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Mike Root

Target Sends Letter to Vendors Over Comparison Shopping

January 25, 2012

Showrooming is the latest Internet term to describe consumers coming into a retail store, seeing the product in person and then going online to purchase it from a competitor generally at a lower price (and in many cases without sales tax). This is a real problem for many retailers who maintain the cost of brick and mortar stores only to act as a showroom for Internet retailers who do not have that cost.

Monday's Wall Street Journal reported that Giant retailer Target has sent an "urgent" letter to their suppliers asking for help in this growing problem. The article mentions companies like Best Buy and Barnes & Noble as obvious stores who are being hurt by companies like Amazon and other online retailers.

Also affected is the independent furniture retailer who doesn't have the clout of Target, but definitely has the exposure to Internet sales. Pre-Internet sales, factories had a distribution model that many times would give a retailer an exclusive in their trading area. But with the Internet, the pricing from outside markets makes this comparison shopping much easier for the end consumer, and could potentially drive down prices, margins and ultimately storefronts.

The article indicates that the showrooming trend is likely to continue because online retailers have a much lower cost structure and many times do not collect sales taxes. Additionally consumer preferences are heading online. Look no further than the failure of the Borders chain last year at the hands of the kindle and other online book resources to see where retail could potentially be heading.

Target is asking its vendors to work on solutions to help Target remain price competitive with things like private label products. Most independent furniture retailers do not have that clout to have their own labels.

The solution for the furniture industry is complex, but needs to be discussed just as Target is discussing with their vendors. Consumers are going to the Internet and shopping. That horse is out of the barn. The question is will the independent furniture retailer eventually follow the booksellers into oblivion to likes of the IPad.

The big difference furniture has over other industries is the fact that it is a very fashion oriented product that most consumers want to see and touch. Logistically, delivery, personal design service, and professional floor sales reps can also mitigate the migration to the web for purchases. Furniture shopping can also be an enjoyable experience if done properly.

This discussion will play itself out in many different retail industries as independent retailers fight for survival to the ease and simplicity of online shopping. It will be interesting to watch the solutions that Target and other big box retailers develop with their vendor structures. Beefing up an online presence and offering a local pickup or delivery option could be one point of differentiation for local merchants. Providing a MAP price (minimum advertised price) is another.

Let me know your thoughts below.

Good selling,
Mike