Showrooming is real, Best Buy is the big loser, and Amazon is eating everyone’s lunch
C’mon, admit it. You do it. You visit Best Buy, Target, WalMart, and the like, and before picking that Blue-ray player off the shelf you fire up your smartphone and surreptitiously compare the price online. If, say, Amazon has it for less, you order it (and if you’re a Prime member you get free shipping) while the retailer whose oxygen you’ve been breathing earns nothing.
It’s every shopper for himself. A recent poll conducted by Harris Interactive illustrates the impact that so-called “showrooming,” or visiting a brick and mortar store to examine a product before purchasing it elsewhere online, is having on physical retailers. It seems you aren’t the only one ruthlessly checking prices and rewarding etailers – primarily Amazon, which has subsisted on razor-thin margins for its entire 17-year-lifespan – for lower prices.
We’ve discussed the challenges facing Best Buy at length here on PandoDaily, so it’s unsurprising to learn that they’re far and away the biggest victim of the phenomenon. According to the study, the average showroomer spends $281.50 online after trying out a product in a Best Buy store. This is more than double the next most affected retailer, WalMart, whose showroomers spend $119.10 online, and Target, whose showroomers spend $79.30. The average across all stores surveyed, buoyed significantly by the Best Buy numbers, was $211.80 per transaction.
So if Best Buy, Target and WalMart are losing, who’s winning? Why, Amazon, of course. Doesn’t it always? It’s clearly the biggest beneficiary with 57 percent of all post-showrooming purchases occurring at the mega-etailer. At less that one tenth the frequency, showroomers buy from eBay and WalMart.com the next most frequently at 5 percent of the time each.
The primary explanation for this trend is price difference. In 2011, a Marketwatch report determined that Amazon’s prices were on average 11 percent lower than its offline competitors. Just this fall, price comparison browser toolbar InvisibleHand determined that 75 percent of the items available at Best Buy were priced cheaper on Amazon, by an average of 17 percent. It’s no wonder then that consumers are flocking online.
The question then becomes, how prevalent is showrooming? Harris reports that 43 percent of US adults surveyed confirmed having showroomed. Of those online purchasers, the most common offline victim was Best Buy at 24 percent of all purchases, followed by Walmart at 22 percent, target at 9 percent, Home depot at 4 percent, and Barnes & Noble at 3 percent.
Men are more likely to report Best Buy as their top showrooming destination, at 30 percent compared to women at 17 percent. The inverse is true for WalMart, at 18 percent for men to 27 percent for women, and at Target, with 7 percent for men to 12 percent for women. Also working against Best Buy is the fact that male showroomers spend significantly more than their female counterparts, $269.80 to $148.70.
Not all showrooming ends up with customers heading off into the arms of a competing online retailer. A small percentage go on to purchase online from the same store where they showroomed. For example, 12 percent of Target showroomers do this, as do 11 percent of WalMart showroomers, and 8 percent of Best Buy showroomers.
Harris attempted to boil all these findings down to a single “Net Takeaway Score” which ranks retailers and etailers based on the number of potential customers who ultimately purchase at brick-and-mortar stores versus those who showroom and then purchase online. By default, Amazon and eBay show positive scores of 57 and 5 respectively, because both lack any brick-and-mortar presence. Best Buy led the loser’s bracket with a score of -21, meaning it loses more shoppers to lower online prices elsewhere than it’s able to recover.
There’s no clear answer as to how Best Buy and others can turn this around. If anything, it’s likely that the showrooming trend will grow in popularity. As long as consumers covet the lowest prices – and Amazon is willing to lose money – while maintaining instant access to pricing information there’s little Best Buy and WalMart can do. It’s likely that these chains will ultimately be forced to reduce their physical footprints and focus on a hybrid online-offline strategy of their own, but any short term differentiation will need to come via service and shopping experience. It’s clear that Amazon is the apex predator, and in true Darwinian fashion, those lower down the food chain will need to evolve or perish.