Why Some Retailers Are Thriving in the ‘Showrooming Era’

by James Brumley | September 11, 2012 9:15 am

Why Some Retailers Are Thriving in the ‘Showrooming Era’

If you’ve got a smartphone, then odds are you’ve already done a horrible deed once in your life, perhaps without even realizing it. And if you have, you’ve also — allegedly — participated in the demise of at least one of your local retailers.

The sinister activity is called “showrooming”[1]: the act of examining a piece of merchandise in a store, then using a smartphone to find and buy that item online at a lower price through a site like Amazon (NASDAQ:AMZN[2]).

Electronics retailers like Best Buy (NYSE:BBY[3]) have bemoaned the trend ever since web-enabled smartphones started taking a bite out of business. And make no mistake — consumers are showrooming, and electronics retailers are consumers’ primary targets. A recent comScore survey verified that six out of 10 shoppers who performed a showrooming search at an electronics store ended up buying that item online instead.

It wasn’t just electronics that were, and are, falling victim to savvy consumerism, though. Apparel, books, toys and even appliances are all being showroomed, and your local stores and shops are noticing it on their top and bottom lines.

But while the practice is widespread, it’s not yet universal. A couple areas are slipping through the cracks.

The Exception to the New Norm

Have you happened to notice shares of Dicks Sporting Goods (NYSE:DKS[4]), Foot Locker (NYSE:FL[5]), and Cabelas (NYSE:CAB[6]) are all beating the daylights out of the market this year? To be fair, they’re all a little overbought right now and due for at least a modest cooling. But there’s little doubt the market prefers those names over most of their competitors.

More important, have you noticed these three underlying companies are doing strangely well despite the advent of showrooming?

Dick’s Sporting Goods has posted four straight quarters’ worth of high year-over-year sales growth, and has generated high YOY profit growth in three of the past four quarters. Cabelas is 4-for-4 on the quarterly revenue as well as the income growth front. The same goes for Foot Locker. And it’s not like any of those retailers sells anything that can’t easily be found online.

Could it be that a brick-and-mortar store might be able to thrive in the new digital era?

In simplest terms, yes, it’s entirely possible. The difference is all in how a retailer handles the smartphone-armed, showrooming customer. Whereas Best Buy is just missing the mark completely, Dick’s Sporting Goods is hitting the nail on the head.

Right and Wrong

What works and what doesn’t to prevent the loss of a sale due to showrooming ultimately depends on respect for the customer, or contempt for the customer.

Best Buy has verified the contempt route doesn’t work. Even before the rise of using smartphones to comparison shop, Best Buy had developed a reputation for poor in-store service, aggressively pushed (and meaningless) warranties and excessive prices. The onset of web-enabled smartphones simply pushed the already-teetering company over the edge.

In its defense, Best Buy does seem to have at least somewhat wised up. Under the direction of interim CEO Mike Mikan, a new effort to retrain floor associates on customer service etiquette is under way.

Old habits die hard, though, as the company also is taking measures to prevent showrooming in its stores by replacing manufacturers’ bar codes (that are scanned by smartphones to call up more information about that product) with a bar code that only directs the showrooming shopper to a Best Buy site. And, though it’s only been rumored as a possibility, the idea of using invisible lasers inside the store to prevent the successful scanning of a bar code or quick-response code has been mentioned as a possible tactic to thwart showrooming.

It might prove to be effective, but many consumers — even those who don’t do in-store comparison shopping — are already voicing outrage over the insulting idea.

Dicks Sporting Goods, on the other hand, is treating the showrooming movement as an ally rather than an enemy.

For starters, Dick’s created its own interactive iPad app before the beginning of youth football season this year, essentially serving as an aggregated checklist for the needed equipment. Better still, the app itself was feature-rich, including links to online videos about each piece of equipment in question. Simply put, the app wasn’t just a checklist, but it was a complete experience in which a buyer could become immersed … a shopping experience so rich that the consumer didn’t even want to bother looking for a better price.

The approach worked. Dick’s reports that the average purchase was 20% bigger when made using the app via a tablet compared to the average purchase size through the retailer’s Web site. And the transaction size was 53% higher on a tablet versus orders placed through smartphone.

It’s not just a Dick’s phenomenon, though. Runner’s World found that runners would prefer to buy shoes in a store[7] rather than purchase them online, even when the same pair of shoes was available online at a lower price. The most cited reason? The experience of trying on the shoe and getting the proper assistance from a knowledgeable sales associate.

There’s no denying that if there was ever an arena that could overcome showrooming, it would be shoes — shoes have to fit; it can’t be chanced. One can’t help but wonder, however, if that in-store experience and qualified advice from store personnel is what’s keeping stores like Cabelas, Dick’s and Foot Locker out in front of the digital trend rather than regretting it. If there ever was an opportunity to revalidate the value of real customer service (and beat the advent of showrooming, even if by embracing it), it would be in specialty stores like those.

In the meantime, retailers who continue to pretend they can thwart showrooming without stepping up their service games will continue to struggle.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Endnotes:
  1. The sinister activity is called “showrooming”: http://investorplace.com/2012/05/why-best-buy-should-follow-targets-kindle-kibosh/
  2. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  3. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  4. DKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DKS
  5. FL: http://studio-5.financialcontent.com/investplace/quote?Symbol=FL
  6. CAB: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAB
  7. prefer to buy shoes in a store: http://news.runnersworld.com/2012/07/11/shoe-shoppers-prefer-stores-over-online/

Source URL: http://investorplace.com/2012/09/why-some-retailers-are-thriving-in-the-showrooming-era-dks-fl-cab/
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