[IP] The End of Privacy -- It's not the FBI or CIA -- What Wal-Mart Knows About Customers' Habits
Begin forwarded message:
From: "John F. McMullen" <observer@xxxxxxxxxxx>
Date: November 14, 2004 6:27:28 AM EST
To: johnmac's living room <johnmacsgroup@xxxxxxxxxxxxxxx>
Cc: Commonweal Mailing List <commonweal@xxxxxxxxxxxxxxx>, USA Talk List
<USAtalk@xxxxxxxxxxxxxxx>, Dave Farber <farber@xxxxxxxxxxxxx>, Declan
McCullagh <declan@xxxxxxxx>, OSINT Discussion Group
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Subject: The End of Privacy -- It's not the FBI or CIA -- What Wal-Mart
Knows About Customers' Habits
(johnmac -- .. but the customer / citizen may benefit from this .. and
is it worth it?)
From the New York Times --
http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.html?th
What Wal-Mart Knows About Customers' Habits
By CONSTANCE L. HAYS
HURRICANE FRANCES was on its way, barreling across the Caribbean,
threatening a direct hit on Florida's Atlantic coast. Residents made
for higher ground, but far away, in Bentonville, Ark., executives at
Wal-Mart Stores decided that the situation offered a great opportunity
for one of their newest data-driven weapons, something that the company
calls predictive technology.
A week ahead of the storm's landfall, Linda M. Dillman, Wal-Mart's
chief information officer, pressed her staff to come up with forecasts
based on what had happened when Hurricane Charley struck several weeks
earlier. Backed by the trillions of bytes' worth of shopper history
that is stored in Wal-Mart's computer network, she felt that the
company could "start predicting what's going to happen, instead of
waiting for it to happen," as she put it.
The experts mined the data and found that the stores would indeed need
certain products - and not just the usual flashlights. "We didn't know
in the past that strawberry Pop-Tarts increase in sales, like seven
times their normal sales rate, ahead of a hurricane," Ms. Dillman said
in a recent interview. "And the pre-hurricane top-selling item was
beer."
Thanks to those insights, trucks filled with toaster pastries and
six-packs were soon speeding down Interstate 95 toward Wal-Marts in the
path of Frances. Most of the products that were stocked for the storm
sold quickly, the company said.
Such knowledge, Wal-Mart has learned, is not only power. It is profit,
too.
Plenty of retailers collect data about their stores and their shoppers,
and many use the information to try to improve sales. Target Stores,
for example, introduced a branded Visa card in 2001 and has used it,
along with an arsenal of gadgetry, to gather data ever since. But
Wal-Mart amasses more data about the products it sells and its
shoppers' buying habits than anyone else, so much so that some privacy
advocates worry about potential for abuse.
With 3,600 stores in the United States and roughly 100 million
customers walking through the doors each week, Wal-Mart has access to
information about a broad slice of America - from individual Social
Security and driver's license numbers to geographic proclivities for
Mallomars, or lipsticks, or jugs of antifreeze. The data are gathered
item by item at the checkout aisle, then recorded, mapped and updated
by store, by state, by region.
By its own count, Wal-Mart has 460 terabytes of data stored on Teradata
mainframes, made by NCR, at its Bentonville headquarters. To put that
in perspective, the Internet has less than half as much data, according
to experts.
Information about products, and often about customers, is most often
obtained at checkout scanners. Wireless hand-held units, operated by
clerks and managers, gather more inventory data. In most cases, such
detail is stored for indefinite lengths of time. Sometimes it is
divided into categories or mapped across computer models, and it is
increasingly being used to answer discount retailing's rabbinical
questions, like how many cashiers are needed during certain hours at a
particular store.
All of the data are precious to Wal-Mart. The information forms the
basis of the sales meetings the company holds every Saturday, and it is
shot across desktops throughout its headquarters and into the places
where it does business around the world. Wal-Mart shares some
information with its suppliers - a company like Kraft, for example, can
tap into a private extranet, called Retail Link, to see how well its
products are selling. But for the most part, Wal-Mart hoards its
information obsessively.
It also takes pains to keep the information secret. Some of the systems
it uses are custom-built and designed by its own employees, the better
to keep competitors off the trail. Companies that sell equipment and
software to Wal-Mart are bound by nondisclosure agreements. Three years
ago, Wal-Mart summarily announced that it would no longer share its
sales data with outside companies, like Information Resources Inc. and
ACNielsen, which had paid Wal-Mart for the information and then sold it
to other retailers.
