Can Retailers Beat the 'Showrooming' Effect This Christmas?

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Showrooming and price matchingBricks-and-mortar retailers have been feeling the sting of e-commerce competition for years. And with smartphones making it ever-easier to compare prices on the fly, they've had to suffer the indignity of watching customers come into their stores to try out their products, then go home to buy them cheaper online.

The trend, known in the industry as "showrooming," is no small problem: A survey released Wednesday by couponing site CouponCabin revealed that 4 in 10 smartphone or tablet owners admit they've used their device in stores to compare prices on a product. Of these, a whopping 97% said they've subsequently bought the product online for less.

That's likely to have a big impact over the holiday season. In projections released Wednesday by the National Retail Federation, the industry group predicted that for the first time, more than half of holiday shoppers will buy gifts online. And you can expect many of them to hit the mall first with smartphones in hand.

Victor Anthony, an analyst with Topeka Capital Markets, recently visited a number of retail stores to gauge the extent of the phenomenon.

"Every sales rep we spoke with at every store, stated that consumers are in fact using their smart-phones to comparison shop," he writes in his research note. "At Best Buy, we were told that it appears as if consumers walk into the store with the sole intent to comparison shop."

He adds that when he used Amazon's (AMZN) Price Check app to do some showrooming of his own in the toy and electronics departments, he found Amazon consistently winning on price, especially over Toys R Us and Best Buy (BBY). Target (TGT) and Walmart (WMT), he notes, are more competitive.

So there's no doubt that bricks-and-mortar retailers are at risk. But they aren't taking this one lying down. With precious holiday dollars hanging in the balance, they're pulling out all the stops to get customers to actually make purchases in stores.

ShowroomingWe'll Meet That Price

Price-match policies have always been a potent tool for retailers around the holidays, with companies like Walmart touting their willingness to meet or beat virtually any competitor's price. Each policy is a little different and comes with various exclusions (for instance, a refusal to match Black Friday doorbuster deals), but there's one thing almost all of them have had in common: They wouldn't match online prices.

Until now.

While retailers can't be thrilled at the prospect of matching the (usually lower) prices found online, some are starting to see it as a better alternative than serving as Amazon's showroom. Last week Best Buy made waves by announcing that it would match prices from a number of online retailers, including Amazon, NewEgg, Tiger Direct, and the websites of a number of other traditional retailers. The offer applies to electronics and appliances and will last from Nov. 7 through Dec. 27, though it will be temporarily on hold during the period surrounding Black Friday and Cyber Week.

Not to be outdone, Target soon stepped up with a similar offering, announcing Tuesday that it, too, would be matching online prices from Amazon, as well as the websites of a few traditional retailers. On Monday, it updated that announcement with full details of the holiday price match policy: From Nov. 1 to Dec. 16, it's stores will match prices from Amazon.com, Walmart.com, BestBuy.com, ToysRUs.com and BabiesRUs.com, as well as its own website. While the new policy is in effect during Black Friday and Cyber Monday, limited-time offers will not be price-matched.

A Not-So-Level Playing Field

Of course, online retailers are able to offer lower prices primarily through their comparatively lower overhead costs. Without that cost advantage, how can traditional retail still make the profit margins to which they're accustomed?

The short answer? They can't.

"I don't think this is about a profit-margin war, it's about a market-share war," says Sucharita Mulpuru, principal analyst at Forrester Research. "And in any war, there are casualties. "

Alison Kenney Paul, vice chairman and U.S. retail leader at Deloitte, agrees that diminished margins are a cost that traditional retailers have no choice but to sustain.

"They can't afford not to," she says. "The consumer is so much more sophisticated, knowing what the pricing landscape is."

That doesn't mean that retailers will operate at a loss this Christmas in a desperate attempt to stay competitive. Paul notes that major retailers have tricks up their own sleeves, including precise pricing analytics that didn't exist 15 years ago.

