Its no secret that Amazon (AMZN) beats a lot of the brick-and-mortar retailers on price and convenience. This affects big-box stores like Wal-Mart (WMT) and Best Buy (BBY) as much as it ruins small businesses. You might say that this is how markets work. If one can serve customers better, the other goes the way of the horse and buggy.
But the situation with Amazon and retail stores isn't that simple. Retailers are encountering a problem with normal market competition that usually isn't the case when both parties are accessible in the physical realm. The phenomenon of "showrooming" -- checking out a product in real life and buying it later online -- is particularly irksome.
The proliferation of smartphones doesn't help at all. Of course, a simple Google (GOOG) search would be enough to find the best price and quality you are looking for. Adding to the brick-and-mortar retailers' ire are things like Amazon's Price Check app for the iPhone (AAPL), which lets users compare the price in the store with prices for the same item on Amazon (or any dealer that sells through Amazon). e-bay (EBAY) has a similar app called RedLaser , which is also found in the App Store. The online price is usually lower because of the low overhead (no rent to pay on a retail location, cashiers, bills, etc.)
A recent survey by comScore underscores the extent of this headache for realtors. More than a third of shoppers admit to this behavior. Being plugged into the mobile Internet increases the likelihood that shoppers would do this, and 32% of them actually set out to showroom on purpose. You can view the survey here.
Though there are plenty or reasons why one would showroom, price is the main reason. Urban consumers are less likely to have a car to help them carry the product home, which might be one reason that they are more likely to buy online after seeing a product in a store than suburban and rural consumers. When it comes to books, it could be even more convenient. After checking out the book on the shelves at Barnes & Noble (BKS) and deciding to buy it, you can download it over the air onto a Kindle, iPad, or other device, including the Barnes & Noble Nook, without adding any weight to your briefcase. Booksellers aren't the main victims, though.
This chart from comScore shows that the number one category for showrooming is electronics.
Some companies are going to great lengths to counter showrooming. Earlier this year, executives at Target (TGT) even wrote a letter to vendors urging them to offer deals and products that would only be available in the store and even suggested a subscription model for loyal customers.
"What we aren't willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands," the letter to vendors said.
Best Buy is also trying to get vendors to "play ball and stop the so-called showroom-ing aspect that's hurting Best Buy so much at this stage," to use the words of a Credit Suisse analyst in the latest earnings call. Best Buy executive Michael Vitelli points out that special products and pricing might not be necessary.
"We're actually seeing an increase in vendors using unilateral pricing policies, directly related to them trying to get a strong return on the R&D investments they make in bringing out improved product performance and functionality," he said in the conference call. "And we think, with our combination of stores, employees, demonstrations, and our website, there's no better retail position than us to help explain those benefits, show customers what they can get out of their technology, and deliver returns for both our vendors and for us as we bring these products forward."
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