How Big Is Mobile Shopping in the Age of Apps?

In just a few days, 2016 will set an enormous record for mobile shopping. The question is... will it be surpassed next year, or are we seeing a near-term peak?

Let's look at the numbers behind this tremendous growth before we try to answer. According to the folks at Internet Retailer , total mobile sales in 2015 were $143.7 billion and have crossed $220 billion this year, representing monster 53% annual growth.

Part of that leap is due to the expansion of mobile apps. Mobile sales from apps increased from $35.48 billion in 2014 to $59.86 billion in 2015 - a staggering 68.7% advance. And 2016 looks poised to hit nearly $78 billion, up 30%. We'll come back to why apps could make a larger contribution going forward.

All this sales data is for Internet Retailer's "Mobile 500" which includes 383 US companies who will grow their mobile (smartphone and tablet) sales an estimated 24% to $109.0 billion in 2016 from $87.6 billion in 2015.

According to Katie Evans, Chief Technology Editor at IR "That's particularly impressive because many of these retailers have had strong mobile operations for years and their annual mobile sales growth rates are likely tapering."

It's also impressive that the 117 non-US companies, less than 1/4 of the 500, represent half of the total $220 billion in sales. I suspect that is being driven by a giant Asian retailer like Alibaba (BABA).

From Whence the Growth?

The explosive 53% global growth in mobile sales (both via app and web browsers on mobile devices) is likely stealing share from "traditional" desk-top shopping, but it may just as well be expanding the pie of total shopping and not just replacing a visit to the stores themselves.

In other words, the growth in mobile shopping is partly due to the proliferation of powerful devices and apps that make it so easy to tap and buy. As Amazon (AMZN) pioneered one-click shopping many years ago, I'm sure there are retailers with apps that have a one-tap shopping feature.

But it's not just about how easy (or fun) it can be to shop from a mobile device these days. It's also about how rewarding and personal of an experience savvy retailers are learning to make shopping.

For instance, retailers that tailor offers to your past purchases or search behavior are finding renewed success and increased sales. And this goes beyond what we are used to with Google and Facebook (FB) tracking our browsing activity and showing us paid advertising.

This is about retailers making your mobile experience with them as personalized as they can using all the data and tools they have available.

Consumers Surrender

Remember when it was weird to be tracked by websites and see ads targeted to you based on something you had searched for (or "accidentally" clicked on) the day before? But how many of us really bother to clear our web history and cookies to stop Big Brother from watching anymore?

TopRank Marketing reported data from a survey as long ago as 2013 that fully 85% of people know that websites track their online shopping behavior but understand that tracking enables companies to present offers and content that match their interests.

And 75% of respondents actually preferred that retailers use their personal information to improve the shopping experience.

This clearly explains the success of Facebook ads, which are on track to grow 55% this year to $26.5 billion, and which specialize in "social targeting" based on your personal profile and browsing and buying behavior.

The opportunity that retailers have now is to personalize your experience in their native app where you are giving them permission to collect your information and track your behavior. And clearing cookies can't break that relationship because it's one bond people want to maintain.

Mobile Is Personal

This 2015 quote from Andy O'Dell of the digital marketing agency CLUTCH sums it up pretty well...

"Because my mobile phone is where I have my most personal and private communications, I don't look at it as a commercial device. Rather, I look at my phone as a personal device, so if I'm downloading an app, I expect that app to have that same level of personalization. It can not if it's not integrated into a centralized retail "brain" that can make sense of how I behave across all touch points and buying channels."

And Taru Bhargava, writing for AppVirality in January 2016, got retailers off to a great start for the year with a list of key app innovations to get personal in her article Why 2016 Is The Year For Personalization In Retail Apps ...

1) Personalized Onboarding: The first experience with your app is a pivotal moment for the user. Clearly, you can't make them feel like a headless chook!

2) Personalized Content & Product Recommendations: One of the most significant ways of personalization is via the content that you share with your users. An interesting way of incorporating this in your mobile app is via behavioral targeting. The most common method of doing so is by studying a user's click behavior -- which product categories appeal to them, what kind of search interests him, are a few ways in which app content can be personalized.

3) Personalized Post Event Interactions: A sale on a retail app is successful only when marketers get pushy, however without compromising the shopping experience. A great way doing it is by wrapping the communication in subtle and light-hearted packaging.

4) Personalized In-App Features: When a user is exploring your app for the first time, he is scrolling the catalogs, browsing through various channels-quite frankly this can overwhelm him. While personalized onboarding can help in soothing his nerves, personalized In-app features can enhance his interactions with the app, adding to an app's stickiness.

