At the root of the problem is the price advantage online retailers enjoy. For one thing, in American states where e-commerce businesses lack a physical presence in the form of warehouses and the like, they do not need to collect sales tax. That advantage however, may be narrowing as states such as California pass laws that require all online retailers to collect sales tax from residents in their state. “That will be a help to some bricks and mortar retailers,” says Bell. “The price advantage of Internet retailers will be eliminated in some places.”
What those new laws can’t change, however, is the fact that online retailers do not have the costly infrastructure that comes with operating hundreds of physical stores along with employing an army of salespeople. According to a KeyBanc Capital Markets study, even in states where Amazon charges sales tax, including New York, the site’s prices on consumer electronics were 11% below those of Walmart’s retail stores and 8% below those of Best Buy. And at least some of that price advantage is a reflection of Amazon’s aggressive strategy for expansion. “Amazon is still engaging in a ‘get big quick’ strategy, which has been going on for 18 years,” notes Wharton marketing professor Stephen Hoch. “They are willing to sell things at low prices where they aren’t even making money. They are still willing to forgo profit in return for greater market share and the hope of making profits later.”
Of course, showrooming isn’t the only force to blame for the pressure facing big box retailers. Hoch points out that as online retailers have been gaining ground, the digital distribution of music and movies has also been eating into the sales of physical stores for chains like Best Buy. “The CD and DVD categories have completely contracted,” notes Hoch. “Those categories used to be a beacon for people to come into the store. Now retailers like Best Buy have all this unproductive space, and they need to figure out what to do with it.”
Among the most ineffective – and potentially damaging – responses would be to block customers from doing online comparison shopping while in physical stores. “The ability to bring outside information into your store will only increase,” says Adner. “You can’t really lock the consumer in, and companies that try to do that will fail.”
Alison Jatlow Levy, a retail consultant at New York City-based management consulting firm Kurt Salmon, agrees. “The last thing you can ever do is upset a customer. Anything that alienates the customer will do so much damage.”
The key to confronting the showrooming challenge is to find ways to exploit the advantage bricks and mortar players have in their physical connection with shoppers.
Some retailers are upping the level of service they provide to customers to not only build loyalty, but also to spur shoppers to come into their stores more frequently. Best Buy is now overhauling some of its locations, for example, to make them more service-oriented, including a Solution Central help desk along the lines of Apple’s Genius Bar. “You have to have a better understanding of the customer in the store, have a relationship with them or [provide] services that come with the product,” says Bell. “You have to really think about how to leverage the real estate and the experience. It will force retailers to become better.”
Retail chains are also moving to more closely link bricks and mortar stores with their online operations. The goal is to let consumers buy products using their preferred method, while at the same time taking advantage of the immediacy of a retail store. Walmart, Macy’s, Best Buy and the Container Store are among the chains that are expanding the use of in-store pick-up or returns of online orders, and even experimenting with drive-through services for online purchases at their physical locations.
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