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Retailers show appetite for change

On the third floor of the historic Folgers Coffee Co building, just blocks from the city's famed Embarcadero waterfront, Target Corp is brewing up a storm, and it has nothing to do with caffeinated beverages.

Twenty- and 30-somethings squint at large Mac screens, lined neatly on long rows of white, benchlike work tables. Scribbled equations and website server stats dot whiteboards and glass walls. A few beanbag chairs sit unused near the centre of the room.

The office mirrors the hundreds of technology startups that occupy similar digs throughout San Francisco and nearby Silicon Valley. And that's exactly what Target wants for its new Technology Innovation Center, a skunk works-like building that can incorporate the look and feel of Valley-style innovation into its own corporate DNA.

It's among the latest attempts by Target and other traditional retailers to reinvent themselves in the digital age. They are spanning their efforts beyond just their websites and looking afar at ways to cook up the next must-have technology or innovation.

As consumers increasingly entrust their shopping needs to smartphones, tablets and social media, Target is rushing to recruit talent and creativity by establishing innovation colonies in Silicon Valley and other hot spots around the country. The need has become more urgent as store traffic and sales in the United States stagnate and online sales continues to climb each year.

"Retail is undergoing a major revolution," said Beth Jacob, Target's executive vice president and chief information officer.

"Technology is key, more than ever. It requires us to get comfortable with a test-and-learn (mentality) and innovate faster."

In the past year, a small army of data scientists, software engineers and IT geeks has explored new technologies that might give the Minneapolis-based retailer a modern digital spin on the basic premise of selling merchandise in a store. Location may still be key to business success, but today's retailers must think of location in relation to a person's smartphone and tablet.

Think about software that allows a customer to photograph a product with a smartphone and get instant offers and product information. Imagine a mobile device that can automatically detect where to find a store that carries particular merchandise based on a user's current location. What if Target can predict your future needs based on your present purchases?

It might seem odd that decades-old retail chains would suddenly try to position themselves as legitimate players in San Francisco. But the pace of technological change leaves retailers with little choice, analysts say.

Wal-Mart Stores Inc already established its e-commerce headquarters in San Bruno, Calif. Nordstrom and Home Depot also operate technology labs in Seattle and Austin, Texas, respectively.

"They are trying to get closer to the talent," said Carol Spieckerman, president of the Newmarketbuilders retail consulting firm. "Not everything can come out of headquarters."

The retailers are scouring universities, venture capital offices and startup incubators, especially in Silicon Valley, which is experiencing yet another tech boom. Wal-Mart has been on a buying spree of late, acquiring software maker Tasty Labs and cloud computing company OneOps in May alone, which it folded into its innovation center called Wal-Mart Labs.

"You have to be in the (San Francisco) Bay Area," said Marc Weiser, founder and managing director of RPM Ventures in Ann Arbor, Michigan, which invests in several Silicon Valley startups.

But for Target and others, it remains to be seen whether a Stanford University computer whiz would join a traditional retailer.

"Do you think cutting-edge (programmers) are going to work for Target?" Weiser asked.