Apple To Rip Up In-Store, Mobile Channels

Apple is about to complete its conversion to a merged-channel retailer—and maybe put its first stake in the ground for mobile payments, too. On November 3, Apple is expected to roll out a new system that will merge its in-store and mobile-commerce channels, offer a 12-minute turnaround time for M-Commerce orders and reward brick-and-mortar stores for pushing customers to shop online and pick up in-store. And—as you may have heard—it's letting customers do self-checkout, too.

If that sounds like an afterthought, it very nearly is, even though self-checkout alone would be a big deal for most chains. What Apple is primarily trying to do is demolish the wall between stores and M-Commerce. It may not work—that 12-minute turnaround promise may just be impossible, and some of Apple's plans for prioritizing customers can collapse when things get busy. But if it does work, it may also represent Apple's demonstration of how it plans to offer mobile payments to other retailers—without either NFC or mimicking a plastic card.

According to sources quoted by the mobile and gadget blog BGR, what Apple will officially unveil is a new app for its mobile devices that will let customers do in-store pickup of M-Commerce orders, in addition to self-checkout for products the customer scans while inside a store.

Nice as those features are—and yes, self-checkout that actually works is a big deal—what's more important to both Apple and other chains is what Apple is doing under the covers. For the site-to-store feature, Apple is reportedly promising a turnaround time of 12 minutes (three to forward the order to the store, two for associates to set aside the item and an extra seven just in case things get busy). If true, that almost makes self-checkout irrelevant, since it takes some customers 12 minutes just to get the attention of an Apple Store associate to check them out.

(To be clear, that's for items that are in-stock and don't require special handling in some way. A customer who wants to buy an iPhone case can pick it up in 12 minutes. The iPhone itself still requires all the activation song-and-dance, which takes longer.)

But the shift in Apple's retail model doesn't stop there. Customers using their iPhones to order will reportedly get priority in the store over walk-in customers. (That sounds like the perfect way to drive off new customers, and it's one of the more questionable items in Apple's new approach.)

And pick-up-in-store sales will be credited as revenue to the store where the item is picked up, not to Apple's E-Commerce operation. That resolves one of the nastiest problems dogging merged-channel efforts: the fact that fulfilling a site-to-store order costs the store in labor but doesn't show up as sales to make the store manager look good.

That was the Amazon model—E-Commerce separate from and competing with in-store—that chains have been trying to make work for a decade. The result has been dueling online and in-store inventories, site-to-store that takes days instead of minutes and zero reason for store managers (and even division executives) to make merged-channel work.

Apple's change to that model appears to be very simple: The sale is credited not to the division that collects the money but to whoever actually delivers the product. Apple's change to that model appears to be very simple: The sale is credited not to the division (online or in-store) that collects the money but to whoever actually delivers the product. The result: No more channel competition. Store managers will want those easy, pre-sold, in-and-out merged-channel customers. Sure, associates may not be able to upsell those customers. But that's's job. Store associates can focus on moving merchandise out of the store as quickly as possible—and presumably taking care of those lower priority walk-in customers.

Pushing customers to do in-store pickup could also save Apple some E-Commerce shipping costs. But with only about 300 stores, almost all in urban areas, there's still going to be a need for dedicated fulfillment centers. And turning that job over to the stores doesn't make sense—you don't want your fulfillment warehouse to be sitting on the most expensive retail square footage available. But it still looks closer to real merged-channel than anything else we've seen.

Unfortunately for bigger retail chains, this may not be a model they can pull off, even with a single view of inventory (imperative for site-to-store-in-minutes) and adjustments to store management. Apple has a limited number of SKUs, an often-fanatical customer base and enough high-margin products to make the model more forgiving of any missteps. (And although some high-margin products such as phones take a while to configure, there's no special reason a $1,000 laptop customer couldn't be in and out as quickly as the guy who's picking up an inexpensive screen protector.)

But for, say, an apparel retailer with a large number of size and color varieties even for a single pair of pants, finding exactly the right item for a customer in 12 minutes is a much more challenging race—and then the customer will most likely want to try on the item anyway. Rushing customers in and out just isn't going to happen. Some of Apple's merged-channel model just won't transfer to the rest of retail.

But the mobile-payments piece just might.

We've been assuming that mobile payments meant a replacement for Visa—or at least a replacement for that plastic rectangle, with an NFC-equipped phone mimicking a contactless payment card. That would require an iPhone with an NFC chip—which Apple didn't deliver last month.

But now Apple is redefining mobile payments as mobile ordering plus site-to-store.

Say you're a retailer who has done a mobile-payments deal with Apple. How might that work? The customer pays on your E-Commerce or M-Commerce site using iTunes (or whatever Apple decides to call its payment system), and then a certain number of minutes later picks up the desired item and is good to go. Apple would handle the money for the site-to-store sale, but it would also handle the messaging to the store about the transaction so stock could be pulled, the order verification once the customer walks into the store and the E-receipt delivery.

That doesn't sound anything like Google Wallet, ISIS or PayPal's in-store approaches. But offering that as a service could be Apple's way into the game—and with Apple currently the darling of chains when it comes to in-store mobile POS devices, Apple may already have its foot in the door for mobile payments—no NFC required.