I Spy a Better Buy

Retailers are using surveillance cameras as a marketing tool. Some privacy advocates don't like the looks of it

The Creamery, a café in the heart of San Francisco’s SoMa district, always has a long line at the counter on sunny weekends. Work-weary hipsters abandon their nearby condos and cubicles for breakfast on the patio—all under the watchful gaze of owner Ivor Bradley. A gregarious Irishman with a management background at Whole Foods and Four Seasons hotels, he knows all the regulars and likes to stay on top of the details of his business.

Even when he’s nowhere near the premises, he keeps an eye on customers and staff by way of his smartphone, watching streaming footage via the café’s security cameras. “The mobile video lets me stand above the action,” he says. “It lets me read the crowd no matter where I am.”

It sounds a bit like Big Brother—before he tells the morning OJ story. While monitoring the breakfast rush, Bradley had noticed how people reaching the front of the line would frequently and awkwardly lean across the counter display and cut off other customers to grab a cup of fresh orange juice. Again and again it happened, but no one complained, and the busy staff didn’t notice. When Bradley himself had helped out at the counter, even he never noticed. Yet it was so clear on his smartphone screen. “The camera saw what I didn’t,” he says.

Bradley saw dramatic results after moving the juice closer to the counter. “Sales of the fresh OJ shot up 100 percent,” he says. “Plus the line moved noticeably faster.”

Take that simple fix and its nearly instant results, then multiply them across many stores, and it becomes clear why more retailers—from small boutiques to Walmart—are scrutinizing footage from security cameras to improve their marketing. Such analytics are part of a booming industry called video surveillance as a service (or VSaaS), which is expected to grow from $474 million as of 2011 to some $2.4 billion by 2017, according to MarketsandMarkets, a global market research company.

As security cameras and software have become more sophisticated, more retailers are using them to study shoppers’ movements. Thanks to technology like the Prism Skylabs software Bradley uses at The Creamery, managers don’t have to watch hours of footage. Instead, they receive written and video reports.

“Security cameras are now able to expose a wealth of sales and marketing data,” says Daniel Burrus, CEO of Burrus Research Associates, a consultancy that monitors technological advancements. Now, data can reveal slowdowns in traffic, where lines form, where and how people linger, which products are hottest, and which aisles are browsed the most and for how long.

Facial-recognition technology and other experimental tracking methods tend to grab the headlines, but most people don’t realize that surveillance cameras have been used in marketing for years. Marshal Cohen, chief retail analyst of The NPD Group, recalls earlier in his career watching security video to learn which way shoppers turned after leaving an escalator. Finding that they tended to veer left, he knew where to place displays.

It was a slow, tedious and costly process, but all that’s changed. Now, cloud technology and other digital innovations give retailers cheaper, faster and easier ways to use their security footage to interpret subtle shopping patterns. T-Mobile says it uses surveillance data to evaluate the design of its retail outlets. The Famous Footwear chain draws on security footage to help managers place promotions in the optimal spot. And American Apparel employs surveillance analytics to arrange colorful clothing displays to capture the most shopper attention.

At Walmart, an internal team is testing new ways to deploy security footage to enhance in-store marketing, according to research and surveillance specialists. (Walmart declined to comment for this story.)

Walmart’s reluctance to get into the topic isn’t surprising. For the most part, retailers want to keep their crossover camera practices quiet. Analysts point out that surveillance footage only collects aggregate data and is not used to identify specific shoppers. And since retailers also use the footage for security, they don’t have to disclose that they’re watching shoppers via video camera or ask customers for permission to record them. “Most chains that use security cameras for marketing will downplay it so as not to offend anyone due to privacy issues,” says Cohen.

At the same time, new analytics firms attracted to the lure of “big data” are popping up like mushrooms, each with the goal of translating security footage into useful marketing metrics. While many platforms are automated, the software-outsourcing company Tategy last year founded Storegistics of Silver Springs, Md., to focus purely on human analysis, says Tategy co-founder Richard Schulte. Each night, staffers evaluate the security footage of their retail and restaurant clients. The company regularly communicates to its clients performance indicators including customer interaction with marketing displays.

Also founded last year, San Francisco-based Prism Skylabs compiles simple video formats such as stop-motion time studies and heat maps that show customer movements. “We want to consumerize the data,” explains Prism Skylabs CEO and co-founder Steve Russell. The heat maps are impressive, showing, for example, which shoes customers handle most through the day with a red, green or blue halo around the most popular items.

But the old guard of retail research warns marketers not to swoon over the abundant surveillance information. “Collecting data is easy, but getting insights out of all that data still takes time, money and resources,” says Paco Underhill, founder of research consulting company Envirosell. “Generally, retailers don’t need another fire hose of information to deal with.”

Fancy technology and ambitious retailers aren’t the only factors feeding the surge in security cameras in marketing. Since 9/11, a huge security industry has grown in the U.S., encompassing producers and vendors of hardware and software, plus legions of consultants. And the security units of many large corporations are looking for ways to expand their own coffers and responsibilities, having taken note of their companies’ generous in-store marketing budgets and wanting a piece of the action.

