. “The whole market is moving toward personalized service and personalized pricing,” he says. Retailers already track digital shoppers’ preferences and can send coupons targeted specifically to those who have viewed their couch or winter coat. With more data being generated from mobile and online shopping, retailers may gather enough knowledge to start offering different prices to different consumers, following a basic economic principle: Each buyer has a different willingness to pay for an item. Those who pay higher prices might receive personalized services, like a bonus gift, Telang says. And retailers will no longer need to put a lot of energy into offering mass-market promotions on days like Cyber Monday when they can offer deals anytime to specific customers.
Personalization is essential for retailers who are commingling virtual and physical shopping. This holiday season, online clothing shop ModCloth, which earns more than $150 million in annual revenue, is operating its first-ever physical store at a pop-up location in San Francisco. At ModCloth’s Fit Shop, customers can walk-in and try on the latest from ModCloth—then clerks take orders to ship customers’ favorite dresses or scarves to their doors for free. Plus, clerks take each customer’s measurements, so the numbers can be entered into ModCloth’s app and enable future mobile shopping for perfect-fit clothes.
“It’s easy to see how using features from our mobile app and incorporating them into our brick-and-mortar experience creates an additive experience for the customer, whether she is purchasing in the store or online later at home,” says Susan Koger (TPR’06), chief creative officer of ModCloth, which she and her husband, Eric Koger (TPR’06, ’07), founded in Susan's CMU dorm room in 2002 while pursuing their degrees at CMU’s Tepper School of Business.
The Fit Shop began as a three-week experiment in July and has been so successful that ModCloth extended the store lease through this holiday season and has announced plans to open stores nationwide starting in 2016. Koger expects that customers will continue to shop online, including via their phones. After all, about 40% of the company’s website traffic and 23% of its revenue came from mobile devices in 2014, numbers that continue to grow. Offering in-store experiences will increase personalization and interaction with customers, she says.
“Our Fit Shop has become a microcosm of our digital-style Gallery. Women of all sizes are shopping side-by-side and telling complete strangers that they look great in their outfits,” Koger says. “It’s inspiring to create that same kind of empowering community experience in a physical environment—it adds a dimension that you can’t create online.”
While retailers like ModCloth and Amazon are newly blending their virtual and physical worlds this holiday season, Telang’s fellow codirector of IDEA, Michael Smith, wonders what the future holds for the music and film industries in regard to gift-giving. In past decades, gifting CDs or DVDs was pretty popular. “Now, you have to think twice about it,” says Smith, noting that it might not make sense to give a DVD to a friend who has a movie-streaming subscription.
Gift codes are an option, but culturally, you may want to give a handheld present to your friend. “Fewer and fewer people are expecting their entertainment to come in a physical package, and whether that will mean there’s less gift-giving and we shift our gifts to other categories or whether that means people will continue to give DVDs and books and CDs as [digital] gifts remains to be seen,” says Smith, professor of information technology and marketing at CMU.
If you do step into an actual store and buy a DVD for your friend this year, you can use your smartphone at the checkout with a service like Apple Pay. Early adopters are already using this old-is-new “payphone,” and Mason of Branding Brand predicts that scanning your phone will be a commonplace payment method within the next decade or so. Just hold your phone over the card reader at the checkout and press a button on your phone that recognizes your fingerprint. Boop. Done.