Skip to main content

Retail Innovation — Ethical use of personal data

We look at considerations for retailers around the ethical use of personal data, focusing on loyalty cards and facial recognition technology.

As consumer behaviour changes, retailers have been adapting and innovating to effectively use new retail channels to reach consumers including personalised shopping experiences, social commerce and augmented reality shopping experiences.

Innovation in retail is key not only online but also in stores, for example with the use of tech-backed payment methods and the digitalisation of operations and stock management, which can have consumer-facing benefits such as showing stock levels in particular stores.

Innovation in many instances involves the capture and effective use of consumers’ personal data.

This is often couched in terms of being to the benefit of the consumer but also clearly benefits retailers. Innovation in retail raises considerations of the ethical use of consumer personal data which retailers must balance against the need to stay competitive, relevant and profitable not least after a difficult period, for some, of trading with COVID restrictions.

Below we look at just two examples that show some of the considerations to be taken into account:

Loyalty cards

Loyalty cards benefit a consumer by the provision of incentives. Loyalty cards are not new and have been offered by many large retailers for years, and consumers have largely come to accept the tracking of their purchases in return for incentives. Loyalty cards are an easy way to harness consumer data and let retailers build ‘profiles’ for consumers which show when and where consumers shop, and what they buy.

Switching loyalty cards to electronic apps instead of physical cards helps consumers by making it easier to use the loyalty card, which is always available on their phone instead of having to carry a physical card. Apps can also (subject to consent, which many consumers will give without thought) be used to track consumer behaviour across other sites and retailers, analysing general trends in purchasing and lifestyle

It is unlikely that the average consumer considers this use of their personal data when signing up to an electronic loyalty scheme but they are an incredibly useful tool for retailers. Once a retailer knows more about its consumers, such as their average value of purchases across different sites and their holiday and other lifestyle choices, this data can be used to assess both individual potential purchases and also to feed into wider considerations such as what stock the retailer should buy in to make available to its consumer base.

Electronic loyalty cards and apps will doubtless continue to be a key part of many retailers’ customer strategy but retailers will need to be careful to ensure that their dealings with consumers’ personal data are in line with current legislation and guidance, not only when tracking trends and habits whether internally or via an external provider but also when linking with other entities to, for example, offer third party incentives.

Facial recognition

Facial recognition has started to be used by retailers to reduce shoplifting. Shoplifting is a multi-million-pound industry-wide problem with associated serious issues such as assault of staff when attempting to stop a shoplifter. Facial recognition technology alerts staff if an individual with a record of theft or antisocial behaviour at that retailer (or its group) enters a shop, with signs displayed to inform consumers of the use of the technology.

The technology does not link to police databases but instead, the retailer’s staff make decisions around who goes on the ‘watchlist’. This raises ethical questions — the individual does not have to have been found guilty of a crime in order to be added to the list, and their data is often held for over a year. There could well be situations where an individual is wrongly added to the list and then is treated as a potential shoplifter for a lengthy period. Retailers rely upon legitimate business interests for the purpose of processing this personal data — the use of this technology assists them to minimise the impact of crimes and improve safety for staff, and is reported as being successful.

From a big data point of view, facial recognition could be put to use in a number of other interesting ways. For example, it could be used to track consumers’ behaviour and personalise shopping experiences by recognising consumers who have signed up for electronic loyalty cards. Upon entry to a shop, the retailer can automatically send offers and promotions to that consumer to direct targeted purchasing. From a consumer’s perspective, this may be seen as positive as, for example, if they have been searching for umbrellas on their phone they could then be directed immediately upon entry to the relevant section of the shop. For retailers with larger premises, this means that items can be spread around the shop with consumers being directed to different areas rather than leaving if they do not easily find what they need.

Facial recognition could also be used to enable staff to proactively sell to consumers. For example, if a consumer is seen coming into a shop to look at a luxury item on numerous occasions staff could be alerted to proactively approach that consumer to discuss the item. If a consumer is seen to be walking around a store for a lengthy period without making any purchases staff could be alerted to approach that consumer to see if they need help. Again this has benefits for both the retailer and the consumer but, as with the use of loyalty apps, retailers must be careful to ensure that personal data is dealt with in a compliant manner. The majority of retailers using this type of technology are engaging third party processors to provide this service rather than implement it in-house, and it is important that these contracts are well-drafted and protect the retailers.

Innovative shopping experiences and uses of personal data will doubtless continue to be key parts of retailers’ strategies with the usage of social media and influencers, subscriptions, personalised in-store experiences and trend-informed stock purchasing being points for all retailers to consider. As the exploitation of personal data is rapidly becoming industry-wide, it is difficult to see how retailers can remain competitive without harnessing their consumers’ personal data. Weightmans can help retailers with assessments of their use of personal data and with contracting with third-party providers of software and marketing services.

Contact our expert commercial solicitors who can provide further specialist advice or contact our retail solicitors to learn about the full suite of legal services we provide to retailers.