For retailers, fusing surveillance and marketing can reap benefits.

American Apparel saved 40 percent in capital costs by combining its customer-traffic management and loss-prevention systems into a single platform using technology from RetailNext, according to Stacey Shulman, chief information officer. “Our technological changes, including [improved] traffic counting, have collectively impacted our sales, theft and labor costs,” she says.

Each year, five-year-old RetailNext of San Jose, Calif., uses security footage to analyze some 400 million shoppers worldwide. Unlike other surveillance platforms, the company’s software integrates video tracking with outside data including weather reports and holiday promotions, to go beyond simply in-store activity.

One can get a glimpse of the mating dance between security and marketing at the ASIS International seminar and exhibition in Philadelphia, held every year around the same time as the 9/11 anniversary.

Nearly 20,000 people—most of them middle-aged men, clad in a sea of gray, navy blue and black business suits—attend the gathering, where kitschy gimmicks are MIA. Instead, one can find row after row of camera equipment alongside big-screen monitors to demonstrate the latest software. (Guns are sold in at least one booth.)

Everybody, it seems, knows each other. The security industry is the classic old boys’ network, meaning that the under-30 engineers from Prism Skylabs can’t help but stand out—even though they’ve ditched their jeans for conservative business attire. (Prism hosted a panel at ASIS titled “Leveraging Video Infrastructure to Increase Customer Engagement.”)

In an industry that by its nature plays close to the vest, the event makes for that rare situation where security execs talk openly about using data for marketing. First, Prism’s Russell demonstrates how his company’s technology can transform security footage into enhanced video with features such as colorful heat maps showing high-traffic areas. “This kind of information helps managers make micro-merchandising decisions such as will it increase sales if I put out the yellow sweaters or the blue sweaters?” he says.

Jon Grander, vp of asset and revenue management at the Brown Shoe Co., tells the crowd he uses surveillance data to create heat maps at some of the company’s Famous Footwear locations. With his trimmed gray hair and buttoned-up demeanor, Grander seems more business chief than tech geek. He relishes explaining how enhanced images reveal which shoe styles are handled most frequently, helping store managers deploy in-store ads more effectively.

“We were posting so many ads in our stores they were like wallpaper and became meaningless,” he says. “Now we can put the ads where we have people’s undivided attention, such as the seating area where they try on shoes. Little changes make a big difference.”

Next, Joe Davis, T-Mobile’s director of loss prevention, takes the podium. A beefy, down-to-earth guy you’d want to have a beer with, he explains how 10 T-Mobile retail outlets use Prism software to tabulate shopper traffic patterns and assess store layouts.

Davis tell his peers that security departments can now solve business problems that used to be far beyond their purview. “Ask your marketing people, ‘What is your wish list, what would you like to know?’ ” he says. “You’ll find that what they ask for is so pedestrian compared to the technology that is available today.”

For example, his store-design team is studying “customer dwell time” at different in-store displays. It’s a good way for the loss-prevention team to increase the value of store video systems, he says.

No one talks much about consumer privacy, but Prism’s technology hides shoppers’ identities by blurring their images or by showing only the heat paths of customers.

Privacy advocates have their doubts about all this. Unlike online shoppers, who expect to be tracked on the Internet, in stores people have an expectation of privacy, says Pam Dixon, executive director of the World Privacy Forum. “It is crucial for retailers to disclose that camera-tracking information is being used for marketing and to offer shoppers a way to opt out,” she says. “It’s especially important in the case of children and in sensitive areas of stores such as pharmacies.”

Dixon isn’t alone. In a Time.com poll of more than 500 readers last month, 62 percent signaled that it’s “creepy” for retailers to track customer behavior in stores. What’s more, 40 percent of respondents said they would avoid retailers that did so.

Marketing guru Underhill insists that privacy is a non-issue. With surveillance footage, “each customer is only a building block,” he says. “Researchers don’t know who you are specifically, but are focusing only on the cumulative total.”

That could change. Plans are in the works for customized cameras with facial-recognition software that matches a shopper’s face to her Facebook profile through a mobile app. Using the data, brands could instantly pinpoint a shopper’s identity, then send her customized promotions on her smartphone.

Redpepper, a marketing agency based in Nashville, Tenn., is among the companies trying to develop such a platform. Co-founder Tim McMullen says the company plans to conduct tests with consumer brands sometime next year. But unlike surveillance tracking, customers will have to opt in by signing up for the app. Stores won’t be able to use existing security cameras for Redpepper’s technology but must buy new equipment. (It goes without saying that retailers are far more interested in using the security cameras they’ve already paid for, as experts point out.)

There’s no doubt that customer surveillance as a marketing tool is coming out of the shadows, with even small businesses like Ivor Bradley’s San Francisco café discovering the power of smart, always-on cameras.

It doesn’t seem like snooping, says Bradley. “I feel like an angel watching over my flock.”