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 13th largest retailer in
2011, up from 19th in 2010. If this growth continues, analysts
expect it to bump Best Buy from the 10th 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.
Posted by by Mike Edgett, senior project manager
Posts
