The Showrooming Showdown
Welcome to the latest conflict between online retailers and bricks-and-mortar stores. While there may be numerous reasons why consumers visit physical locations to touch, feel or see products but then purchase online, analysts say at least some of the showrooming battles aren’t lost until the customer steps onto the sales floor.
“It’s the consequence of the starvation of customer service,” says Shane Ginsberg, senior vice president of corporate development at digital agency Organic. “For many years, stores — particularly big-box stores — have cut back on the customer service experience. ... when the stores have outsourced most of their experience, it’s hard not to expect the customer to take it to the next practical level: price check and check out.”
Jean-Pierre Lacroix, president of Shikatani Lacroix Design, echoes that sentiment — and offers a warning. E-commerce is “not the reason people don’t shop in the store,” he says. “Customers come to a retail environment for the recognition.”
Through research his company conducted in 2010, “We learned that the online shopper becomes habitual,” Lacroix says. “If I’m buying shoes online, I’m no longer thinking of going to the store. That’s a very dangerous situation for retailers. As a retailer, you have to make sure you capture that customer and they never leave the brand.”
Greg Girard, program director of merchandise strategies for IDC Retail Insights, says showrooming is “a C-level issue” and that with “a good omni-channel strategy, retailers can turn the ... showrooming consumer into an opportunity.”
Understanding the advantages
The opportunity begins with the fact that customers physically walk into stores. This gives a bricks-and-mortar retailer a chance to salvage a sale that might not otherwise happen if the customer is merely shopping online.
“Showrooming doesn’t just hurt bricks-and-mortar stores,” says Z. John Zhang, professor of marketing at the University of Pennsylvania’s Wharton School of Business and director of the Penn China Center. “Customers who show up in the store have already taken advantage of the information provided by the online store. But if you want a new TV before the big game and you’ve done everything you need to do ... you don’t want to wait for the online store to send it to you in a few days. In that sense, the bricks-and-mortar retailers don’t always hold the short end of the stick.”
Not only do bricks-and-mortar retailers have the advantage of immediacy, they also “can engage all five senses,” Girard says. “But the advantage of online is that information is dynamic and multimedia ... Bringing online into the store brings those aspects of dynamic information that can be navigated by the consumers.”
BIGinsight’s January 2013 consumer survey found that nearly 30 percent of customers had showroomed during the holiday shopping season. While finding the item cheaper online was far and away the reason 80 percent of consumers showroomed, 20 percent said it was to avoid paying sales tax.
“Retailers’ profit margins are very slim and so to lose 20 percent of their business to this showrooming concept because of the discrepancy in sales tax — which is a government-imposed discrepancy — is enough to drive some retailers out of business,” says Rachelle Bernstein, NRF’s vice president and tax counsel. “This will become a bigger and bigger problem.”
Bernstein says that customers are responsible for paying state and local sales tax on items purchased online, but many don’t know about it, or ignore it. Legislation is pending in Congress that would give states more authority to tax online purchases.
“We are advocating for sales tax fairness that says that there should not be a difference in the tax treatment because of the channel you use to purchase the items,” she says.
Sending assets to the frontlines
If showrooming is a skirmish between online and bricks-and-mortar retailers, sales associates are the foot soldiers who can capture the customer — or send her fleeing to the nearest URL. In-store consumers have more information than ever before. If sales associates can’t enhance that knowledge — or worse, know less about a product than the customer — the sale can be lost.
But “if the sales associate is empowered with technology and has a deeper understanding of the product” and access to CRM data, “they’ll have a better opportunity to connect more effectively with the shopper,” says Branden Jenkins, general manager of e-tail/retail products for NetSuite.
Focusing on staff expertise will move the in-store experience from commodity-based to “value added,” Lacroix says. “People still buy fashion in a store to ask, ‘Does this look good on me?’ ... [retailers] need to drive up knowledge as currency.”
While it’s not feasible for every associate to be trained as an expert, he suggests that retailers could employ one expert — and brand that person as such. There’s no real need for that informed associate to physically be in the store, Girard says. Online shoppers click to chat with product experts, and “there’s no reason that couldn’t be brought into the store experience.”
That means hiring the right people for the job. Diana McHenry, director of global retail product marketing for SAS, cites the type of employee found at Zappos or REI. “I’ve talked to [REI] employees who are botanists at a local university, hippies and a high school theology teacher who loves the outdoors,” she says. “They love what they do. They are users themselves. It really starts with a genuine passion for the customer and empowering and enabling the associate.”
Focusing on strengths
Customers also want to feel valued — and known — by the retailer.
“The battle for the retail floor is going to happen in the cloud [via] customer data and an understanding for customer preference,” Ginsberg says. “That is something that online retailers have known for many, many years will mitigate showrooming.”
