Showrooming Becomes the Reason for Retailers' Existence

Maybe Best Buy's (NYSE: BBY  ) new CEO Hubert Joly wasn't so far out on a limb as we first thought. He may have been right about the benefits of "showrooming" after all, though it remains to be seen whether the electronics retailer can capitalize on it.

A global display case
As has become clear to most everyone now, the practice of showrooming -- or going into a big-box retailer to get a hands-on view of products only to turn around and buy them online, typically from Amazon.com (NASDAQ: AMZN  ) -- has brought the bricks-and-mortar retail industry to its knees. Best Buy, RadioShack, and even Target (NYSE: TGT  ) have been affected by the phenomenon, with the first two teetering on the brink of irrelevancy because of it.

But Joly was one of the first who said his company ought to embrace the concept because "once customers are in our stores, they're ours to lose." Of course, after getting hired last September, he also said showrooming wasn't a factor in Best Buy's decline, but that may have been directed more at company founder Richard Schulze, who is angling to take the electronics retailer private, than anything else. But how a company embraces the loss of its customers thus far remains a mystery.

Target, for example, is extending its holiday price-matching guarantee year-round on identical "qualifying" products sold at Amazon and the e-commerce websites of Wal-Mart (NYSE: WMT  ) , Best Buy, and Toys R Us. 

Wal-Mart is also wrapping its arms around the concept, offering a mobile app for shoppers to compare its stores' prices not only with competitor's prices but also with prices on its own online storefront. The blended sales channel has even driven sales higher, as the company said some 12% of online sales made through Wal-Mart's smartphone app as of last November happened while customers were in the store, or at least using its app in the in-store mode.

We're all mocial now
And Wal-Mart is right for embracing the concept. According to a recently released study by IBM of 26,000 customers in 14 countries, showroomers are a retailer's to-die-for demographic: young (18 to 34), predominantly male, and affluent. Interestingly, most showrooming occurs in global markets, particularly Asia, where India, China, and Japan present the greatest percentage of such customers.

The wealth of data available to shoppers has become enormous due to tectonic shifts in social media. Because we're all mobile now -- or "mocial," as one wag called it -- companies need to figure out how to bridge the yawning chasm between bricks-and-mortar and mobile communications. Because as much as we are becoming tied to our smartphones, it appears we do have a limit as to what we're willing to do and spend with them, so retailers need to grab hold of that rich slice of opportunity.

We know from this past Christmas shopping season that online retail sales really came into their own. Online sales surged 26% the day after Thanksgiving, crossing over the $1 billion mark for the first time ever, with 57.3 million Americans visiting e-commerce sites, up 18% from a year ago. In total, online retail sales amounted to $226 billion in 2012, up from $177 billion in 2010, and only about 10% of a retailer's total sales (Amazon didn't get all of the e-commerce business after all). But analysts think there's a ceiling that will be achieved, maybe 20% or so of a retailer's total sales.

Tilting at windmills
Although price-matching will be a key component of the solution to dulling Amazon's edge, so will leveling the playing field. Best Buy just reported that in states where Amazon had to start collecting sales taxes, its own online sales rose between 4% and 6% and it also saw a 6% to 9% jump in online orders that are picked up in its stores in those states, compared with the rest of its chain. According to analysts at William Blair, Amazon's prices beat Wal-Mart's by 9% when excluding sales taxes, and are 14% lower than Target's (though retailers' online prices often beat their own stores by an average of 2%). 

Of course, it's not just that, since the electronics chain also cut its prices and engaged in price-matching, but it does show that if all retailers are treated equally, then traditional chains have a chance to survive. It may be that when all else is equal, showrooming isn't the factor it was made out to be. Interacting with customers will be the real key.

The task will be where retailers look to do this interaction. Facebook's (NASDAQ: FB  ) local features, with some 250 million users tagging check-ins each month, would have to be an important component. Its new Nearby app will help users discover where there friends are going based on likes and such that will rival sites like Yelp and TripAdvisor, which bricks-and-mortar places have typically used.

Showrooming may have just been a bump in the road that ends up pushing retailers into becoming true multichannel retailers that give consumers a reason to stay with them.

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  • Report this Comment On January 14, 2013, at 4:50 PM, samthedog0608 wrote:

    certainly makes it difficult for mum & dad retailers trying to make a living for themselves out of a retail facility

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