Virtual worlds, mobile coupons and bar-code readers on cell phones are the next technology wave that U.S. chain stores must ride if they hope to stay competitive in the fast-changing world of global retail.

Retailers, gathered in New York this week for the National Retail Federation's annual convention, were urged to go high-tech to stand out in the crowd and improve sales, especially amid a flagging U.S. economy. "The cell phone is shifting the way consumers shop, and U.S. retailers need to get ready," said Pat Conroy, vice chairman at Deloitte & Touche USA, in a keynote speech at the convention.

Wendy Liebmann, chief executive of consulting firm WSL Strategic Retail, points to prom dress shoppers who take pictures of themselves with their cell phone cameras, then post the photos online so friends can help pick which outfit to buy.

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The Internet has also become more interactive, with consumers spending more time—and money—in virtual worlds like Second Life and Webkinz. "These technologies are going to change the way you interact with your customer, they're going to change the way people shop, they're going to change the way you manage your brands," said Giff Constable, general manager at Electric Sheep Co, which designs content for virtual worlds, like Second Life.

Retailers Respond

U.S. retailers need to adopt technological advances that have already changed shopper behavior across the globe. For instance, Conroy noted that customers at McDonald's Corp restaurants in South Korea can purchase food on cell phones, which then ring when their orders are ready. In China, mobile commerce is expected to reach $1 trillion in 2010, while in Japan, cell phones have bar-code scanners so consumers can check the freshness of food with their phones.

"Asia's leading the way," he said, but changes are also taking place in the U.S. market.

Said Philip Schoonover, chief executive of consumer electronics retailer Circuit City Stores, where store and call center staff use tablet PCs to search the Web alongside consumers: "The lines between merchandiser and technologist are certainly blurring.".

Constable said corporations are putting big bucks into virtual worlds—three-dimensional parallel universes on the Internet—where users typically create and dress up characters, buy goods and interact with others.

Last year, Disney purchased kids' virtual world Club Penguin for $350 million in cash plus up to $350 million more, depending on the Web site's earnings in 2008 and 2009.

While some retailers have started building stores in these virtual worlds, others should consider doing the same, Constable said, to extend their brands and eventually, boost sales.

Progress for a Price

But a pervasive undercurrent at the convention was worry over the state of the U.S. economy, and what that will mean for profits. The National Retail Federation forecasts U.S. retail sales will rise 3.5 percent this year, the lowest rate of growth since 2002. So while new technologies are appealing, there is little room in the budget for them.

At a panel discussion, the chief information officers of Michaels Stores and Circuit City said most of their technology budgets have been eaten up by maintaining day-to-day operations—like paying the power bills. Retailers said their top technology initiatives for 2008 were to replace or upgrade their merchandising and inventory management systems, according to a survey by IBM and the NRF Foundation. No. 2 was replacing cash registers.

Though keeping costs down is key this year, retailers such as Bon-Ton Stores recognize the importance of upgrades and are still spending despite the rocky economy. "Return on investment on some of the technology ... out there, that we're thinking that we need, is absolutely crucial for us to take the next step," said Edward Carroll, a Bon-Ton vice president of sales promotion and marketing.