Why Retail Sales Are No Longer Clearly Online or Offline

The battle between online and offline retailers should intensify as the line between whether a sale is online or offline begins to blur.

May 8, 2014 at 7:26AM

If you purchase an item from a physical retailer on its website while standing in the store and perhaps even working with a salesman did you just have an online or an offline shopping experience? The same question can be asked for a purchase made online that's picked up in a brick-and-mortar store.

In general the line between online and offline commerce has blurred and consumers are using physical stores to help their online shopping while retailers with physical locations are using their online presence to enhance the in-store experience.

United States retail e-commerce will continue its growth in 2014, with sales forecast to rise 15.5% to $304.1 billion. Although e-commerce sales will account for just 6.4% of the $4.73 trillion in total U.S. retail sales expected this year, their true impact will be much bigger, according to a new eMarketer report, U.S. Retail Ecommerce: 2014 Trends and Forecast.

The full story however is not about where a sale is made but all of the components that go into causing a consumer to make a purchase.

"Consumers may not buy online all the time, but they are shopping through digital channels constantly. Of the 219.4 million Internet users in the U.S. ages 14 and older, eMarketer expects 196.6 million, or 89.6%, to shop online this year, compared with 163.2 million who will go on to complete a purchase digitally," the report says.

This means that to survive physical retailers will have to get smarter about how they integrate e-commerce and online retailers will have to find a way to overcome the disadvantage of not having a physical store. That may sound a little silly -- not paying for actual locations has long been an advantage that allows online stores to have lower prices -- but if physical retailers integrate online stores into their sales process that advantage could become a liability. 

Showrooming goes both ways

Showrooming -- the idea that people use brick-and-mortar stores to look at items they then purchase online -- has been blamed for the troubles facing a number of retailers, with Best Buy (NYSE:BBY) being the most prominent example. A customer comes into a Best Buy store, spends time with a salesman, decides what he wants to buy, leaves, and makes the purchase later on Amazon (NASDAQ:AMZN) or another online retailer. Best Buy has laid out the money for the store and the salesperson while Amazon has done nothing, but still makes the sale, whether because the item is cheaper or it's a hassle to get the product home.

While showrooming has hurt some retail stores, others have benefited from "webrooming" -- when people do their research online but purchase in a store. According to a November 2013 survey of U.S. digital shoppers by consulting firm Accenture, 78% of respondents reported webrooming. At the same time some store visits eventually led to a digital purchase. The same Accenture study found that 72% of respondents showroomed or purchased online after seeing a product in a store. 

For retailers -- be they online or offline -- the challenge is finding a way to make customers complete the sale and companies on both side of the fight are trying different tactics. Best Buy, for example, matches online pricing. Amazon offers a price check app that lets a customer scan a UPC code in order to see how much that item costs on Amazon. That tool could actually work in both directions. It might lead to a sale for Amazon because even if Best Buy matches the price Amazon offers free shipping on many items over $35. It could also lead to a sale for Best Buy as the consumer would know they are paying a fair price and the physical store has it now.

If Best Buy can evolve and offer the same price plus free delivery by routing the sale through its website, Amazon and other online retailers could lose the showrooming advantage.

Stores need to adapt and evolve

Digital retailers have led the innovation charge while traditional stores have seemed largely rooted in the practices of the past. This has doomed chains like Borders, Circuit City, and others but the survivors don't have to resign themselves to that fate. Instead they must learn how to integrate digital opportunities into their physical presence.

"The majority of stores are just learning how to [sell] online," Marshal Cohen, chief industry analyst at The NPD Group, told eMarketer. "However, once they figure that out, the next step is how do they take the online and meld it in with the store experience to enhance them both." 

While digital retailers like Amazon have been spending big developing apps and tools while exploring ways to improve delivery times, most physical retailers have been largely standing pat. Another sales flyer, "door-buster sale," or whatever traditional retail tactic used to work are not viable in a world where most people can buy nearly anything in a few clicks from their phone. Stores have an inherent advantage in that no matter how fast an online retailer delivers it can't equal the speed of picking up an item off the shelf and having it now. 

That's not enough though and physical retailers that want to survive will likely have to sacrifice margin and find ways get customers to complete sales that are more innovative than hoping they can't wait a day or two.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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