Playing The Smartphone Shopper

By Aaron Levitt | November 23, 2010 AAA

With consumerism accounting for nearly 70% of the America's GDP, retail plays a very important role in the overall health of the economy. As persistent high unemployment and low consumer confidence still plague the retail segment, navigating the sector is like stepping into a mine field. However, a new trend in consumer behavior is emerging. More and more consumers are using smartphones and the mobile internet to find deals and conduct product research.

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New Developments
A new study conducted by American Express (NYSE:AXP) looked at new trends affecting the retail space. These new developments in consumer habits reveal the ever increasing importance of internet and mobile technology in retail marketing. Shoppers are beginning to make use of the "tools at their fingertips" when deciding where to shop and what to buy. The online world, both traditionally via computer and through the mobile internet, is dramatically changing consumer behavior. A new recessionary mindset has allowed user of digital tools like Groupon to find bargains when they might have previously paid full price. In addition, consumers are taking a harder look at the ethics and policies of the companies from which they buy.

Similar findings from consultant group Accenture (NYSE:ACN) found that 73% of shoppers with smartphones favor using the device to handle tasks in stores compared with 15% who preferred interaction with an employee. Buying directly through a mobile commerce (m-commerce) site is expected to grow to be a nearly $6 billion market in 2011 and consumers using a smartphone will account for $127 billion of the $447 billion the National Retail Federation predicts shoppers will spend this holiday season.

Playing These New Trends
With more tech-savvy consumers taking the lead and helping spur these new innovations in m-commerce, retailers that work the necessary infrastructure into their business plans will benefit. The SPDR Morgan Stanley Technology (NYSE:MTK) is a great way to play the overall adoption of smartphones. However, finding individual retail stocks that will benefit from m-commerce takes some digging.

Google's (Nasdaq:GOOG) recent $6 billion offer to purchase Groupon shows how serious the internet giant is at entering the mobile commerce arena. The company's latitude location based shopping tool is already a big player in the field. Using a phones GPS, these services help connect users and their phones to stores and discounts. Google will undoubtedly be a major force in role of smartphones in retail.

Electronics retailer Best Buy (NYSE:BBY) has made the leap towards a mobile experience, creating an app that allows users to check product stock, shop online and even compare prices while at a competitor's store. Through a partnership with the TheFind, Best Buy is able to send targeted ads to a consumer based on saved searches at rival stores. The electronics retailer can then offer discounts to lure into their stores. Hip discount retailer Target (NYSE:TGT) has also added barcode scanning and downloadable coupons to its mobile menu.

All of these new advances in mobile commerce transactions amount to one thing; data. The best way to play the growth of smartphone consumerism may not be with the retailers themselves, but through the architecture designers and data miners. IBM's (NYSE:IBM) recent purchases of Unica, Sterling Commerce and Coremetrics, have given the company a powerful suite of products to help retailers use the abundance of data they collect from consumers. Among other things, IBM will be able to analyze consumer mentions of brands in social networks, combine that with data about how consumers are shopping online and in stores. Ultimately, retailers can use that info to run targeted marketing campaigns to consumers.

Bottom Line
With the rise in smartphone use, the retail space is changing very rapidly. As the m-commerce continues to play a bigger part of retails future, investors looking to play the sector for the long term should consider those who have taking the plunge into mobile transactions. Companies like Home Depot (NYSE:HD) or previously mention stocks, who have integrated mobile internet into their business models, should be given preference. (For more, see Cell Phone Evolution.)

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