Consumers frequently reveal personal information about themselves through a variety of daily online and offline activities.  For fashion designers and retailers, this consumer information represents a valuable tool to identify, target, and expand customer advertising and messaging.  This information can be utilized by employing a data broker, or a company who aggregates consumer information and do provide information about the relevant consumer marketplace.  Data brokers collect, maintain, manipulate, and share a significant amount of data about consumers without ever directly interacting with them.  While data brokers afford a major advantage for retailers, including fashion companies, they also raise privacy concerns for the consumers that data brokers profile.  The Federal Trade Commission (“FTC”) recently issued a report summarizing the results of its study on the activities of nine data brokers, and recommended that Congress consider enacting legislation to make data broker practices more transparent or to give consumers greater control over the personal information that is collected about them and shared by data brokers^.[1]  This post summarizes the portions of the FTC’s report that are most relevant for fashion retailers and designers.

Data brokers cull and combine information from a variety of sources, including social media posts, transactions through retailers, and subscriptions sold by magazine publishers.  They may analyze either raw data or a category of information termed “derived data.”  Derived data is based upon the inference of customer characteristics from consumer activity, such as a variety of purchases or online activity.  For instance, a data broker may assume that a customer has an interest in pet products because he or she subscribes to Cat Fancy magazine, is registered with PetFinder, and has purchased a sweater with a cat design within the last month.  Derived data is extraordinarily useful for the fashion industry, as merchants and designers can predict items or trends that groups of customers may be interested in purchasing based upon recent preferences.  The value of derived data analysis to fashion merchants is immediately apparent.  Of the industries surveyed by the FTC, only lenders and financial services firms use data brokers to the same extent that retailers do.

There are many different kinds of data brokers, and they provide a range of information on several topics, including individual financial stability, fraud detection, consumer purchase information, social media activity, magazine subscriptions, religious and political affiliations, and person location.  The study included the following brokers: Acxiom, CoreLogic, Datalogix, eBureau, ID Analytics, Intelius, PeekYou, Rapleaf, and Recorded Future. Datalogix  measures how often Facebook users see a product advertised and complete the purchase in a brick and mortar retail store. eBureau offers information that predicts whether a consumer is likely to become a profitable customer.  PeekYou creates consumer profiles based upon consumers’ social media, blog, news site, and homepage activity.  Rapleaf aggregates age, gender and marital status data for over eighty percent of U.S. consumer email addresses.  Recorded Future predicts future buying behavior based on historical consumer and company data across the Internet.  Data broker products which present marketing data are incredibly valuable, and have generated nearly $20 million in 2012 alone.

Data brokers offer three types of marketing products that may be particularly attractive to the fashion industry.  First, they offer marketing lists, which identify the contact information of consumers with particular interests.  Second, they offer registration targeting, which allows online companies either to market their own products to registered users or to sell ad space on sites requiring registration to third parties.  Third, brokers offer an “onboarding” service, which combines both online and offline data through the use of Internet identification tags called “cookies.”  When a client with a registration-based website retains a data broker who uses onboarding, the broker places a cookie onto the browsers of consumers who log into the client’s website.  The cookie allows the data broker to advertise to the consumer across the Internet for as long as the cookie stays on the browser.  To do so, the broker either acts as an advertising network itself by buying advertising space on other websites, or contracts with advertisers who already have advertising space on websites the broker has identified as useful.  Some data brokers are using similar technology to serve targeted advertising to consumers on mobile devices.

Data brokers offer a potentially valuable resource for fashion retailers of any size or sophistication level.  Of primary importance, data brokers facilitate a closer and more directed connection between fashion merchants and consumers who desire their products.  Consumer data analysis also facilitates establishing long-term relationships between merchants and consumers, because retailers and designers are able to continually advertise new products to interested consumers.  Data brokers also may provide a leg up for smaller designers or retailers, because they are able to direct more precisely precious advertising dollars.  For example, some data brokers provide clients with consumer “social influence scores,” which compress an individual’s social media activity and followers to predict whether the person is likely to promote products to friends.  By using the consumer information to better target advertising, even small fashion merchants can promote an existing product or a new style.

The FTC Report calls for greater data broker transparency and accountability because the extensive consumer profiles may infringe upon personal privacy rights and reduce consumer confidence in the marketplace.  For example, the FTC noted that many data brokers do not question whether their clients are legitimate businesses, or inquire whether the companies would permit customers to opt out from the use of their data and data sharing.  As part of the FTC Report, the Commission recommended that Congress consider legislation requiring data brokers to give consumers (1) access to their data and (2) the ability to opt out of having personal information shared for marketing purposes.  The Commission also called on data brokers to: (i) adopt the proposals contained in the FTC’s Privacy Report issued in December 2012; (ii) collect only the consumer data they need and dispose of data as it becomes less useful; (iii) implement better measures to refrain from collecting information for children and teens, particularly in marketing products; (iv) take reasonable precautions to ensure that downstream users of their data do not use it for eligibility determinations or for unlawful discriminating purposes.  The Report signals the Commission’s continued concern regarding consumer data mining and suggests that Congress may soon be taking action to introduce legislation to address the Report’s findings.

This post was written with contributions from Lindsay Colvin.

_{[1] Federal Trade Commission, Data Brokers: A Call for Transparency and Accountability (May 2014), http://www.ftc.gov/news-events/press-releases/2014/05/ftc-recommends-congress-require-data-broker-industry-be-more.}