As more consumers shop bricks-and-mortar stores with a smartphone in hand, retailers are looking to offer location services such as indoor mapping tied to local inventory and, ultimately, their own in-store mobile advertising networks.

In the short-term, retailers will look to leverage indoor location technology to find out more about their customers. However, indoor location marketing faces a couple of challenges, including a lack of consensus on whether to leverage Wi-Fi, Bluetooth, phone sensors or some other technology to enable these services.

“In the last six to twelve months there has been a shift in retailers being slightly aware of this to now where they are starting to make moves to actually implement this,” said Patrick Connolly, London-based senior analyst at ABI Research.

“What we are starting to see now is companies doing indoor mapping and building basic services like shopping lists around it,” he said.

“The next six to 18 months, we are going to start to see big retailers deploying those indoor location technologies on top of that and enabling new services such as customer analytics for their own internal use or in-store navigation and ultimately moving to hyperlocal in-store advertising.”

Understanding shoppers better
The retail indoor location market is expected to reach $5 billion by 2018, according to a recent report from ABI Research. The firm predicts there will be a flurry of acquisitions and partnerships on this front in 2013 as major players start to make their moves.

One of the big drivers for retailers to offer indoor location services is the ability to measure how customers move through their stores.

“We are already seeing huge benefits in this and it is justifying the expense in deploying the technology,” Mr. Connolly said.

“You won’t hear a lot about it because companies aren’t really putting it out there,” he said. “They are a little bit afraid of the privacy backlash that might come from it.”

Walmart’s Black Friday interactive store map on mobile

Hyper-local search
In-store location services can also support hyper-local search.

For example, Walmart is working on making its inventory data available through its app. This will enable users to find out if a specific item is available in the store they are currently inside using their smartphone.

Retailers are also looking to deliver in-store offers to app users based on where they are in the store.

“Walgreens has already mapped seven to eight thousand of its stores and tied inventory data to that,” Mr. Connolly said.

“What you will see this year is they will move to departmental level location technologies whereby they will know you are in the drinks aisle and they might be able to serve up offers based on that,” he said.

The shopkick app

In-store advertising
As retailers launch their own smartphone apps and begin adding location-based services, in-store mobile advertising is a likely next step for the bigger players. Things are already moving in this direction with some retailers working with carriers to deliver alerts to customers when they are nearby a particular store.

Shopkick is another example, with the third-party app providing offers to users when they are inside participating retail locations.

However, such a strategy is a big undertaking requiring building maps and applications, deploying location technology and getting buy-in from ad agencies and brands.

“That is the long-term goal, certainly for the big retailers,” Mr. Connolly said. “They will look to launch their own smartphone apps and start building in indoor location and mapping and ultimately hyperlocal advertising.

“We think it is going to take another three or four years before that starts to become a significant revenue generator,” he said.

Enabling technologies
Another challenge retailers face with their indoor location strategies is that there are several competing technologies, each with its own advantages and disadvantages.

Wi-Fi is a strong contender of enabling in-store location services because access points are already deployed. However, most retailers will need to invest in flushing out their network with additional access points.

Additionally, Wi-Fi APIs are blocked for the iPhone, so any company interested in offering a handset-based location technology cannot do it on the iPhone at the moment using Wi-Fi, per Mr. Connolly. This obviously rules out a significant portion of the market.

Retailers are also looking at Bluetooth, emerging location technologies around sensors in the phone and the small cells and single cells being deployed by carriers in public areas.

“What we are going to see eventually is a hybridization of all of those different technologies so you can get relative accuracy across all users in different environments,” Mr. Connolly said.

“There still needs to be a little bit of work done on that before a lot of retailers make the big decisions,” he said.

“The big retailers are going to make their own decisions and they are going to want to be on the cutting edge.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York