Retailers' Next Biggest Threat

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Last year, big-box electronics retailer Best Buy seemed like a sinking ship. In August 2012, the company, facing mounting pressure from online retailers such as Amazon, reported an income loss of 91 percent over the previous year. The company brought in only $12 million in the second quarter of 2012, a staggering drop from the $128 million it earned in the same quarter in 2011. The loss represented the company's eighth sales decline in nine quarters. Amazon's electronics and general merchandise sales, as a point of comparison, grew 40 percent, to $8 billion, in the same period.

The company was losing ground to online retailers at an increasing pace. Adding salt to the wound, it was also seeing an alarming degree of showrooming. Customers were reportedly coming into Best Buy stores to look at products they later intended to buy for less online. Last November, in the thick of the astonishing losses it made public in August, the company admitted that some 40 percent of customers were visiting stores with no intention of buying, according to an article published in Forbes this year.

Those numbers are corroborated by a Harris Poll released in December, which found that 43 percent of all U.S. adults participated in the practice of showrooming. In the same study, Harris found that Best Buy ranked as the number-one store where consumers showroomed, with 24 percent of respondents saying they visited Best Buy and then bought products seen there from an online retailer (such as Amazon, which handled 57 percent of showroomers' most frequent buys). These same respondents who were casing products at Best Buy spent an average of $281 online.

In a survey of 6,200 consumers conducted during the 2012 holiday shopping season by Foresee Results, a customer-experience research and analysis firm, more than one third (37 percent) of respondents admitted to checking out competitors' sites. Additionally, 70 percent said they use their mobile device in-store, which suggests that—regardless of their intentions—the potential to showroom is great.

According to Larry Freed, president and chief executive officer at Foresee, brick-and-mortars are losing business to online portals because the in-store experience is not competitive with the online experience. Online, consumers have access to detailed product specifications, broader points of comparison, customer reviews, and often more options, such as colors or accessories.

The Challenge of High Expectations

Over the past several years, consumers have come to take all of that for granted in their shopping experience. It's become an unspoken expectation, and those same expectations are being brought into stores. This is especially true with consumers who are migrating from a retailer's online channel into its practical, real-world store. Which is to say they're expecting to see the same selection and services that they find on the Web in the store. Those expectations, however, are often not met. For example, most major chain stores often sell products online that you just wouldn't find in a store—you see this in every chain from Costco to Target to Walmart. To differing degrees, the retailers make the online-only availability of these products obvious to users on their Web portals. Those that make it less apparent risk having customers come into stores expecting to find the same products they saw online and leaving empty-handed and angry.

"Things like [ordering a product online and picking it up] in-store—consumers expect that," says Branden Jenkins, general manager of retail/e-tail at NetSuite, which produces a Web-based business software suite. "But it's very challenging for retailers to achieve that because the systems are disjointed. They're not integrated; [brick-and-mortar stores] are almost silos."

Many stores built their infrastructure in the pre-Internet world, Jenkins explains. E-commerce and mobile functionalities have since been bolted on to these older systems after the fact because investing in entirely new infrastructures was deemed too burdensome. The implication for not investing in restructuring around new technologies, however, is potentially profound.

Embedding the Web

Some 51 percent of those surveyed by Foresee were identified as cross-channel shoppers, which is to say they started on the Web, app, or social media, and moved into the store or vice versa. These customers are not only building a set of expectations based on one channel experience and carrying it over into another, they're also forming an opinion of the brand that carries from portal to portal, which is to say they're tied to the brand, not the modality.

To work with that reality, retailers need to begin to think about how to embed aspects of their Web business into their brick-and-mortar stores.

Using Target and televisions as an example, Foresee's Freed elaborates. Target, he says, can't compete entirely in-store with an online retailer where selection is concerned. It has neither the space nor the resources to fully outfit every store with every product. It can't, moreover, even compete with devoted electronics retailers, such as Best Buy, on selection. But if Target leveraged mobile technology in-store, it could conceivably bridge the deficit by linking the customer to its warehouses and other stores.

"If Target brought technology into the store, would we need to see every size of the same model of a TV every four inches?" Freed asks. "They all have forty-seven variations. Maybe I look at the TV model I want and then pick the size using [mobile] technology and say, 'Send it to my house tonight.'"

The models they would keep in-store would be the most popular sizes. Anything bigger or smaller could be handled online.

What Freed is describing here is essentially an offline version of online retailing. Or rather, a chain store using its physical space as a showroom to direct customers back to a Web channel where they can complete their purchase. In his vision of retailing, channels begin to blur to the point that they look like one another and eventually become indistinguishable. It's all one seamless brand experience.

Piggybacking on Foresee's findings that most in-store customers who pull out their mobile devices are reaching for the store's Web portal and app, NetSuite's Jenkins argues that stores should be actively courting this behavior. They should be promoting their Web portal in-store.

"If you provide the consumer with an app or a mobile Web site with price comparisons, reviews, and extended product information and options, you're doing it on your terms. You're going to have a better chance of building that brand and loyalty with the consumer. "Showrooming," he adds, "is a tremendous opportunity to engage the consumer...to build loyalty and brand awareness."

Like Freed, Jenkins sees technology as the key to pushing back against Internet-only retailers' encroachment on brick-and-mortar stores. Jenkins, however, also stresses that stores should put that technology in the hands of their sales associates as well as their consumers. In his vision for an ideal brick-and-mortar store, each associate has, either over a mobile device, tablet, or in-store system, access to a customer's purchase history, search history, cart abandonment history, lifetime purchase values, wish lists, etc., so that as the associate talks to customers, he can better direct them to products they have a proven interest in and guide the conversation more organically.

"So if [a customer] bought a Nikon camera," Jenkins suggests, "we can correlate various lenses and other accessories to suggest to [him]."

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