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“Showrooming”: Can Retailers Beat This New Trend?
In the last couple of decades, the information superhighway (a.k.a. the Internet) has helped to make shopping better and a lot easier for millions of consumers. Before the advent of smartphones, it was not uncommon for consumers to check out a product and its specs on the internet prior to walking into a physical store to make a purchase. In fact, that’s what made shoppers “educated consumers”. Fast-forward to the last few years, and we find that the shopping experience has evolved, once again, courtesy of more advanced technology.
Indeed, the birth of the smartphone has essentially given the consumer even more power to wield over retailers. Merchants with brick-and-mortar stores are increasingly falling victim to what’s called “showrooming”, the latest trend in the retail space, in which shoppers walk into a store to scout products they’re interested in buying and use their Web-enabled mobile devices to find cheaper prices online. Showrooming is not confined to any particular segment of the retail space. It is spread across many product categories, from electronics and appliances to household products and apparel.
While consumers benefit from the resulting savings, showrooming inevitably takes a heavy toll on retailers with physical stores, not only in the form of lost sales, but also in terms of the high operating costs incurred to keep stores open, not to mention the fact that floor samples frequently get damaged by shoppers handling the products. Admittedly, online merchants have some huge advantages over the brick-and-mortar retailers, since they don’t have costly overhead and, in many cases, aren’t required to charge sales tax (depending on what state the goods come from and get delivered to). So, it is no surprise that online retailers, such as Amazon (AMZN), are able to offer lower prices, often undercutting the competition. This Web-based merchant has a mobile app that allows shoppers to scan a physical product in a store and get a list of prices from online merchants.
Big-box, or discount, chains are certainly not immune to the effects of showrooming, which has led to fierce pricing competition. Best Buy (BBY) has been among those suffering from the consequences of showrooming. The electronics mega chain, which is searching for a new leader following its CEO’s sudden departure, has struggled over the past year or so to keep its market share (and profits) from shrinking due to online competition. Retail giants, including Wal-Mart (WMT - Free Wal-Mart Stock Report) and Target (TGT), have also fallen prey to showrooming, losing some sales to online rivals such as Amazon.
With industry statistics pointing to a rise in online shopping resulting from showrooming, the threat to brick-and-mortar retailers is very real. But retailers are not sitting back. In fact, to combat the showrooming phenomenon, many of them now offer other incentives to customers, besides low prices. Target, for example, has gotten vendors to offer it exclusive products from trendy designers not found at any other retail rival. Special discounts are also sent to its customers’ mobile phones, in an effort to encourage repeat store visits and strengthen customer loyalty.
A host of other merchants have initiatives in place intended to prevent, or at least limit, showrooming. Wal-Mart eliminates shipping fees for customers that pick up online-ordered merchandise at its stores, while customers that shop at upscale department chain Nordstrom (JWN) get free shipping for purchases made in the store. Similarly, Best Buy is trying to stave off competition by not only offering free shipping to its top customers, but also matching prices from online rivals.
Showrooming is likely here to stay, as the ever-popular smartphones and Web-enabled mobile devices make shopping an effortless chore, giving consumers the power to purchase right at their fingertips. Retailers that can effectively keep online-retail rivals at bay are likely to be those best suited to survive.
For specific business prospects of the companies mentioned, and the investment merits of their corresponding stocks, subscribers are encouraged to check out our full reports in the The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.