(Business 2.0) – When a young woman shops at Once Famous, a boutique in downtown Minneapolis, her every move is recorded by ceiling-mounted videocameras, and her conversations are monitored by concealed microphones. Behind a two-way mirror at the rear of the store, silent observers in a dimly lit control room evaluate everything this potential customer says and does.

Welcome to the cutting edge of retail research. Run by 13-year-old branding agency Fame, Once Famous is believed to be the first experiment of its kind: an honest-to-goodness store that doubles as a laboratory. Fame aims to help retailers answer questions such as which products to take to market, how to display merchandise, what packaging draws the most interest from consumers, and how to best route people through their stores.

The company also interviews customers right after they make purchases. "Understanding what the consumer is thinking at the point of sale is absolutely crucial," says Vivian Behrens, senior vice president for marketing at Dress Barn, a national chain of 770 women's wear stores that has worked with Fame. Other Fame clients include Best Buy, the Limited, Target, and Toys "R" Us.

Proponents of Fame's approach say retailers need to know more, not only about what people buy, but why they buy it. They argue that a "real-world" environment like Fame's can provide a more accurate view of consumer behavior than can be gained through traditional means, such as focus groups.

So what has Fame discovered at its lab so far? For starters, men and women approach products differently--men often need to be invited to touch a product, while women are likely to pick it up without prompting. Men often like to read product information; women may relate to a product on a more personal level. The camera doesn't lie.

But what about the legal implications of this sort of in-store surveillance? Not to worry. Fame alerts customers that testing is in progress by activating a blinking light on a tall black sign at the front door. Besides, shoppers can't enter or participate in the research unless they sign a waiver. Needless to say, shoplifting isn't a problem. --JIM RENDON