Showrooming: Retail's Newest Threat

Check out the following article written by Shea's Communications Director, Andy McDermott, about the relatively new practice of "showrooming" and how it has become a major threat to brick and mortar retailers. The article stresses the importance of creating an experience in order to make a lasting impression on customers. 

SHOWROOMING: BRICK & MORTAR RETAIL’S NEWEST THREAT

By Andy McDermott, Shea, Inc.

These days, we can’t imagine life without the internet, and it is hard to believe that it was only about 20 years ago that World Wide Web was introduced. In 1994, technological advances were made allowing for secure online shopping, and that made way for retailers like Amazon.com and eBay which came a year later. In the 17 or so years since that time, brick and mortar retailers have perceived online retail as a giant threat because of consumers’ ability to directly buy goods or services from a seller that has virtually no overhead and the ability to almost always offer better pricing with no sales tax. Although the pricing threat is real, most brick and mortar stores have somehow managed to hold their own throughout the years. The theory behind the continuing success of brick and mortar retail is that humans crave and seek experiences. Physical stores have the ability to provide unique experiences that give us a chance to learn what’s new, find inspiration, and see other purchase choices we may not have found online.

IN THE PALM OF YOUR HAND

One of the initial barriers to online shopping was consumers’ reluctance to make a purchase without first seeing the goods in person and holding items in their hands. Shoppers would spend time researching products on line and then would go to the physical store to examine the merchandise and make the purchase.

In the last few years, however, with the prolific use of smart phones, people have become much more comfortable with e-commerce, and now all customer research and shopping can be done on the go. According to a study by the Pew Research Center, just over half of smart phone users used their phone to call a friend to ask advice about a product, look up product reviews or look up product price while they were in a store. It also revealed that an estimated 5% of mobile phone users that bought products online over the 2011 holiday season did so from their phones while shopping and price checking in a physical store. Another survey done by Codex Group found that 25% of people who bought a book online first looked at it in a physical store.

This recent behavior of shoppers going into physical stores to view products, using their phones to price-compare and then purchasing the lowest price online option is known as showrooming. Showrooming is reportedly causing wars among retail giants like Target and Amazon.com, and analysts are speculating whether the practice may eventually send companies like Best Buy to the brick-and-mortar graveyard.

THE “AMAZON EFFECT”

ClickIQ, a Minneapolis-based research group, found in a study that nearly half of all participants who shopped on line over a six-month period first saw the products in a store. Half of that group reported that they made their purchases from Amazon.com.  Amazon clearly has no issues with showrooming and actually encourages it. The company has developed a mobile phone app that lets shoppers scan in-store product codes to reveal Amazon’s prices. Because of new customer resources like this, the number of consumers that are actually purchasing products from brick and mortar locations has dropped dramatically, and an even smaller number of customers are purchasing from stores at full price. With the customers’ ability to access price matching from virtually anywhere, it has given them more power to negotiate at the store, causing brick and mortar retailers to rethink their entire approach to retail.

According to the Wall Street Journal, online retail sales represent only about 8% of total US retail sales, but that is up from just 2% in 2000. At the same time, Amazon.com is growing at breakneck speed: it ranked as 13^th largest retailer in 2011, up from 19^th in 2010. If this growth continues, analysts expect it to bump Best Buy from the 10^th spot by this year’s end.

FIGHTING BACK

Brick and mortar retailers are currently experimenting with ways to fight back, but finding the right combination of solutions is proving to be tricky in this ever-evolving landscape. Some necessary ingredients include value-added services such as rewards and loyalty programs, gifts and on-the-spot deals, all of which help establish relationships with customers.

Companies focusing on incentives to drive people to the physical stores include Nordstrom, which offers free shipping for items purchased in the store. Walmart has developed “Endless Aisle,” a program in which customers who buy products on line can pick up their purchases at a nearby store. According to a company spokesman, 50% of the customers who buy products on line pick up their purchases in stores and the hope is that customers will spend a few more dollars while on the property. Critics, however, question the ability of the stores to keep up with the proper staff and systems for such a program.

Target is working with suppliers to create more unique Target-specific versions of products that cannot be easily compared on line. Target and Walmart are also testing new apps that allow customers to create shopping lists, receive daily-deal alerts and exclusive coupons on their phones, with hopes of driving shoppers to the stores. Some experts think the personalized approach through the use of smart phones may make higher shelf prices less problematic. 

Some retailers are experimenting with location-based apps and geofencing, a technology where customers are targeted with messages on their smart phones when they are nearby. People who download the app receive texts that offer discounts and coupons when they are near the store, or within the store’s virtual “fence.” The marketing and promotions have the ability to be hyper-local and personalized, creating that ever-important personal connection between retailers and customers. North Face has been using geofences since 2010 through an app called Shopalert. Messages are pushed to customers that have installed the app as they approach stores, but North Face has also set up geofences around parks and ski resorts. In the two years since the program was launched, North Face has only enrolled 8000 people, but a spokesman for the company recognizes that these programs are in their infancy and acknowledged that it keeps those people loyal to the brand. A criticism of geofencing is that too many retail-related texts can have a negative effect, much like spamming. The apps have their fans, however, and more retailers are beginning to experiment with the idea of connecting with customers in this way.

E-FAIRNESS

Earlier this year, several Minnesota businesses banded together to combat showrooming by drafting an “e-fairness” bill that would force online retailers to collect state sales tax, just like a physical store has to. Also dubbed the “Amazon” bill, it would bring in a relatively insubstantial amount of money for the state—only about $10 million each biennium—but the issue was more about tax fairness. The bill was defeated in the recent session, but it has spawned larger efforts in other states.

BACK TO THE BASICS

Brick and mortar retailers need to remember that they still have an edge over online retail because there is an opportunity to build a personal connection and give customers a great experience that they won’t get on line. After all, consumers still consider a visit to the physical store as a part of the shopping equation, and retailers need to figure out how to capture those visits as sales.

Some argue that shoppers have migrated to online not only because of price, but because over the last 20 years, retailers have worked on trimming labor costs to the point that there is no longer any quality to service. Customers argue that today’s in-store service professionals are uncaring, uninformed and indifferent and that they provide little value to the shopping experience.

If stores begin to invest in people that have a passion for what they do and knowledge of what they are selling, customers will take advantage of that difference. Apple, one of the few brick and mortar retailers experiencing growth right now, can contribute much of its success to the fact that employees are experts, enthusiasts and evangelists about the company’s products. If traditional retailers can figure out how to bring back quality service, knowledge and expertise, they will be able to offer something online merchants can’t.

MEMORABLE EXPERIENCES

Showrooming does not have to be the kiss of death for traditional retail. Retailers who wish to stay relevant need to use a combination of online and offline tactics that ultimately make consumers feel appreciated and engaged. Humans will always want experiences to engage all their senses. Online has low pricing, but brick and mortar offers immediate gratification, face to face service, and in the best cases, memorable experiences.