Struggling with dwindling numbers, retailers are turning to new virtual and augmented reality (VR & AR) applications to better serve their demographic and attract new customers. These technologies use product targeting, immersive experiences and customized benefits to tantalize consumers and equip them to enjoy a new level of service.

In an era of intensified competition in the retail industry, when every week seems to bring fresh news of store closures, the merchants that manage to stay open are looking for any advantage they can get. With this in mind, some stores are making big speculative investments in virtual reality (VR) and augmented reality (AR), hoping to attract fresh customer interest and to position their brand at the leading edge of tech sophistication. Brick and mortar outlets are seeking to transform the in-person shopping experience through the use of reality-changing technology, while retailers across the board compete for more online business as well.

Today’s evolving retail environments now allow customers to try on clothing and cosmetics remotely, without touching the actual products. Shoppers can confidently order new appliances and bulky furniture online, having made sure through AR positioning that they’ll fit into their designated spots in the home. Products from shoes to watches to lipstick to house paint can now be tried out virtually prior to purchase, encouraging shoppers to develop a sense of ownership of the item before they make a purchase decision.

How VR and AR Fit into Retail

While VR and AR applications both have the potential to disrupt the accepted retail business model, they tend to achieve this disruption through different access points in the store’s operations. Market researcher Nikki Baird notes that, as a general rule, AR is more applicable to the direct shopping experience, while VR often works its magic behind the scenes, providing new insights for managers and store designers. Of course, customers benefit either way: their experience is enhanced if VR enables an improved store design, even if they are not aware of the technology’s impact.

Choosing the Right Reality Technology

While VR truly immerses users in a virtual world, AR overlays virtual elements onto real life videos or photos. To take advantage of the unstoppable march towards a new selling landscape, the first step for retailers is to identify which of these emerging technology is a better fit for their commercial strategy. The next step is to evaluate the possible innovations against current budget and hardware constraints. As LoyaltyOne president Bryan Pearson notes regarding AR and VR, “Specific to retailers, the biggest challenge is going to be looking beyond the fiscal quarter for ROI (return on investment).” Below, we analyze the values that each technology brings to a 21st-century retail business model, and provide a brief overview of the respective benefits offered by each of these emerging capabilities.

Virtual Reality: Futuristic Glamour

Of the two types of reality technologies, VR attracts the most attention. Since it enables a user to experience being within an entirely fabricated environment, it typically involves expensive, sophisticated hardware. At the very least, a headset is required. This must block out the user’s actual physical surroundings while immersing them in the sights and sounds of the manufactured environment. (Additional tools such as handsets and treadmills can intensify the experience, but these are rarely applicable in a retail environment.) A further expense is incurred from the “concierge” or guide needed to assist consumers in VR usage, as very few shoppers have ever experienced it. Because of these impediments, VR remains a rare on-site phenomenon in retail.

Direct Consumer VR Experiences

Lowe’s home improvement stores have created “holorooms” in 19 of their stores throughout the U.S. and Canada. These holorooms are entire lab-type open areas in which customers can put on an Oculus Rift VR headset and walk through a virtual kitchen or bathroom that they have just created with Lowe’s products. While the holorooms (along with three VR clinics to train people in DIY home improvement techniques) have garnered a lot of valuable publicity for Lowe’s, few if any other companies have been able to follow this daring path.

VR Adds Value Behind the Scenes

As mentioned above, VR is quietly achieving primacy in the realm of store design. PixelPool’s Josh Hansen calls VR “the ultimate visual communications tool,” and PixelPool encourages store designers to “take your clients into a fully immersive 3D virtual environment, [which allows] you to present your design as if the client is actually there!” A number of design firms have already perceived the value of VR in bringing created environments to life, with UK industrial designer SeymourPowell branching out into using the technology for collaborative automobile design.

Augmented Reality Transforms Customer Experience

Augmented reality, on the other hand, can be accessed by means of ordinary consumer devices and is already in use in a variety of shopping environments. The global success of Pokemon Go is a demonstration of the excitement people feel when they are able to view the real world with an overlay of virtual content.

Giving Retailers a Way to Compete

As the competition between brick-and-mortar retailers rages on, deploying AR will enable early adopters to gain an advantage in offering customers a unique in-store experience.

One example highlighted by Reality Technologies is the Shiseido digital makeup simulator. Shiseido, which sells its cosmetics in retail chains such as Macy’s and Sephora, has installed an AR touchscreen in stores that evaluates a customer’s coloration and face shape and then applies virtual makeup just as a beauty consultant might have done. This process, as Reality Technologies explains, lowers the tech bar for people with no previous AR experience, because the act of using a makeup mirror is a very familiar one. Furthermore, it delivers a brand message about Shiseido’s position in a changing world of technology, and provides a fresh, fun experience for customers to try.

Other applications abound, with creative elaborations added to give each one its own special flavor: Ikea’s AR catalog lets online shoppers use a measuring app on their phone to see how each furniture piece will fit as they view their home through the device camera lens. Converse overlays an image of the selected shoe when the online shopper points their mobile device down at their own feet. American Apparel’s full-featured app lets customers point their smartphones at an item on display in the store and view color and size options. Lego boxes include an AR feature that shows shoppers a 3D image of what they can build with each kit.

Virtual Brick and Mortar Stores via AR

Chinese grocery chain Yihaodian has taken a disruptive and unprecedented step by launching an entirely new AR phenomenon that might turn out to be inline with brick and mortar stores’ future strategy. Just as Pokemon game-playing was pinned to certain geographic locations, Yihaodian has opened dozens of “virtual stores.” These are located nationwide in parking lots, subway stations and parks. The user in that location can view and “walk down the aisles” of a virtual store that overlays the real-life scene. By tapping on items on the “shelves,” the shopper can buy them and have them shipped to their home.

Four Dimensions of AR Value

Going forward, we believe retailers will increasingly leverage AR to help them achieve the following four specific business goals:

1. Smart Targeting

Many apps now contain information on a particular shopper’s purchase history and demographic information. All of these valuable data bits enable the retailer to activate live personalized recommendations for that individual. When the person walks through the aisles of a store, their app will highlight the products that are particularly relevant for that individual. It will be as if the store shelves come alive, making the shopping experience feel unique to each consumer.

2. Enticing Touchpoints

As the number of AR apps increases, shoppers can see how more products will look on them or in their homes. Chinese company Meitu has developed a range of “try-on” apps, for makeup, fashion and accessories. Now downloaded over 1 billion times, the app is valued at about $5 billion. These various AR capabilities increase customer engagement as they shop, letting them move effortlessly between real and virtual experiences.

3. Frictionless Shopping

How many times do retailers lose customers to long check-out lines or unavailable representatives? Similarly, print ads may attract a customer’s attention, but that attention may not extend to searching out and buying the item later. Nike print ads in magazines now allow readers to point their smartphones at the ad and instantly buy the product pictured. Similarly, Yihaodian’s many virtual stores also provide an interesting new method for making remote shopping as effortless as simply having a desire.

4. Customized Loyalty Programs

The natural evolution of AR will increasingly integrate online and in-store experiences, personalizing the entire store context according to individual customer history. This context will lead to finely targeted loyalty premiums after buying a certain number of favorite items, and will give customers a pervasive sense of being both known and appreciated. Returning customers generate almost double the revenue of new customers, so they’re essential to the long term health of any business.

Without a doubt, the ways in which products are being sold are evolving rapidly, and both AR and VR are already transforming Main Street. That said, it is important for each individual retailer to figure how a technology investment can enhance the overall shopping experience to delight their customers.