Target vs. Amazon: Hungry Games

The Robin Report - TargetSuppose a picture really isn’t worth a thousand words. What then?

“Showrooming” happens, that’s what. Showrooming is the consumer practice of going to a retail store to examine goods to determine more about appearance and functionality than can be ascertained by looking at product online alone. Once satisfied with the products they’ve seen in store, customers order them online to get a better price or greater selection.

Showrooming is taken very seriously by some trade channels – notably mass and consumer electronics – but there’s every reason to believe the practice will quickly spread to other retail channels, including food. Supermarket retailers in particular need to pay attention to what’s going on. Indeed, showrooming is just one of numerous e-commerce threats to conventional food retailing, all of which seem to be gaining greater traction by the day.

Let’s take a look at what one retailer is doing proactively about showrooming.

Perhaps the most dramatic action came earlier this year when Target delisted Amazon’s Kindle book reader from its stores in a bid to discourage showrooming. The action takes on greater significance with the realization that Target, with its 1,800 retail locations, is among the largest offline vendors of Kindle.

But let’s take a step backwards. Target’s flirtation with Kindle has some strange aspects to it from the beginning. Target started offering Kindle about two years ago. To offer it in the first place was an odd decision given that Amazon is a direct competitor of Target’s on many fronts. Target might just as well have distributed coupons for Walmart in its stores, given the Amazon competitive threat.

In any case, once in the stores, Kindle did prove to be a strong traffic draw for Target. So the wisdom of delisting Kindle isn’t immediately obvious. Possibly the delisting was in a fit of pique sparked by Amazon’s short-term offer during the last year-end holiday season of a 5% discount, up to $5, to shoppers who scanned UPC codes in a store, then used its app to research Amazon’s price and order those goods for less.

This is worth underscoring: customers can use Amazon’s app to submit orders to Amazon as they stand in a rival retailer’s premises.

The theory that Target sought to punish Amazon for encouraging showrooming is bolstered by the fact that Target continues to offer Barnes & Noble’s Nook reader and some Apple products. Kindle continues to be widely available offline at other retailing venues such as Walmart, Best Buy and Staples.

Consumers’ potential to use mobile apps in retail stores to price-check and order product has to be the very worst scenario possible for retailers. After all, conventional retailers traditionally had the psychological advantage of more or less compelling consumers to execute a purchase from them just because they were standing in front of product they wanted, and there was no handy way for them to know whether it was well priced or not. That advantage is rapidly vanishing.

Food retailers should make note of the fact that Amazon is a purveyor of a wide range of grocery consumables, so the knock on food retailing’s door is sounding a bit louder.

See our related article Target Builds Sales Volume with Food >>

Perhaps even more ominous is the fact that grocery-delivery retailers such as Fresh Direct and Peapod already offer mobile apps that permit in-store price checking and ordering. Effectively, most products in a supermarket can be ordered online by consumers as they stand in front of them a supermarket.

It isn’t difficult to envision the time when shoppers will go to a supermarket on a weekly shopping trip during which they immediately purchase perishable products and other goods needed for immediate use. But while in the supermarket, consumers could also scour the store to find goods needed for less immediate use – perhaps paper goods, cleaning supplies, laundry and the like – then scan and order them from an e-commerce online retailer while in the store. From a consumer’s perspective, the advantage is more than saving a few dollars. It could also be seen as a convenient way to do some pantry loading without the necessity of hoisting and transporting bulky and unwieldy items. And with free shipping, it’s a slam dunk.

Let’s take it one step further. Consumers could opt to compile shopping lists at home and submit them to price-checking web sites or apps such as Google Shopper and ShopSavvy to see which retailers price them most favorably. This is likely to influence their shopping-destination decisions and threaten customer loyalty.

What can supermarkets do to prevent this phenomenon from sweeping away their business?

Luckily, there’s still time to find a solution. Many mobile users find price- checking and ordering apps clunky to use, while others simply don’t find comparison-shopping of any type worth the effort. Other large groups of consumers don’t have mobiles that are sophisticated enough to support apps or don’t know about them. Finally, many consumers are simply not sufficiently adept to effectively use such technology. Food retailers stand to benefit most from these factors for the short-term simply because it’s the most democratic of all trade channels – everyone buys food.

The longer-term solution is for retailers to block showrooming and the like by accelerating their march toward proprietary products – consumers can’t order such products from a rival online retailer.

This product shift can be accomplished in by retailers two ways. One is by leveraging manufacturers to develop product exclusively for their stores. This is done by way of Target’s “signature national brands.” Walgreens makes use of branded goods with price markings unique to itself.A host of other retailers do much the same. The other and easier solution is for retailers to continue the development of private label products, preferably in several tiers so up-market and value-priced goods can be in the mix.

And, of course, retailers can enter the app game to ensure that shoppers interested in their special products or private label offers – or any product, for that matter – can be obtained online and from themselves if consumers prefer.

The best solution of all is to make the store a destination shop, pulling the whole issue of price and e-commerce off the table. Food retailers accomplishing just that include Wegmans, H-E-B, Publix, Whole Foods and Trader Joe’s. Food retailers and others who fail to face up to the showrooming competitive threat are doomed to see the effectiveness of their marketing diminish, and will find themselves engaged in a ruinous price-race to the bottom.

David Merrefield About David Merrefield

David Merrefield is principal of DRM Initiatives, Inc., a retailer consulting group. He is the former Vice President and Editor of trade publication Supermarket News. He is based in New York City.