IBM sets sights on retailers

(Fortune Magazine) -- Suitably clad all in black on a balmy Halloween afternoon, Carol Timpanelli makes her way through the aisles of the Stop & Shop grocery store in Trumbull, Conn. Upon choosing an item, Timpanelli, 45, scans it with a small bar-code reader, which delivers a running tally of her purchases to a Frisbee-shaped, cart-mounted monitor.

But while the device, an IBM Personal Shopping Assistant (PSA), knows what she's bought over the past few months, she still clutches a shopping list in her right hand. "I need to know what I need," she explains, before whizzing through the checkout aisle.

Digital eye: IBM's Borger and the Smart Surveillance System

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Now On Sale in IBM's Future Store Veggie Vision A camera attached to this smart produce scale can tell the difference between arugula and radicchio. Everywhere Display A ceiling-mounted projector transforms a store wall or floor into an interactive merchandising screen. Smart Surveillance Digital video security feeds allow retailers to search for suspicious activity in the aisles and root out fraudulent returns. Unlike security cameras that use videotape, these files are quickly and easily searchable. Personal Shopping Assistant The cart-mounted device tracks purchases, tells you where the frozen food aisle is and lets you know about sales and special offers. You can even use it to place a deli order.

Timpanelli's shopping trip illustrates the challenge today's retailers face when they try to bring tomorrow's technology to an industry stuck in yesteryear. "Retail still reflects the technology of 50 years ago," says industry consultant Bill Bishop. "That's an open invitation for anyone with new ideas."

In this low-margin business, with the specter of Wal-Mart (Charts) omnipresent, the need to differentiate one's store from the big box down the street has retailers eager to try just about anything.

Tech titans like Oracle (Charts), SAP (Charts) and Accenture (Charts) are all trying to cash in on that desperation. But IBM (Charts), which has a multibillion-dollar retail practice, sees such potential here that three years ago it quietly created what it calls an "emerging business opportunity," or EBO, distinct from its main retail arm, to market promising technologies it has invented or co-developed with partners.

In Hawthorne, N.Y., not far from IBM headquarters, the company has built a snazzy showroom to exhibit projects with names like Veggie Vision, Everywhere Display, Smart Surveillance System and the aforementioned PSA.

But as IBM and others in this category have learned, going from the showroom floor to the aisles of American stores is not always a smooth transition. These gizmos are not cheap - a single Everywhere Display costs $15,000 - and it takes time for shoppers and store employees to accept them. Three years after unveiling the PSA, for instance, Stop & Shop - which prefers to call the device the Shopping Buddy - has it in just 15 of its stores.

"If you put technology in for technology's sake," says Jan Jackman, the general manager of IBM's retail EBO, "it just collects dust." Jackman's job, then, is to convince retail executives that her devices will boost their bottom line.

But while she claims, for instance, that shoppers who use IBM's PSA spend more than the average customer, Stop & Shop won't confirm that. What is clear is that the rollout has been very slow, partly because teaching customers to use the PSA places a strain on store employees. And bugs still exist - in Trumbull, the device's "find a product" feature could find neither "ketchup" nor "mustard."

A device with a bit more promise, so far at least, is IBM's Veggie Vision scale. The electronic scales in some supermarkets require shoppers to punch in the numeric code for, say, Fuji apples. A scale wedded to a camera, Veggie Vision can identify every fruit and vegetable in the store based on a slew of characteristics that range from hue to texture to curvature.

German retailer Metro, which operates a gadget-laden Store of the Future in Rheinberg, near Düsseldorf, says that the Veggie Vision scale is the most used of the many devices in the store. Metro has even rolled it out to its regular stores, with one improvement -since many veggies look alike, the scale now gives customers alternatives to choose from.

The most visually impressive of IBM's contraptions is the Everywhere Display, a ceiling-mounted projector that can turn any surface of the store - wall, shelf, floor - into a merchandising display.

Retailers can also make the image interactive, allowing shoppers to learn more about a particular item (like whether it's in stock) by touching a part of the projected image.

Metro has married this device with an information kiosk in the wine section of its future store. First the shopper uses the kiosk to choose from Metro's 650 vintages based on her preferences: white or red, dry or sweet. Then the projector spits out an image of the wine, and its price, on the floor adjacent to the wine's location in the aisle, making it easy to find.

Of all the gizmos in the future store, Metro's wine advisor has garnered the most positive feedback.

Not all of IBM's gadgets are visible to shoppers, however. Theft, known in the business as shrink, is a billion-dollar problem for U.S. retailers. Closed-circuit cameras are little match for today's thieves, so IBM has developed a security system for the Digital Age.

Currently being piloted by a national retail chain, IBM's Smart Surveillance System blankets the store with digital video, which can be manipulated to ferret out suspicious activity - as, for example, when a scam artist walks into a store with a receipt for a previously purchased item, then retrieves another off the shelf and takes it to the returns counter.

Previously, finding the fraud could take time: It took reconciling receipts with inventory and then laboriously going back through videotape to match the fraudster's face to the bogus return. By digitizing the video, IBM's system makes that process faster.

And by preselecting items to watch over and index, the system can determine when an object is removed from a shelf and track its progress through - and potentially out of - the store, all in real time. A merchant can tell the system to show, say, every plasma TV taken off the shelf and where it went, to the front register or somewhere else.

Casinos and airports have also tested the system, says Sergio Borger, IBM's lead engineer on the project. As with all of IBM's projects, there's no guarantee that this innovation will make it big.

But as long as retailers remain behind the technology curve, the potential market for IBM's gadgets looks huge.

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The grocery store of the future