The Battle Against "Showrooming" Continues
Last January I wrote a blog about Showrooming and Product Customization that discussed how Target is tired of being used as a showroom for online marketers like Amazon.com. In a letter sent to its suppliers, Target asked them to create customized products (i.e., products different enough from those that shoppers could find on-line) so that customers couldn't compare in-store products with those found on the World-Wide Web. The latest move in Target's battle against showrooming was the announcement that it would no longer sell Amazon's Kindle. ["Target, Unhappy With Being an Amazon Showroom, Will Stop Selling Kindles," by Stephanie Clifford and Julie Bosman, New York Times, 2 May 2012] Clifford and Bosman report:
"Target, with almost 1,800 stores, is one of the bigger carriers of Kindles in the offline world, though most of the devices are sold at Amazon's Web site. Like other big retailers, Target has been trying to figure out how to stop Amazon shoppers from visiting Target stores to check out products, and then buy them online from Amazon. It is a practice encouraged by Amazon; over the Christmas holiday, for example, the company offered a promotion on its Price Check app that gave shoppers 5 percent off any item scanned at a store. Now that retailers like Target are aware of this so-called showrooming, carrying Amazon's Kindle is a little 'like Starbucks selling Dunkin' Donuts gift certificates,' said Michael Norris, a senior analyst for Simba Information. ... Target dropping the Kindle, of course, won’t stop Amazon shoppers from checking out other products at Target, but analysts said it would send a message to Amazon about Target’s alliances. Target, for example, will continue to carry Apple's iPad ... and it is testing expanded displays of Apple products. Target will also sell other e-readers and accessories, from Barnes & Noble’s Nook to rather obscure ones like the Aluratek Libre."
Norris admits that Target's decision is "probably just a mild annoyance for Amazon unless other retailers follow suit." I'm sure Target executives believe that other retailers should follow their lead because they are all in the same leaking boat. Back in November 2011, in the run up to Christmas, Jonathan Birchall reported, "US shoppers equipped with smartphones have significantly increased the volume of both searches and sales made from mobile devices so far this holiday season, underlining the technology’s growing retail power." ["Retailers see rise in smartphone shopping," Financial Times, 29 November 2011] It is the comparison searches that are infuriating brick-and-mortar store retailers. Birchall continues:
"Laura Conrad, president of Pricegrabber, a comparison shopping site owned by Experian, said it had seen a 'significant spike ... in the number of people using their mobile phones both for purchases and for research. 'There is more research than buying because people are not completely comfortable making purchases [via this medium] and a lot of retailers still do not have good applications for the mobile phone yet,' she said. The Find, a search engine that also allows shoppers to compare prices, said roughly a quarter of the searches over the post-Thanksgiving weekend came from mobile devices, up from about 15 per cent a year ago. It said the total number of mobile searches was more than four and a half times greater than the volume seen a year ago."
Macy's appears to be fighting showrooming by beefing up its own on-line presence. Back in January 2011, the company announced that it was significantly increasing the number of employees it was dedicating to on-line shopping. ["Macy's Expects to Add 725 New Positions to Expand Websites," by Lauren Pollock, Wall Street Journal, 4 January 2011] Pollock reported:
"Consumers increasingly have been moving their shopping online, and Macy's, for its part, has seen its online sales grow in the double digits on a percentage basis over the past few years. For the first 10 months of fiscal 2010, online sales were up 29%. Macy's, which has about 161,000 employees, expects to add the positions in New York and San Francisco to expand macys.com and bloomingdales.com."
Macy's latest strategic twist "is building a network of online-sales distribution centers around the country—in the backrooms of its stores." ["Macy's Regroups in Warehouse Wars," by Dana Mattioli, Wall Street Journal, 14 May 2012] Mattioli reports:
"The department-store chain is responding to a distribution war going on in the retail business. Increasingly that war is being won by online-only seller Amazon.com Inc., which has built a highly efficient group of warehouses within miles of most major population centers. Amazon's success was not lost on Macy's top managers. Last summer they decided that they would shift how they got merchandise to customers. Instead of sending goods only from online warehouses, the company would begin fulfilling goods directly from impromptu shipping centers at its locations. 'We've spent the last 153 years building warehouses,' said chief stores officer Peter Sachse in an interview. 'We just called them stores.' The retailer plans to convert 292 of its 800-plus stores for the task, with expanded storerooms and new technology that dynamically updates the status of every item in every store. The goal is to better manage inventory."
