C&B Notes

Showdown Over ‘Showrooming’

The rise of price transparency in retail is occurring too fast for some traditional retailers to adequately prepare and react.  Target is using its size and clout to make an interesting appeal to vendors in its supply chain.  Programs like “exclusive” products/SKUs are good ideas, but they won’t be able to resist the coming tide.

In one of the starkest signs yet that chain stores fear a new twist in shopping, Target is asking suppliers for help in thwarting “showrooming”—that is, when shoppers come into a store to see a product in person, only to buy it from a rival online, frequently at a lower price.

Last week, in an urgent letter to vendors, the Minneapolis-based chain suggested that suppliers create special products that would set it apart from competitors and shield it from the price comparisons that have become so easy for shoppers to perform on their computers and smartphones.  Where special products aren’t possible, Target asked the suppliers to help it match rivals’ prices.  It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise.

“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,” according to the letter, which was signed by Target Chief Executive Gregg Steinhafel and Kathee Tesija, Target’s executive vice president of merchandising.

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Some analysts said Target’s new tactics are unlikely to reverse the showrooming trend, because they fail to address the root problems traditional retailers face.  Online-only retailers have significantly lower labor costs and, at least, for the time being don’t collect sales tax in most states.

More important, the growing competition from Amazon is based on a different business model entirely: Amazon can sell products so cheaply because it uses its other profitable units—such as cloud data storage and fees it charges others to sell on its website — to subsidize the rest of its business.

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