"When you look at their behavior, you can tell that Wal-Mart considers
data to be a top priority," said Christine Overby, a senior analyst for
consumer markets at Forrester Research. Over the years, she said,
Wal-Mart executives have spent handsomely for their systems, paying $4
billion in 1991 to create Retail Link and signing onto innovations like
bar codes and electronic data interchange, a forerunner of the
Internet, well ahead of the pack. Wal-Mart is also driving
manufacturers to invest in radio frequency identification. By next
October, the company will require its biggest suppliers to tag
shipments to some of its distribution centers with tiny transmitters
that would eventually let Wal-Mart track every item that it sells.
With so much data at Wal-Mart's corporate fingertips, what are the
risks to consumers? Most have no clue that their habits are monitored
to such an extent. There are no signs - like the ones for Wal-Mart's
anti-shoplifting cameras - advising customers that information is being
collected and stored. And there is no giveback: Wal-Mart doesn't use
loyalty cards and rarely offers promotions based on past purchases.
It is aware, however, that shoppers are concerned about privacy. On its
Web site, Wal-Mart posts a privacy policy that states, in part: "We
take reasonable steps to protect your personal information. We maintain
reasonable physical, technical and procedural measures to limit access
to personal information to authorized individuals with appropriate
purposes."
NOT everyone agrees. "People don't know that Wal-Mart is capturing
information about who they are and what they bought, but they are also
capable of capturing a huge amount of outside information about them
that has nothing to do with their grocery purchases," said Katherine
Albright, the founder and director of Caspian, a consumer advocacy
group concerned with privacy issues. "They can find out your mortgage
amounts, your court dates, your driving record, your creditworthiness."
One source of information can be a credit card or a debit card, Ms.
Albright said. Wal-Mart shoppers increasingly use the cards to pay for
purchases, particularly in the better-heeled neighborhoods where the
company has been building stores recently.
Some companies specialize in what is known as data enhancement, in
which a customer's name and address, or a telephone number, can open
the door to additional information. "If Wal-Mart had a customer
database and wanted to start e-mailing their customers, we could append
their e-mail addresses," said Sarah Stansberry, director of marketing
for AccuData America, a company based in Fort Myers, Fla., that
specializes in such services but does not use credit card records. With
e-mail addresses, AccuData can track names and home addresses, she
added. Other information follows: "We can access what they paid for
their house, and their mortgage," though not driving records. The
company has not done any work for Wal-Mart, she said.
Ms. Dillman said that she did not think Wal-Mart had ever tried to
squeeze data from credit cards to learn more about customers' buying
habits. Indeed, she said, it wouldn't be necessary. "We can do that
without the credit card information," she said. "We can look at what's
happening in the market, and look at what's happening in other markets
that are similar."
WAL-MART uses its mountain of data to push for greater efficiency at
all levels of its operations, from the front of the store, where
products are stocked based on expected demand, to the back, where
details about a manufacturer's punctuality, for example, are recorded
for future use. The purpose is to protect Wal-Mart from a retailer's
twin nightmares: too much inventory, or not enough.
"They recognize that technology is a critical tool for them to have an
efficient supply chain," said Kathryn Cullen, a principal at Kurt
Salmon Associates, a consulting firm, who said that she has not advised
Wal-Mart. "They track the purchases and very quickly route that back to
their suppliers so they can be replenished. They are very strict with
their suppliers, but they give them the data that they need."
Armed with sales results from past weeks and months, Wal-Mart meets
with each of its suppliers to establish sales goals for the coming
year. Suppliers are actively encouraged, so to speak, not to miss those
goals. A manufacturer that fails to meet its sales target - or has
data-documented problems with orders, delivery, restocking or returns -
can expect even tougher negotiations in the future from Wal-Mart, which
is renowned for its steeliness in such situations.
Still, achieving sleeker operations is not the whole story. In many
ways, data are used to forecast and drive Wal-Mart's business. "We use
it in real estate decisions, understanding what the draw is like and
what the customers will be like," Ms. Dillman said, referring to the
company's planning for new stores, including the number of shoppers it
expects to attract to each.
When it comes to Sam's Club, Wal-Mart's membership warehouse chain, "we
know who every customer is," she added. So Wal-Mart does a kind of
outreach, contacting nearby convenience store owners, for example, to
let them know that "the items they buy, they could save money on by
buying at Sam's."
AT Wal-Mart, problems are referred to as "exceptions," and technology
is essential for what Ms. Dillman calls "exception management." Within
the company's empire, "we keep watching everything that just happened,"
she said. "We are pretty near real time. We can tell people that they
need to go do something, and we are within hours, depending on the
event."
The "event" may be a truck's failure to drop off or pick up something,
or the delivery of a load of shoes missing their mates. It could be the
absence of an important product in a store's backroom, or in the
distribution center that serves that store. Or it could be an act of
nature like the hurricanes that descended, one after another, on
Florida and other parts of the Southeast this year.