Be sure to read Taru's full article linked above to understand all her recommendations and to see how many of the apps you are using one year later have incorporated them.

Engagement & Loyalty

It becomes obvious that successful personalization isn't just about collecting and utilizing data on your consumer. If you can't creatively engage them with your website or app, they won't stick around long enough for your "personalized" experiences to matter. And they certainly won't be opening your emails anymore.

So the retailer's challenge comes with taking their big, bold, and hopefully beautiful website experience and crunching it down to make it work on a mobile web browser or in an app. That's where speciality app firms like Azetone and Clearbridge come in to create the best mobile customer experience for brands.

Or there's the modern, techno-hip ad agency Prolific Interactive who has helped companies like Angie's List (ANGI), BlackRock (BLK), Sephora, and Saks Fifth Avenue create their mobile strategies and platforms.

You know whose app gets some of the highest user ratings? Groupon (GRPN), that's who. I never would have guessed, since I'm not an active customer and the business and stock price have struggled so much. But they obviously figured out a secret sauce for pleasing their app users.

Groupon ranked at the top in a study this year of over 1.2 million App Store and Google Play reviews by ARC from Applause , a software firm that provides digital testing and analytics to app developers.

And ModCloth, the women's vintage-inspired clothing site -- and a Prolific client -- scored #3 out of 50 top retail apps. The bottom line is that a great mobile experience creates its own loyalty with customers.

In-Store Experience... and Beacons?

And that loyalty is probably the key to keeping traditional stores like Macy's (M) thriving and bustling instead of struggling and closing stores.

"Retailers have a twofold problem," said Localytics CMO Josh Todd in a March 2016 Digiday article by Hilary Milnes . "They want people to buy within the app, but they also want to drive people into stores. Smart retailers use the app to do both by emailing customers about their in-app shopping cart or wish-list items, and offering in store incentives to buy."

And the possibilities for engagement and personalization are just beginning with in-store experiences. Here was Dan Kosir, Senior Marketing Manager at Clearbridge Mobile, an Ontario-based app developer, describing the evolving trend in 2015...

"Beacons are fast becoming a highly effective and lucrative technology for retailers. Having hardware in-store that communicates with user devices provides an unprecedented ability to communicate and engage shoppers on a highly personal, contextual level. Already, retailers have found success using beacons to boost their sales, and with the technology expected to influence $44.4 billion in retail sales by 2016 (in the US alone), there is ample opportunity for retailers to get a piece of the pie."

The Next Wave

I don't know much about beacons, but the big technology trend they are a part of, which is supporting the success of the mobile app as a shopping experience, is called the Internet of Things (IoT). Billions of devices collecting and transmitting information feed the retailers' hunger for consumer data of all kinds.

The firms that can organize, process and utilize this data will always be ahead of the crowd in experimenting with new ways to engage consumers and their wallets. For companies that make the RF (radio frequency) chips required for all these devices to communicate, like Skyworks Solutions (SWKS), the future seems bright.

And then there are the software applications that make data even more useful with predictive analytics and so-called "artificial intelligence" systems like IBM's (IBM) Watson Cognitive Analytics. In Katie Evans' September 2016 article Mobile Experiments , she highlighted one conventional big-box store innovating on these frontiers...

"Staples is testing how consumers react to it incorporating machine learning in its Easy Button that enables shoppers to press the button to order a product by voice, or to ask common questions, such as when an order will be delivered or the status of a return. Machine learning is a technology that develops computer programs to teach themselves to grow and change when exposed to new data instead of being programmed by an individual."

Shopping is Soma

The brave, new world of shopping now has even more Big Brothers, besides Alphabet (GOOGL) and Facebook, watching us. And many of us seem to like it.

So, back to my lead-off question: Will 2016's mobile shopping record of $220 billion, representing 53% annual growth, be surpassed in 2017, or are we seeing a near-term peak?

I think a telling foreshadow might be Facebook's ad sales of $26.5 billion in 2016, representing 55% growth from 2015. Wall Street analysts are currently forecasting a slow-down in Facebook's 2017 ad sales to only about 35% growth -- "only" another $9 or $10 billion.

That seems normal after an explosive year. Thus 2016 may be viewed soon as the "Year of the App" for retailers because a slow-down from 53% growth would be normal.

So maybe we've seen a peak in the growth rate. But mobile sales will still likely top $220 billion in 2017 as all these trends of retailers scrambling to innovate probably won't slow down.

And I would bet that in a year or two at most, certainly before 2020, we will be talking about much bigger numbers than $78 billion from app sales as a portion of that total mobile pie. That means retailers who haven't mastered a platform to engage their customers will be left behind.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research. Find him on Twitter @KevinBCook

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.