Much has been made lately of the impending storm on the horizon for brick & mortar retailers. E-commerce is growing by leaps and bounds with no plateau in sight. eMarketer reports that online shopping could reach up to 20% of total retail sales by 2022 (up from about 5.5% today). The headline of a recent article on Internet Retailer asks “Will Amazon catch Wal-Mart by 2017?”.
The prevalence of e-commerce, coupled with the ubiquity of mobile phones has led to the emergence of “showrooming”. Showrooming is when a customer goes to a store to view a product, only to purchase that product online from a competitor. According to Pew a quarter of cell phone owners used their phone while in a store to look up the price of a product online. To counteract this trend, Target sent a letter to its vendors in January asking them to create special products, which a customer would be unable to find online.
The problem is particularly acute for retailers in categories such as Books and Consumer Electronics. In these categories private label products are almost nonexistent, and comparing prices across retailers is easy. For books, just Google a title or ISBN code, and for electronics just use the model number. This poses a major challenge for brick and mortar retailers in these categories. It is the reason that market analyst Canalys predicted in a report released last week that Consumer Electronics retailers would disappear.
So, are brick and mortar retailers doomed?
There is no doubt that showrooming poses a major challenge that is likely to have a negative impact on brick and mortar business. However, often quoted retail analysts who offer advice for retailers on this subject all miss a major point. Anne Zybowski, director of retail insights for Kantar Retail says "Offering people personalized prices through their mobile device may be the most effective way to beat showrooming…" (Source) Other analysts cite Apple as a retailer that is positioned well to beat the trend because “its stores are interesting to visit, its staff is well-trained and people don't mind paying more in exchange.” (Source) Canalys’s Alistair Edwards says that "People will seek retail premises out...for experiences centered around entertainment, relaxation and education; for events such as celebrity appearances, performances and signings; for socialization and sustenance; and where brand exclusivity or the nature of specialization or service required cannot be met by online alternatives.” (Source)
Not to pick on these particular analysts, who likely offer some useful information in their reports, but it is clear that they have never worked for a retailer. Being a retailer is about bringing exciting products to your customers at a competitive price while offering friendly and knowledgeable service. All three elements of this equation are important: product, price, and service. Analysts get caught up on price and service, and completely miss that retailers can change their product assortments.
When was the last time you walked into Barnes & Noble and got excited or were surprised by something that you saw on the shelf? Compare that with the experience of going to your favorite store. Think about walking into a Bed Bath & Beyond (full disclosure, I worked at Bed Bath & Beyond from 2007-2010) or a J. Crew. Management of both Bed Bath & Beyond and J. Crew are merchants above all else – they know that, as Dieter & Nils Brandes wrote on a Harvard Business Review blog post, “In Retailing, Assortment is Job One.” These retailers’ assortments did not get to where they are today overnight. It takes continual product testing, assortment changes, and calculated risk-taking. Retailers whose culture promotes the merchant mindset are more easily able to spot emerging trends and get ahead of them.
Apple adapts this mindset as well, and it is no surprise that JC Penney is now moving in this direction under the reins of Ron Johnson. In an interview in early April with Women’s Wear Daily, JC Penney Chief Merchant Liz Sweney said “We’re feeling very liberated…There’s this whole notion now of merchants really being curators of products and brands from around the world and being freed up from worrying about pricing strategy.”
So, should Barnes & Noble ditch the book business? Should Best Buy stop selling TVs? These and other retailers in the categories most heavily impacted by showrooming have a bumpy road ahead. However, if they prepare today to diversify their assortments and think like merchants, they will be well positioned in the future.
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