Eventually, some experts say, Wal-Mart will use its technology to
institute what is called scan-based trading, in which manufacturers own
each product until it is sold.
"Wal-Mart will never take those products onto its books," said Bruce
Hudson, a retail analyst at the Meta Group, an information technology
consulting firm in Stamford, Conn. "If you think of the impact of
shedding $50 billion of inventory, that is huge."
The impact will probably be felt by suppliers, he added, but none are
likely to complain.
"You can see the pattern of Wal-Mart's mandates, and as Wal-Mart grows
in power, it is getting more dictatorial," he said. "The suppliers
shake their heads and say, 'I don't want to go this way, but they are
so big.' Wal-Mart lives in a world of supply and command, instead of a
world of supply and demand."
Consumers willingly turn over plenty of information. For example,
cashing a payroll check at Wal-Mart requires a two-step process, said
an assistant manager in a Wal-Mart in Saddle Brook, N.J., who asked to
be identified only by her first name, Mary. "First you enter your
Social Security number into the system, twice," she said, pointing to
the number pad hooked up to a register in the checkout lane. "The
cashier can enter it, but some people don't like to share that
information." Next a customer must enter his or her driver's license
number, the assistant manager said. If payroll checks are cashed
regularly at Wal-Mart, there is no need to keep punching in the Social
Security number, only the driver's license number: "The system will
recognize you the next time."
All of that information winds up at the company's office in
Bentonville, the assistant manager added.
Ms. Dillman said it was "separated out, along with any personal
identifiable information," and warehoused in a way that requires
special permission to gain access. For check approval - when a customer
writes a personal check to pay for something at a Wal-Mart, for example
- "we don't keep it any longer than we need it for that transaction,"
she said. "All it's linked to is the checking account number, when we
scan your check," she added. "We don't mine that data. We don't use it
for anything other than the transaction."
Historically, Wal-Mart's focus has been on the products it sells, not
to whom it sells them. One of the most difficult pieces of information
to harvest is which customer bought what. Such information is
expensive, too.
"When you are in the everyday-low-price market, you tend not to gather
a lot of information about customers directly because you don't spend a
lot of time with them gathering name, address, telephone numbers
through a loyalty card," said Gene Alvarez, a vice president at the
Meta Group. "That is the proper focus, because when you want to get
customer-intimate, you have to offer a loyalty program, and there's the
cost of that loyalty program."
Wal-Mart has discovered the potential of its own Web site in learning
more about customers. Ms. Dillman said the site was beginning to allow
users to buy a product online and have it delivered to a store near
them, an option that Sears, Roebuck and other retailers have had for
years. Naturally, some personal information would have to be submitted
as part of the transaction. "You can do some association there, what
products are of what interest," Mr. Alvarez said.
But Wal-Mart executives tend to care more about how products sell as
part of a larger basket. "Me knowing what you specifically buy is not
necessarily going to help me get the right merchandise into the store,"
Ms. Dillman said. "Knowing collectively what goes into one shopping
cart together tells us a lot more."
Analyzing what ends up together in that cart drives Wal-Mart's pricing,
other experts said. Shoppers might buy cold medicine along with chicken
soup and orange juice during flu season, but not all of those products
need to be priced at rock-bottom, said Ms. Overby, the Forrester
analyst. "They might say, 'If we get really good at pricing the cold
medicine and promoting it and letting people know that, hey, we have
that product in stock and also at the best prices,' then they get
people into the store," she said. "The other items in the basket might
not be the lowest price in town, but the entire basket will be 10 to 20
percent less."
STILL, as Wal-Mart recently discovered, there can be such a thing as
too much information. Six women brought a sex-discrimination lawsuit
against the company in 2001 that was broadened this year to a class of
about 1.6 million current and former female employees. Lawyers for the
women have said that Wal-Mart has the ability to use its
human-resources database to calculate back pay for the plaintiffs as
well as to determine whether women were fairly promoted and paid. The
judge hearing the case, which is pending in a federal court in San
Francisco, has agreed.
The database is unusually detail-rich, said Joseph Sellers, a lawyer
for the plaintiffs. "They've put into their work force database the
information that bears on virtually every facet of compensation," he
said. "They have performance reviews, along with seniority, the time
spent with the company, which store they worked in. So you can compare
people working in the same store, to measure whether men and women are
paid differently."
If that comes to pass, it will be a rare moment indeed, with Wal-Mart's
carefully assembled data being channeled for a purpose Wal-Mart did not
desire.
Copyright 2004 The New York Times Company
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