Such systems, she explains, allow retailers to adjust prices on a regional basis, as well as increase their margins on items that are less subject to competitive pressures. That means that even if they have to trim their profit margins on toys and electronics due to smartphone-toting customers, multi-department retailers can make up those margins in another department. And apparel retailers can eliminate price-matching problems altogether by offering more private-label products and exclusive brands that customers won't be able to find on Amazon.

Closing the Convenience Gap

Of course, e-commerce doesn't just beat bricks-and-mortar on price -- there's also the convenience factor of being able to shop from the comfort of your couch. But there, too, old-line retailers are finding ways to stay competitive. Most obviously, every major retailer now has an online presence, and Mulpuru says that they tend to be comparable to their online-only competitors.

"The answer to that convenience is the Web, and I don't think Amazon is fundamentally more convenient than anyone else," she says.

And a few are experimenting with ways to beat the e-commerce sites at their own convenience game. Walmart, for instance, is testing a same-day delivery service called Walmart to Go in several cities, matching Amazon's own Local Express Delivery pilot program.

But paying extra to get your package the same day will likely eliminate the cost advantage of shopping online, and it's doubtful that smaller retailers will be able to achieve the economy of scale required to make such programs feasible. As such, it's hard to imagine same-day delivery becoming a trend beyond these two giants.

"I don't see anyone eagerly looking to pursue that, and if they do, they're running after the lemmings off the cliff," says Mulpuru. "People will always prefer free to fast."

Yes We Scan

More promising, then, are those retailer initiatives that use smartphone apps to bring the advantages of online shopping to in-store customers. Toys R Us and Best Buy, for instance, offer bar code- and QR-scanning apps that allow shoppers to bring up user reviews and get additional product information.

Target is going a step further: It's sticking QR codes on its top-selling toys and allowing customers to scan them with their smartphones, buy them from Target.com and have them shipped for free to anywhere in the country.

Sure, bar code-scanning apps from Amazon or third-party price comparison sites like PriceGrabber offer all this functionality and more -- not only can they draw on user reviews and direct you to e-commerce sites, they'll also potentially find you a better price. But Target's if-you-can't-beat-'em-join-'em strategy makes sense: If people are going to use your store as a showroom anyway, you might as well see if you can make it a showroom for your own site.





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Bob Shirilla

The Mom & Pop eCommerce sites are getting killed with SHOWROOMING and FREE shipping - this could be the end of small time eCommerce sites. The Big Brands buy directly from off shore manufactures and have deep discounts with UPS & FedEx.

Our Keepsakes Etc store sells products made in the US and the consumer is not willing to pay a little more for a holiday gift.

When you go to Walmart and buy three shirts for the price of one, your children will pay for the other two shirts.

Are jobs are gone!

October 24 2012 at 9:27 AM Report abuse rate up rate down Reply
stephanie

Just remember a small mom and pop store cannot compete if they have a brick and mortar
store . They have salespeople and lights etc.. If you don't buy their products and order online they don't have money to pay employees therefore more people are out of a job. The customer service you receive
from a salesperson should be worth . something. But if it keeps going like this more unemployment
is in our future

October 23 2012 at 9:43 AM Report abuse rate up rate down Reply
Dan

I had almost 50 years of shopping in retail stores, but the convenience and ease of internet shopping (Amazon, mostly) has convinced me that brick and mortar shopping is for the young crowd. Even if my state, Florida, is successful in taxing internet sales, I will continue to shop at Amazon. Amazon doesn't always have the lowest prices on items, though, and it pays to be a savvy shopper.

October 23 2012 at 9:17 AM Report abuse rate up rate down Reply
gmollnar

what about the non phone users? plus its going to take more time to check out of the store. better open up more lanes and train and hire so they know what to do and dont have to keep calling a manager.

October 23 2012 at 8:02 AM Report abuse rate up rate down Reply
ms7n7

interesting

October 23 2012 at 6:42 AM Report abuse rate up rate down Reply