Although this is a clever move, Macy's will still have to compete with on-line retailers on price. Christian Koestler writes, "The reality is that three groups – retailers, competitors and customers – need a clear picture of the competitive pricing landscape and comprise a triangle of pricing transparency. With comparisons on products and services now available round the clock, seasoned online shoppers have clear visibility to volumes of pricing data." ["A Look At Competitive Price Intelligence," Multichannel Merchant, 23 August 2011] Koestler continues:
"Competitors may have this same information. An online retailer who lacks this visibility is, in effect, working blind from its point of the triangle. And it’s not only transparency of price that affects retailers. Product availability, shipping charges, consumer rankings and reviews and taxes are similarly available, and similarly evaluated by consumers before making a purchase decision. Retailers must have the right intelligence to stay a step ahead, proactively participating in this transparent marketplace to compete for business and win customers."
I believe that is exactly what Macy's is trying to do. Mattioli explains:
"For instance, if stores have too much of an item, the excess can be shifted to the website, where it might be selling better and at full price. Likewise, out-of-stock items won't disappear from Macy's website if they can be found in a physical store. Online orders will be filled by stores closest to consumers, saving time and money on shipping."
Mattioli explains that "before it started shipping from stores, Macys.com removed thousands of sold-out items from its website each week." What that resulted in was needlessly lost sales because some of those items were available in brick-and-mortar stores. Mattioli continues:
"When the chain carried a limited-time line from Chanel creative director Karl Lagerfeld last year, half the online inventory sold out in the first day, yet Macy's stores had to discount the collection to get it sold, he said. If Macy's had been able at the time to meet online demand with Lagerfeld items shipped from its stores, he said, sales would have been much better."
Although Macy's new strategy makes sense, Mattioli notes that it "is a big gamble." She explains:
"Filling orders by hand is relatively inefficient, especially compared with Amazon's high-tech distribution centers, where robots scurry to help pick and pack products. Both opportunity and cost were on display at Macy's high-end Garden State Plaza location in Paramus, New Jersey. In the store's back recesses, Macy's converted an area where it once took telephone orders into a dimly-lit, makeshift packing area. There employees packed handbags, kitchen appliances and shoes into cardboard Macy's boxes. By noon or so, employees filled some 400 boxes, which were then put into plastic bags awaiting afternoon pickup. By 2:30 p.m. 100 more orders had come to the store, totaling $5,091 in sales. Danya El Zein, director of store fulfillment, scoured the sales floor for a white Michael Kors purse for a customer in Bowie, Md., and a Fossil wallet for a customer in California."
If the price of RFID can be significantly reduced so that it is cost effective to tag individual items, employees won't have "scour the sales floor" to locate required items. They should be able to find them quickly and efficiently. Mattioli notes, "While a robot can be programmed to find a specific item in the right size and color by reading a bar code, retail jargon can often trip up a human doing the same job by hand. It took Ms. El Zein several tries to find a LeSportsac travel tote in the color 'Journey,' a diagonal zig-zag print." Technology can surely address this challenge. Mattioli reports that Macy's strategy seems to be working. She writes:
"Macy's has been one of retail's strongest performers. In its most recent quarter, its profit jumped 38%, and its online sales grew 34%. In 2011, Macy's online sales accounted for 6.8% of total revenue. Macy's move reflects a broader strategic shift that U.S. retailers are making to compete with online rivals. The new buzzword is 'omnichannel,' where Internet operations are deeply integrated with physical stores. Such talk has been around since the late 1990s, but now much of the back-end technology is finally in place to help retailers manage inventories."
Mattioli reports that the Nordstrom chain "was one of the first to fill online orders with goods shipped from its stores. It started in 2009 and now ships from all 117 of its full-line stores. Last holiday season, Toys R Us kicked off its own program in all 800 of its Toys R Us and Babies R Us stores." To learn more about what Nordstrom is doing, read my post entitled Supply Chain Helps Nordstrom's Bottom Line. Even though we may see this strategy adopted by more retailers, Mattioli claims "there is an inherent tension in running stores as warehouses." She explains:
"Finding the items takes more time and labor. And it is more complicated arranging shipping from, say, seven separate stores than from one online warehouse. 'They're doing it at a fairly expensive cost on the back-end side,' said Craig Johnson, president of retail consultancy Customer Growth Partners. 'It sounds great initially, but it is fairly complex,' Mr. Johnson said. Greg Ahearn, Toys R Us's chief marketing officer, said its store-to-warehouses rollout required investments in its website, supply-chain systems, technology and employees. ... One thorny issue: Who gets credit for the sale, the online channel or the store that ships it? Toys R Us counts the orders as online revenue. Macy's says it is still sorting that out."
The fact that retailers are still arguing over who gets credit for a sale indicates that corporate alignment still has a ways to go. The fact of the matter is that a sale is a sale and the company as a whole benefits when a sale is made. By aligning omnichannel operations, everyone should get credit when revenue goes up. Successful retailers must understand and embrace a digital path to purchase strategy.