A retailer’s own website is biggest threat to their survival
While the stats vary slightly, most sources estimate that 75 to 80% of consumers start the purchase process on the internet. While roughly 77% of US consumers still purchase products in store, they increasingly use the web to compare prices … even while on their smartphones standing right in the store!
Law of the Retail Jungle: You have to be where consumers want to shop, and complete the sale where they want to buy.
Selling online is a worldwide requirement & challenge
I recently had the opportunity to take IMS Retail University to Malta and Greece. A particularly enlightening facet of the trip was to spend a day with retail management from the top retailers in those countries. Their number one question and topic of conversation (beyond politics) was “What do we do about the internet … how can we compete?”
Malta is a particularly interesting case study in multi-channel retailing. Malta is a very small island country with about 400,000 in population. With a high penetration of the internet, consumers shop online. Therefore, the local retailers must have some kind of online selling presence. Due to history, regulations and logistical reasons, Maltese consumers can typically buy CE products cheaper online from the UK than they can from their local retailer’s store.
Down the slippery slope – Stores selling at their online price
The retailer typically has to be very close to matching best e-tailer prices locally, and even across country boundaries. So in an effort to be competitive with their own web site, the retailer has in effect created its own biggest competitor for its stores.
No one beats Amazon – Not even Mighty Walmart
Stores are expensive to run. Location, people and on-site inventory are expensive. SG&A (operating costs) are expensive, and increasing for bricks and mortar retailers. Our previous posts have documented the rush to build smaller stores that are cheaper to operate … even Walmart.
- Walmart - Has the killer whale become a walrus?
- Downsizing Retail – What is the right size?
- Will retail stores need to shrink to be profitable?
Even with smaller formats, stores will continue to be more expensive to operate than ecommerce online. Amazon wins on breath of assortment (millions of SKUs), lowest prices, low cost or free shipping. They also excel at the critically important metric of inventory turns. According to 2010 annual reports Amazon averaged 11.3 turns versus Walmart’s 8.1 versus Best Buy’s anemic 5.5 inventory turns.
If the store associate matches their online web price for the same product in store on the shelf, how do they make up the difference in margin in order to pay for additional operating costs of running the store?
Five strategies for retail store survival
If you are not making net gross margin on selling products, you can’t make it up on volume. Yet that is what many bricks and mortar retailers are doing by matching web prices to offset declining store sales volumes.
The retailer operating stores must address at least one of the following in order to successfully operate retail stores:
Differentiate or Die! The e-tailers definitely win on a much broader selection. They win on price. If stores are to have a reason to exist, they must differentiate on something else. If you don’t get a better more personal experience in store, why bother going there?
Value Add Services. The on-line web site offers the convenience of purchasing commodities at a best price shipped to your home or business. Stores retain consumer relationships and make money by providing services that are difficult or impossible to offer on the web.
Ability to Sell Profitable Attachments. If stores sell core items at “lost leader” web based prices, they must have the staff, process and tools to sell a profitable “market basket” of other items in order to make money. Stores can be price competitive on the “razor” but must be savvy merchants in assorting and selling the profitable “blades” and accessories.
Ability to say Yes … right over here! The simple fact of the matter is that when the consumer asks for the cheaper web price, most store staff don’t have an answer … so they just acquiesce. Instead of giving a cheaper price on store inventory off the shelf, retailers need to offer consumers the means to buy from virtual inventory via their smartphone or a kiosk and have it shipped to their home just as if they bought it off the web at home.
Sell online … enable store pickup. If sales migrate online, retailers lose critical store traffic. Enabling online purchases with store pickup enables the opportunity to create an experience to continue the relationship, offer value services and sell a profitable basket.
This retail cancer is growing, but very treatable
The cure to this latest retail challenge is simple, but challenging. Retailers must simply say no to selling everything in store at web prices. The stores will wither away unless they create value for us as consumers beyond racking commodities at the lowest price.
IF the retail store simply sells all the shelf stock at web prices, the days of physical retail stores will be over very quickly.
Yes, you have every right to ask for the best web price while shopping in store. Just don’t be surprised if some stores don’t sell you one off their shelf. If they do, your favorite store might not be there next holiday.
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Sources:
- Best Price Image, Stuart Miles; Freedigitalphotos.net
- Online Shopping Photo, Stock.xchng; www.sxc.hu
Very good information. Lucky me I found your website by chance (stumbleupon). I have bookmarked it for later!
Posted by: Georgia | September 19, 2013 at 12:52 AM
Great post.
Posted by: Catherine | September 18, 2013 at 10:53 PM