Article Reprint: http://www.homeworldbusiness.com/links/news/news.php?ID=20505
NEW YORK— Showrooming is the retail issue of the moment but the threat it represents may never be fully realized because brick-and-mortar retailers, through recent and long-standing practice, have capabilities that should allow them to meet the challenge the phenomenon represents.
The dramatic growth of Amazon and its impact on MAP pricing has had the secondary effect of propelling the showrooming issue, but certainly prematurely. After all, hordes of consumers frozen on retail floors frantically searching smartphones for a lower price than the one they have available in front of them is not a phenomenon commonly observed. However, consciousness of the potential damage showrooming can do has encouraged retailers to develop strategies that should mitigate its potential effects.
In fact, consulting firm CrossView has determined that major retailers who have incorporated cross-channel operations already are pursuing effective anti-showrooming strategies.
Retailers shouldn’t be lulled into any sense of security when they recognize that showrooming is far from the biggest problem confronting them. It is a growing phenomenon. CrossView noted in presenting the findings of its own research, that a recent Pew study, 52% of shoppers have used their mobile phones to check prices in a store, and a recent study from Capgemini, a consulting firm, revealed that more than half of all shoppers believe stores will become little more than showrooms for selecting and ordering products by 2020.
Yet, Jason Goldberg, CrossView, vp, strategy and customer experience, told HOMEWORLD BUSINESS© that some perspective is required.
“It seems clear that showrooming is very high on the radar of traditional brick-and-mortar retailers, who are taking steps to combat it. But we’ve almost never seen a substantial financial impact from showrooming,” he noted.
CrossView research backs up his conclusion as does an NPD Group study of showrooming effects in housewares product categories. Although the NPD research shows the phenomenon has substance, the degree of threat to brick-and-mortar retail sales it offers is relatively small at present.
Researching a product in a brick-and-mortar store and then making purchases online was a practice employed by 15% to 20% of consumers in 2011, NPD noted. Showrooming practices impacted stand mixers, electric knives, sewing machines and some floor cleaners, NPD indicated, as well as power tools, hairsetters and robotic vacuums to a lesser extent.
According to the NPD Group, Inc. / Consumer Tracking Service, 7% of consumers who researched small kitchen electrics products in a brick-and-mortar store made their ensuing purchase online. The proportion is 4% in personal care and 2% in home improvement. In contrast, two-thirds of consumers said they researched a home-related product online then ended up purchasing it in the brick-and-mortar store, NPD stated.
Some specialty stores that have used breadth of assortment within a particular category of goods as their competitive advantage have felt some real pain from showrooming, particularly electronics retailers, Goldberg said.
Yet, Goldberg said, even in the case of a troubled operation such as Best Buy, retailers may be paying the particular phenomenon of showrooming too much attention. With the exception of those in some specific retail channels such as supermarket, consumers are as likely to leave a store empty handed as with a purchase. Yet showrooming is not likely to be the factor that is shoo-ing them out of the store.
“Research indicates that the biggest chunk of consumers who walk out of stores do so because they weren’t ready to make a purchase, because they were returning something or because they were doing product research,” Goldberg said. “The second biggest reason they walk out is because the retailer didn’t have what they wanted, which is the opposite of showrooming. The store didn’t have in stock exactly what the customer wanted to buy.”
Even when pricing is the issue, showrooming isn’t necessarily the cause.
“The third biggest reason customers don’t buy is because they can get a better price at another brick-and mortar-retailer,” Goldberg said. “Consumers will walk out of Target and purchase at Walmart if they perceive they can get better prices at Walmart.”
Recently, Gregg Steinhafel sent a letter to suppliers many credit with bringing the showrooming issue to a head but that really was about MAP pricing and Amazon’s unwillingness to abide by it. Yet, as Goldberg pointed out, showrooming is a relatively minor issue for a broadline retailer such as Target.
“Showrooming happens a few times and its strikes fear into retailers, but what’s really generating the anxiety is that the retail price model is going away. Price obfuscation is going away, the basic premise that the consumer really won’t know about other prices on products they see and can buy immediately at a store,” he noted.
Of course, the consumer’s lack of certain knowledge about other prices is critical to high/low pricing. But it’s even important in everyday low pricing, which often translates into EDLP on products that a large proportion of consumers can price, such as milk and simple housewares such as can openers that have had their prices at least partly defined by their sale at dollar stores.
“Retailers are worried because they think price obfuscation is going away,” Goldberg said, “as the consumer goes from scanning a few products to a lot of the store. What happens if the next-generation smartphone camera can take pictures of every product in a store and use augmented reality to price every product the user wants. Retailers are saying: How am I going to do business when every customer has perfect price transparency?”
