Priced at $2M, are retail apps worth it? Maybe not
Today's shoppers are more mobile than ever. So what better way to reach them than by targeting the very technology they can't seem to put down?
On the heels of robust smartphone sales that grew last year by 50 percent as a percentage of online sales, a recent study by Forrester Research and the National Retail Federation found that mobile remains the top priority for retailers, with 58 percent putting it at the top of their lists.
That's a 5-point increase from 2014-but it comes with a major caveat.
Once considered a necessity for mobile dominance, retailers are scaling back their efforts for developing and maintaining mobile apps, which can cost more than $2 million just to build.
According to the study, 56 percent of retailers said that mobile apps will not play a major part in their mobile marketing strategy this year, in large part due to their hefty price tags.
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"Apps are simply too expensive to build and maintain for most retailers," said Sucharita Mulpuru, vice president and principal analyst at Forrester Research.
Retailers reap a number of benefits by getting shoppers to download their mobile apps, Mulpuru said. For one, they encourage loyalty and repeat purchases among consumers; for another, the apps that are well-executed elevate the customer experience. She cited Starbucks (SBUX)' incorporation of its payment technology and loyalty program as a prime example.
Apps are also essential in executing on the future rollout of beacon technology, which uses location devices in stores to push notifications and relevant promotions to shoppers. For beacons to work, they require shoppers to download-and opt into-an app.
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For many companies, however, the benefits of having a mobile app aren't worth the costs to build and maintain it. Julie Ask, also a vice president and principal analyst at Forrester, said that on top of the $2 million up-front fee for building an app, it costs another 80 percent of that fee each year for maintenance-per platform.
That's a big chunk of change considering it only costs about $200,000 to build a mobile-optimized site, Ask said. What's more, the investment can seem particularly hefty given that, on the high end, only about 20 to 30 percent of a retailer's mobile sales come from their app, Mulpuru said.
As a result, it tends to be the larger retailers that are willing to shell out big bucks for the technology.
Josh Marti, CEO of technology platform Point Inside, said money isn't the only thing holding back smaller retailers. Instead, they're waiting for the larger companies to figure out what works, so they can adopt the best practices.
"They're waiting for somebody to not only set but meet the consumer expectation," Marti said, adding that the best mobile apps differentiate the experience from a company's mobile or desktop site.
When determining which capabilities to include, he said it's important for retailers to keep in mind that 70 percent of app users are trying to buy an item in store. For the most part, that means they're using apps in their planning stages.
As such, Point Inside recently worked with Target (TGT) on its new mobile app that allows users to create shopping lists ahead of their trip to the store, and then tells them where the products are located.
"In retail there's only two questions you have to answer," he said. "Do you have the item I'm looking for and where can [I] find it."
Although the majority of retailers will spend less than $1 million on mobile developments this year, Mulpuru said 18 percent will spend more than that amount.
Best Buy (BBY) is one company investing in its mobile experience, having recently announced that it will open a Technology Development Center in Seattle. Spokesman Jeff Shelman said this space will initially focus on mobile app development.
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Similarly, department stores Kohl's (KSS) and J.C. Penney (JCP) recently upgraded their mobile apps. Kohl's relaunched its offering as part of its holiday push, including a feature that makes it easier for shoppers to redeem their loyalty points. Penney's technology now allows shoppers to use their smartphone camera to scan price tags and order items that may be out of stock in their size.
Penney's Chief Customer Officer Mike Rodgers said after the relaunch that the rate at which shoppers turned into buyers on the app rose 40 percent compared to the prior year.
"The benefit is you have a frequency of transactions. You can make it one click," Mulpuru said.
There are also less tangible benefits, she added.
"The Street seems to be valuing digital investments these days," she said, suggesting that the stocks of retailers who invest in technology may trade at a higher valuation. "That is another hidden [return on investment] that's associated with investing in it."
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