11_lilshopperYou know something’s happening when Walmart, the Bentonville icon for traditional retailing, suddenly attracts warm hugs and kisses from techland.

“The way we shop is changing at lightning speed and the world’s largest retailer knows it needs to keep pace,” the MIT Technology Review gushed last fall. MIT’s hagiographic profile of Walmart’s San Bruno innovation center — @WalmartLabs, opened in 2011 — was followed a month later by a similarly breathless piece in Fast Company. Both stories hailed Walmart’s announced determination to dominate e-commerce. Both reveled in an imagined war for Web dominance between Walmart and Amazon.

But this ain’t about beating Amazon. For Walmart, for every other big retailer, for manufacturers of consumer goods from cereals to cars, it’s about a much bigger prize.

What’s going on is an all-out fight over all retail commerce (roughly $3.7 trillion in the US last year), not just the relatively small change of e-commerce ($226 billion in 2012 or 6 percent of total US retail, Forrester says). The main arenas of this massive conflict are a pair of reciprocating revolutions that are migrating the features of physical stores to the virtual world of e-commerce just as mobile and other technologies are beginning to move Web functionality and instant payments to retail stores in the real world.

Only 15 years ago, with total e-commerce at $1 billion a year, the question was: Will e-commerce ever mean anything? Today, the real question should be: When will all commerce be e-commerce?

Walmart, struggling for the last three years with declining to flat US same-store sales, apparently understands this. Its 2012 Annual Report says a key strategy is “Winning in Global ecommerce,” which Walmart defines as “combining online, social, and mobile innovations with physical stores to give customers a multi-channel shopping experience.”

The coming lack of distinction between online and in-store retailing is a sprawling topic, ranging across the way people have come to research purchases online, the huge influence on buying decisions of social media recommendations, the rise of “showrooming,” the growing popularity of mobile payments services like PayPal Express Checkout and Square, the growth of the deal sites, the stubborn fact that well into the Internet age some 94 percent of all retail purchases are still made in stores and…well, lots more.

Online, one beachhead in the drive to imitate stores is technology that allows people to build customized, 3D mannequins of themselves so they can try on clothes virtually. Fitiquette in the US and Metail in the UK are two of the start-ups getting some traction. There are many more out there.

Importantly, major retailers like Tesco and H&M in Europe are using the virtual fitting room technology both online and in their stores, where shoppers can skip the often enervating experience of taking clothes on and off in tiny fitting rooms.

It’s clear that the main battlefront of the digital shopping wars is going to be stores, not pure-play e-commerce. It’s in the stores, where digital has barely begun to take hold, that we will see the most massive innovations in the next few years.

At my agency, we have a phrase to encompass digital transformation of physical shopping: “Marketing the last three feet.” It’s the use of mobile platforms and in-store screens to deliver the right content just as shoppers are reaching out to pick a product off a shelf. It presages a future where all products and services will come with a halo of useful content that can be delivered at the precise moment purchase decisions are being made.

The first stage of the retail future will focus on harnessing the way shoppers have come to rely on mobile to consult myriad sources at the point of purchase, looking for product information, the social recommendations of friends and strangers, price comparisons, flash sales, daily deals and so on. The consultants at Deloitte published a study last spring that rattled the chains of retailers and manufacturers with this threat: “Consumer adoption of mobile is growing at an exponential rate, and your competitors are exploiting this trend to invade the four walls of your store.” Well, some of your competitors, at any rate, are working on it.

In-store refinements to mobile will include established but underused technologies like near-field communications (NFC) that “recognize” individual shoppers as they enter a store, deliver customized information and offers, log items as they come off the shelves and accept mobile payment as the shopper leaves. NFC has gotten almost no traction so far in the US, but its rapid uptake in other markets makes it inevitable here, as well.

Deloitte predicts that within three years “mobile influence” will be directly determining some $689 billion in US retail sales — a number 22 times bigger than anyone’s forecast of mobile e-commerce and more than twice the size of total e-commerce. Depending on the take-up rate for NFC applications, this number could grow much larger and include a far bigger number for direct mobile payments.

In-store screens harnessed to smartphones form another emerging approach to influencing shoppers at the point of purchase. Late last year in our London office, for example, a software start-up called We Are Human demoed a new app of theirs called Kahoot, one of a number of simple apps that allows crowds to interact with or control a single screen. That screen could be in a classroom, on a Times Square billboard or in a Walmart.

Imagine, for example, a store-full of Walmart shoppers being asked what item they would most like to see on-sale in the next five minutes. With Kahoot, you could get an instant vote, make an automated judgment abut the likely volume, calculate the offer and implement the sale in seconds.

With massive investment in 10,000 stores worldwide and keen insight into why and how people shop, Walmart’s sights are fixed on total sales — in-store and online. That’s what @WalmartLabs and the company’s all-out assault on technology is about. It’s what retail’s future is all about.

The entire journey of a customer from awareness to purchase to loyalty is important, of course. But whoever masters marketing the last three feet is going to win the next round.

[Image courtesy Liz | populational]