Goldberg said that retailers, particularly the major players, are taking steps to protect themselves against the kind of price transparency showrooming represents. A CrossView study of 95 retailers and brands that sells products via brick-and-mortar stores show cross-channel operators have a number of advantages that can help them adapt to such price transparency, and that major retailers are ahead of the curve in developing programs that will help them cope.
Yet, as they adapt new conditions, brick-and-mortar retailers are getting ready to face the greater frequency of consumers using their cell phones to check prices, essentially getting ready for a threat that is still really in the future right now. CrossView’s report, “Retailers: Don’t Become a Victim of Showrooming,” indicates that 80% of the top 10 retailers studied, as measured by sales, offered information on their sites that could help consumers choose to buy rather than checking out their competitors.
As Goldberg noted, the challenge that retailers face in the digital age is much bigger than showrooming, even if that aspect of it is getting attention currently, and involves the immediate satisfaction of the consumer urge to purchase. To address the issue, the top retailers offered information about in-store product availability on their e-commerce sites. In contrast, only 39% of the other 85 retailers did so. Of those Top 10 retailers, 60% offered product availability via their mobile sites versus 21% of the rest. Goldberg emphasized that providing product availability not only stands against showrooming but also allows retailers to address more often stated reasons for consumers leaving stores empty handed, including out of stocks.
According to CrossView, cross-channel retailers have several advantages that can help them combat showrooming. Cross-channel consistency and superior customer service are two of ways brick-and-mortar retailers can push back against showrooming.
Brick-and-mortar retailers have one particularly critical advantage over their online-only rivals, the ability to pick up shipped product in a store at no or low cost. The service cuts down ultimate purchase price in a cost-effective way, always appreciated. In addition, brick-and-mortar retailers providing the convenience also put consumers in the right place to do additional purchasing, which can generate add on sales particularly if pick-up departments encourage it through marketing and merchandising initiatives.
With the speculation in the market that Amazon is considering same-day delivery, cross-channel retailers need to leverage their store assets to create fulfillment centers, CrossView indicated, event to the extent of considering ship from store options that will keep them competitive despite the impending threat.
The Top 10 retailers beat their smaller rivals when it comes to letting consumers order online for in-store pickup at 70% compared with 26%.
CrossView focused on pricing consistency as a critical issue in dealing with showrooming and related cross channel challenges. Although they have made big improvements in pricing and promotional consistency across channels, retailers have work to do in the mobile channel if they want to ensure that more sales can be closed in-store at the moment a consumer is ready to make a purchase. That includes creating better mobile tools. It may seem counter intuitive, but having a better-functioning mobile site is something brick-and-mortar retailers can use to battle showrooming and other e-commerce initiatives. What’s important, Goldberg pointed out, is for a retailer to get customers using its mobile tools rather than those offered by Amazon or other brick-and-mortar retailers.
“A retailer can give customers better features for shopping its stores than Amazon can, from what quantities and sizes are available for purchase and even how to walk to where the product is displayed,” he said.
As brick-and-mortar retailers become more sophisticated with mobile commerce operations, they can use purchase and loyalty program information to tailor promotions to consumers. So, a Keurig owner who uses a retailer’s mobile technology to search prices on coffee or anything else can trip an automatic discount on Green Mountain coffee delivered to ensure that the customer is going to purchase at least that at the store, and maybe more if the day’s agenda requires multiple purchases.
“With this kind of personalized pricing, each shopper gets differentiated promotions that allow the retailer to optimize sales to each customer,” Goldberg pointed out. Kroger already is on the forefront of developing such strategies in the United States.
Long-established competitive strategies also can be adapted to deal with cross-channel competitive phenomena, such as showrooming. Increasingly, retailers are looking to develop unique product to help them stand out from the competition. Products that can be purchased in a basic or roughly similar version at various retailers quickly become commodities today as operations distributing at the lowest cost drive down prices.
With price transparency becoming a greater reality, the process is only going to become more dynamic. Goldberg noted that Best Buy had set a goal of 50% private label sales as it has tried to develop effective ways to address competition from online retailers. Brick–and-mortar retailers such as Target and J.C. Penney have made the development of clearly differentiated product much more central to their retail strategy of late, while company’s such as Macy’s are building on their existing model of partnership with designers and brands to stock more unique product.
Many retailers today are instituting policies that address a range of issues but should also help them address showrooming as the phenomenon becomes more urgent. The sidebars that accompany this story describe some key retail initiatives that have taken place this year.