Retailers' Next Biggest Threat

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The Value of Customer Experience

This all, of course, goes to customer experience. Every analyst and firm that CRM magazine spoke with for this article stressed improvement of customer service and experience as essential to the survival of practical retail locations. One of the chief value propositions that an in-store experience brings to a customer is engagement with a sales associate. If the associate is knowledgeable and friendly, her role can be more than that of just a merchant; it can be advisory as well. Oftentimes big purchases, particularly with electronics, can be confusing in an online landscape. If a product has mixed reviews with most sitting at both the high and low ends, it becomes tedious if not difficult to wade through comments and discern which are worth trusting. That process is even more complicated in forums where discussion becomes contentious and larded with tech jargon. The knowledgeable sales associate is well positioned to cut through that noise and offer an authoritative and singular opinion.

"One of the reasons people still like to visit a store is to get advice," says Peter Ballard, a founding partner of Foolproof, a British experience design firm. "Commodity retailers are struggling more than niche retailers [because of this]. If you're selling books or music or video games, it's easier to get that online. And why wouldn't you?"

Price Isn't Everything

Ballard says that a memorable in-store experience can outweigh even price. Last year, during the holiday shopping season, Foolproof interviewed 1,000 U.K. shoppers about their buying habits and smartphone use. The study found that consumers were more likely to buy from a store they were physically in (even if an item cost more) if the price differential was within a few percentage points of a better deal somewhere else.

"If it's close, people don't necessarily choose the cheapest," he explains. "Other factors begin to weigh in. How's the experience they're having, the emotional connection they've made to the brand? That becomes a factor in itself."

John Fleming, chief scientist for Gallup, goes one step further. He says flatly that physical stores cannot compete on price.

"Competing on price is the last bastion of really bad companies. They have nothing else to fight on."

In 2011, Gallup conducted a study that examined, among many things, showrooming. Drawing from a nationally representative sample of 10,000 U.S. customers, the study asked customers if they had shopped for any electronics priced above $50 in a store in the last 30 days. If they had, they were asked a series of questions about their last purchase. In that questioning, Gallup found that more than 90 percent of all consumer electronics customers in the U.S. feel that no one consumer electronics retailer is the best.

Interpreting this data in a June blog post titled "The Myth of the Peril of Showrooming," Fleming suggests that this is because most customers don't have an emotional connection with electronics retailers. One might infer that in the absence of that connection, customers are more inclined to shop for price, which puts physical stores at a competitive disadvantage to online retailers, with regard to both overhead and selection.

The 2011 study found that "fully engaged" consumers—which is to say those with the strongest emotional and rational connection to a particular retailer—spent nearly 30 percent more on average, $373 as opposed to $289 for the actively disengaged customers. Actively disengaged customers were also nearly twice as likely to leave a store without making a purchase as their engaged counterparts (19 percent versus 10 percent).

For customers who made no purchase in-store, the study found that 42 percent had intended to purchase or had already purchased the item at another retailer.

Delivering on a Brand Promise

Where Gallup differs dramatically from other studies is in its subsequent finding that less than one percent of the consumers surveyed said they had intended to buy the item online.

"The problem for these retailers is not showrooming," Fleming writes in his blog post, "but failing to deliver a compelling and different brand promise."

He writes further, "We have found no evidence in multiple Gallup studies on the topic that the phenomenon [of showrooming] even exists in the U.S."

Fleming suggests that when physical retail stores lose business to the Internet, it's not because customers have come into a store, showroomed, and gone on to buy on the Web (at least not to a statistically significant degree). Rather, those customers never come into the store at all. Once someone crosses the threshold of a store's front door, they're likely to buy in that store. Digging into Gallup's numbers, even the disengaged only leave stores empty-handed 19 percent of the time, which suggests they buy something the other 81 percent of the time, 90 percent if they're engaged.

"We're a lone voice in the wilderness. Particularly me," admits Fleming, perhaps with no shortage of pride.

He argues that Gallup's focus on the last electronics purchase gives a better sense of showrooming's prevalence. "Everyone can say, I've done it at some point, and that begins to look large. But if you're looking at a growing threat, you have to look at if it's happening on a consistent basis."

Make of those claims and their conflicts with many other findings—such as Foolproof's or Foresee's—what you will. As surveys, they're subject to the limitations of the art, such as reporting biases, skewed samples, etc., just as all the other polls on showrooming are. That said, there is a consensus among all parties that practical stores face real, existential challenges from Web-based stores—which brings us to a coda to Best Buy's story.

Fighting Back

In February of this year, the company announced that it would "end showrooming" by beginning to price-match lower prices from all local competitors and 19 "major" online competitors, such as Amazon, Newegg, TigerDirect, and B&H Photo and Video. Taking advantage of the showroomers who come in through its doors, Best Buy turned its woes around and also rolled out partnerships with Microsoft and Samsung, which will see the two electronics makers leasing space in Best Buy to house mini-stores staffed by their own teams and selling their own electronics products. (Best Buy already had a similar deal with Apple.) The deals have been an important vote of confidence in the chain store's recent shifts in strategy.

Though the most recent domestic and international revenue numbers are still in decline (9.6 percent for both over the same quarter last year, respectively) and gross profits fell (23.4 percent versus 25.3), the company's stock has been growing like gangbusters. From January to July, the company's share value rose nearly 30 percent. In fact, as of press time, it's one of the best-performing S&P 500 stocks for 2013—suggesting that the markets have faith that the brick-and-mortar retailer will be able to build on its existing infrastructure.

Also interesting to note is that while as recently as November 2012, Jeff Bezos, Amazon's CEO, commented on Charlie Rose that his company was looking into the possibility of opening physical retail stores, Google is going forward with plans to open two physical stores, one in Los Angeles and one in San Francisco.

These are just the beginning sketches of bigger plans, but it stands to reason that if brick-and-mortar stores will have to look more like online retailers to survive and capture increasingly cross-channel- based sales, online retailers will have to counter with physical presences. Eventually, the distinctions between physical and Web stores may become so blurred that one will wonder how the two were ever thought of as separate.

Eric Barkin is an award-winning filmmaker and writer. He is currently at work on his first feature film, The Only Genuine Wild West Show.

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