The R&D Tax Credit Aspects of Augmented Reality for Retail Stores
During the past few years,
several companies have closed some of their retail stores due to a low
number of in-store sales. Consumers have been online shopping more,
which has lead to a decrease in the amount of individuals that will
physically travel and shop at a store. Companies are searching for
alternative methods to draw in customers and resolve this issue. So
far, multiple companies have found success in implementing augmented
reality (AR) technology.
The integration of augmented
reality (AR) technology has changed the retail world and will continue
to do so in the future. Major companies, such as Ikea, Zara, and
Sephora, have already engaged in implementing AR in mobile applications
or in technology within their stores. AR provides consumers with
innovative technology to determine how a particular product, such as
clothing, furniture, or makeup, would look like before purchasing it.
The Research & Development
Enacted in 1981, the now permanent Federal Research
and Development (R&D) Tax Credit allows a credit that typically
ranges from 4%-7% of eligible spending for new and improved products
and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayers business
- Must represent R&D in the experimental sense and
generally includes all such costs related to the development or
improvement of a product or process
- Must eliminate uncertainty through a process of
experimentation that considers one or more alternatives
Eligible costs include U.S. employee wages, cost of
supplies consumed in the R&D process, cost of pre-production
testing, U.S. contract research expenses, and certain costs associated
with developing a patent.
On December 18, 2015, President Obama signed the
PATH Act, making the R&D Tax Credit permanent. Beginning in 2016,
the R&D credit can be used to offset Alternative Minimum tax for
companies with revenue below $50MM and for the first time,
pre-profitable and pre-revenue startup businesses can obtain up to
$250,000 per year in payroll taxes and cash rebates.
Two of the main AR platforms utilized for mobile devices are
Apple’s ARKit for iOS devices and Google’s ARCore for Android
devices. Both of these platforms contain the same functionalities
with slightly different features.
ARKit offers motion tracking, environmental understanding, and
light estimation features. The motion tracking feature tracks a
device’s location by using a visual inertial odometer which is
comprised of a device’s camera tracking and motion sensor data. The
environmental understanding functionality within a device is used to
examine an environment through a camera lens to establish where
existing structures are located. Lastly, light estimation uses a mobile
device’s camera sensor to measure the available light in an
ARCore offers the same three main functionalities as
ARKit, but contains a difference with the motion tracking feature. In
ARCore, motion tracking utilizes inertial measurement unit data to
establish space and the environment. Besides the three main functions,
the platform contains additional features, such as hit testing. Hit
testing tracks certain areas within a room which allows users to
establish and track an object’s location and positioning.
AR Technology in Retail Stores
According to a study that was conducted, the most
popular retail sector which utilized AR was furniture, followed by
clothes, food & beverages, footwear, cosmetics, jewelry, and
toys. It also found that a majority of customers would shop more
and prefer to shop at stores containing AR technology. Some reasons why
this technology is favorable by consumers is users can easily find out
more information about products, experiment with different styles and
colors of a product before purchasing it, and possibly receive deals or
promotions on an item that they are looking at.
Zion Market Research estimates that the global
market value for the AR industry will most likely reach 133 billion by
2021. A large portion of this market growth will most likely be
influenced by the development of retail AR applications.
Ikea recently released a mobile application called
Ikea Place which provides consumers with the tools to examine various
types and designs of furniture products. The application was built on
Apple’s ARKit technology and was designed to showcase furniture in 3D
with their accurate measurements. More than 2,000 products can be
selected for users to examine on the application. To begin using the
application, an individual uses a mobile device to scan the floor
within a room and then selects a product listed in the app to place
into the room.
Lowe’s has an Innovation Labs team who invested a
significant amount of time and money to develop several AR
applications. Some of the applications created include Lowe’s Vision,
Envisioned by The Mine, Measured by Lowe’s, and Lowe’s Vision: In-Store
Navigation. The applications offer a variety of features such as
the ability to measure certain dimensions of a room or pieces of
furniture and view potential furniture products within a space, as well
as a navigation guide to finding specified items within a retail store.
All of these apps provide individuals in obtaining a better
visualization between space and potential furniture pieces.
Sephora has launched a Virtual Artist application
allowing individuals to experiment with various shades of makeup
regarding lipstick, eyeshadow, and more. The application was developed
by ModiFace, which utilizes a smartphone camera and an artificial
intelligence color match tool. The app uses the mobile
camera to detect an individual’s face shape and features. The
application then activates a color match tool to find various beauty
products for users to examine and virtually try on. If a user likes how
a certain product looks, it can easily be purchased directly on the
A well-known retail clothing store, Zara, has stated
it will introduce augmented reality systems in 120 stores worldwide
with seven of these stores located within the United States.
Zara’s mobile application can be utilized by scanning images on the
company’s website, in-store podiums, and boxes received from online
orders. Once an image of a product is scanned then a seven to twelve
second animation of a model showcasing the product is displayed.
AR technology provides customers with a fun engaging
experience while at the same time allowing them to discover new
products available at a store. Due to these factors companies will
increasingly integrate AR into their stores. Companies involved with
designing and developing AR applications are eligible to obtain the
Federal R&D Tax Credit.