Most companies — retailers and non-retailers alike — “do a poor job of leveraging the valuable customer information they have,” says Brent Cohler, director of mobile product marketing for SAP. “That’s frustrating because the more customers are engaging with the brand, the greater their loyalty and expectations. Retailers should provide customers with personalized content and offers at the point of decision. They can do this using information from a variety of sources ... and combining it with the rich contextual signals that mobile devices provide.”
Girard cites the MyLowe’s plan, in which Lowe’s customers swipe a card when they make a purchase and can keep up with home-oriented details online. Lowe’s “can help manage warranties of products ... or remind them that it’s time to do periodic maintenance,” he says. “That’s a great customer support system, but there’s analytics behind it, too.”
He also points to two major department store players showing a significant commitment to bringing the online experience into the store. “Macy’s has the ‘M.O.M.’ strategy: My Macy’s tailoring the merchandise to the local buyer, Omni-channel and ‘Magic selling’ to enhance the customer experience,” Girard says. “Nordstrom has pegged $900 million in its five-year capital plan for its e-commerce strategy.”
McHenry cites Belk as an example of a company that has transformed itself by first determining its identity — and who it serves. “I don’t know they’d say they’ve done that to combat showrooming, but their omni-channel customer experience certainly [does that].
“At a very strategic level, they’re asking, ‘What is our brand identity?’ They came out with a brand strategy around Southern style and hospitality and are living that out through everything — store experience, social media, collections, community service.”
Belk is hardly alone; McHenry sees a change in retail attitudes about analytics. “People are taking a long-term approach to building the customer analytics foundation so that they can better understand and execute their digital strategy, innovate and build a competitive advantage.”
Finding support from allies
Bricks-and-mortar retailers have allies they could — and should — rely on more: brands and manufacturers. This could mean installing kiosks or digital signage to provide high-level information on technical specifications, warranties and product reviews. It may mean targeted training by the brand.
Zhang looks to Asia for a model that more tightly aligns brands and retailers. There, he says, manufacturers set up their own shops inside a large electronics retailer, hire and train their own staff and manage merchandising and pricing. The retailer receives a monthly rent and a percentage of the sales.
“Manufacturers will have every incentive to make sure you buy right there,” he says. “They won’t price products differently at different stores. In addition, manufacturers can internalize the cost of service provision, even if a customer decides to order online” or purchase elsewhere.
In pockets of U.S. retail, that is not such a foreign concept. Apple products share the same pricing whether purchased from a mass merchandiser, online retailer or directly from the company’s retail stores; cosmetics brands have long managed their own personnel in department stores. And J.C. Penney has said it will move all of its locations to the store-in-a-store concept by 2015.
Stockpiling the right products
Unique products are one of the best weapons in the fight against showrooming. The reason is obvious: If no other retailer offers a particular item, consumers are limited solely to the omni-channel outlets of the retailer with the exclusive.
Target is a prime example of a retailer that has capitalized on “exclusive” products. Limited-edition products from fashion brand Missoni caused long lines and website crashes; the retailer launched a limited-edition alliance with Prabal Gurung in February. But Target also has developed exclusive lines with well-known brands like Levis: dENiZEN jeans were launched in 2011, available in North America only in Target stores. While Levis is phasing out the line elsewhere, the manufacturer says it would keep the line alive for Target.
“We’re all creatures of habit, and if a consumer likes a product that’s private label they won’t look online to get a better deal,” Lacroix says. “And if they’ve gone to the store to get that item, they will substitute something if they have to. The idea is to capture that emotional connection to the private label and to retain that customer.”
In essence, Girard says, “The bread-and-butter basics of good retailing decrease the likelihood of showrooming. The things that are more likely to make consumers showroom are having too broad and too deep of assortments or having a high/low promotional strategy.”
Millennials leading the way ... but not for long
Mark Logan, senior vice president of digital innovation at advertising agency Barkley and head of Moonshot Innovation Lab, says half of all millennials surveyed in 2011 reported using smartphones while shopping, compared with 21 percent of non-millennials. “A year later, that gap had closed,” he said.
And retailers with older core audiences need to pay particular attention, says Jeff Fromm, Barkley’s executive vice president and author of Marketing to Millennials, due out in July. “The older generation is adopting more and more the technology habits of the millennials,” he says. “Millennial influence is much greater than just the impact on members of their generation.”
Barkley’s research showed Facebook was the second most-used app among millennials while they shopped. “When we asked them about it, they told us they use it as a way to consult with friends about a potential purchase,” Logan says.
In fact, the research showed that 60 percent of millennials don’t make a decision without seeking advice from others. Retailers “could make it easier to gain ratings/reviews and see that the value equation is in line instead of trying to prevent it,” Fromm says.
Logan cites cosmetic retailer Sephora, which allows customers to scan a barcode for access to reviews and ratings. “It’s a simple tactic that gets people thinking about checking out the review,” he says. “It brings the tacit endorsement from all those voices into the … store.”
And for millennials — and those who follow — that might just be enough to close the sale.