2017 has been a record-breaking year for retail, and not in a good way.

Under pressure from a number of factors, including the growth of ecommerce, brick and mortar retailers have closed thousands of stores this year and some, including big names like Toys R Us, Sears Canada and Payless, have filed for bankruptcy.

For the retailers still standing, finding ways to adapt has never been more important.

Naturally, one of the ways many retailers are trying to defend themselves against the ongoing retail bloodbath is to fortify their relationships with customers. And one of the means by which a growing number are attempting to accomplish this is through the launch of mobile wallets.

The latest retailer to embrace mobile wallets is Target, the second largest discount store retailer in the U.S., which announced the launch of a feature called Wallet on Monday.

walmart wallet

Wallet is available in both versions of Target's mobile app – Android and iOS – and allows users to pay for their purchases with their Target REDcard debit or credit card and apply discounts from Target's Weekly Ad coupons and Cartwheel, the retailer's savings program. Soon, users will also be able to link Wallet to Target GiftCards.

According to Target, “one big benefit [of Wallet] is faster in-store checkout—up to four times faster than other payment types, in fact.” And Mike McNamara, Target's chief information and digital officer, believes that “guests are going to love the convenience of having payment, Cartwheel offers, Weekly Ad coupons and GiftCards all in one place with Wallet.”

What works for Starbucks might not work for other retailers

The most prominent and successful retailer mobile wallet is that offered by giant coffee chain Starbucks. It is now responsible for nearly a third of Starbucks' transactions and is one of the most widely used mobile wallets in existence.

With Starbucks clearly in mind, numerous retailers, including Walmart, CVS, Kohl's and now Target, have launched mobile wallets of their own.

But what works for Starbucks doesn't work for everybody. In fact, based on a report published by PYMNTS.com, The Motley Fool's Matthew Cochrane noted that “mobile wallet usage rates are laughably low.”

For example, according to PYMNTS.com's data, while Walmart Pay's install rate was respectable compared to more mature mobile wallets, “fully 55.8% of Wal-Mart customers in the survey either wanted to use cash, were not comfortable with the platform, or simply flat out stated they didn't want to use a mobile payment method.”

Why is Starbucks succeeding where most others aren't? Countless numbers of people frequent Starbucks on a regular basis, and many even head to Starbucks daily. And because Starbucks' mobile wallet has to be used to earn rewards in Starbucks' rewards program, regular customers have a significant incentive to do so.

starbucks order and pay

Few retailers match the customer purchase frequency of Starbucks or have loyalty programs as popular as the coffee chain's. And some mobile wallets have less-than-compelling value propositions and significant limitations that deter use.

In Target's case, the requirement that customers have a Target REDcard debit or credit card to use Wallet obviously decreases the universe of customers who can use it. And it's not clear that the promise of in-store checkouts up to four times faster would encourage large numbers of customers who don't have a REDcard to sign up for one.

From this perspective, it would appear that Target's mobile wallet offering is unlikely to achieve Starbucks-like success, but it doesn't necessarily have to, to be beneficial for the company. For example, if Target can drive some additional acquisition of REDcard holders and/or encourage existing REDcard holders to use their REDcards at a higher clip than they do now, it could profit.

That said, for retailers that launch mobile wallets – Target certainly won't be the last – strategy will be increasingly important as the number of mobile wallets grows.

Further reading:

Patricio Robles

Published 7 December, 2017 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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