Sunday, June 22, 2014

Lesson #180: How Retailers Can Combat Showrooming

Posted By: George Deeb - 6/22/2014

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Let’s face it, we have all done it.  We walk into a retail store to find a product we want.  We browse their huge selection of inventory.  We talk with their highly-trained salespeople.  And, then, the inevitable in today’s mobile generation:  we pull out our smart phones, scan the product barcode and see if we can find the same product for sale online, at a materially lower price.  At which point,  we end up walking out of the store to buy it online, and the retailer is out on all their marketing, inventory, staff and real estate costs without the sale.  This concept is called “showrooming”, and here a few ways offline retailers should combat it.

DON’T FEAR THE INTERNET, EMBRACE IT

Like Best Buy, offer “low price guarantees” to give customers peace of mind.  Help them do the research online to help them find the lowest prices.  That way, the consumer doesn’t feel guilty about doing that same research on their smart phones, and you don’t lose the sale (as a low margin sale is a lot better than no sale, in this scenario).  Or, train your customers to buy from your online website, and not the stores, where they can save money from lower prices.

DON’T FEAR SHOWROOMING, EMBRACE IT

Thinking out of the box here, maybe retailers should reach out to their vendors, or even their online competitors, and strike showroom partnerships with them.  Vendors are not going to want a key retail partner to go out of business, and perhaps, they would share in showroom staff costs to protect their own revenues.  Or, maybe they will agree to distribute inventory on a consignment basis, so retailers can lower inventory costs and risks, to better compete on price.  This same logic applies to online competitors, who know offline stores are helping them drive online sales, and could look at the retailers as marketing partners for them?

DON’T FEAR MOBILE, EMBRACE IT

Turn a consumers’ smart phone from a weapon in your store, to an asset in your store.  Build stand-alone apps that improve the users’ experience in the store and help get them into your marketing lists, even if they end up buying elsewhere.  This could include allowing them to scan bar codes for past customer reviews about products, or pushing them specific offers within the aisle when they pass by inventory you are trying to move, or upselling bundles of products or services that make it more difficult to compare prices.  You get the point. 

DON’T LET PRICE BECOME YOUR KEY DIFFERENTIATOR

The worst thing you can do is make price your only point of differentiation.  Where you can, look for exclusive inventory that is only available for sale in your stores.  Or, make the customer service experience so exceptional, with well-trained staff or unique add-ons and offers, that they have no choice but to want to buy from you.  Abt, a highly successful consumer electronics and appliance store in metro Chicago is the pro at this.  They staff plenty of highly-trained salespeople that are available anytime you need them, are not pushy and are free to lower prices with consumers, if it helps them close the sale.  And, they get that lost product margin back to the business by upselling high-margin installation or extended warrantees on the products sold.

ARE THERE SMALLER FORMATS OR ALTERNATIVE USES FOR THE SPACE

Retail locations clearly help with marketing and getting your product closer to consumers, no doubt.  Maybe there are more efficient ways of setting up your stores, to get more done with less space.  Or, if you are locked into long term leases, maybe there are ways to get another partner to share in your space.  I thought it was a very smart move for Best Buy to allow Samsung to become an exclusive store-within-a-store experience.  In one move, they got someone to share in their costs, and help them to try to replicate the enviable Apple store experience.

DO YOU NEED THE RETAIL PRESENCE?

If the above does not succeed, ask yourself :  do I really need the brick and mortar presence at all?  It didn’t take iTunes and Netflix long to prove that a Borders or Blockbuster store no longer had a need in the market.  Perhaps, that is why Barnes & Noble is still with us with their quick shift to Nook and digital content?  Or, think about  Staples.  They are doing around $23BN in annual sales, around half of which is coming from their website.  Even if they shut all of their stores, to focus solely on e-commerce, and potentially lost half of their revenues in the process, their costs would be materially lower (without rent, inventory, staff) and their valuation multiple could materially expand (from 1x to 3x revenues), potentially valuing the company at about the same level as they are today.

Retailers are clearly feeling the pressure from online competitors and customers armed with mobile devices to help them research.  But, instead of retreating, go on the offensive to make yourselves relevant again, as simply selling the same products in an old-school retail way, is no longer enough to survive.

For future posts, please follow me on Twitter at: @georgedeeb.

1 comments:

Lindsey Harju said...

Great post! Interesting ideas regarding partnering up with e-commerce to share costs. My feeling is that web-rooming and show-rooming balance each other out to an extent- in varying degrees based on industry. You hit the nail on the head though- don't make the price the differentiator. I am a repeat Web-rooming offender. I hit several websites to read reviews and decide what I want, then find the closest location because I have no patience. The only time I showroom is when I have a bad customer experience or if I don't agree with the return policy.

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