In an age where smart phones are increasingly prevalent and online shopping continues to grow, decorative plumbing and hardware professionals must be aware of the very real threat of “showrooming.”
Showrooming is the practice of customers coming to a brick and mortar store, checking out the merchandise and then finding identical or similar products at a lower price on the Internet. The most prominent victims of showrooming have been big-box stores such as Best Buy, Target, JCPenney and Kmart. These retailers serve as “showrooms” for Amazon and other etailers. Best Buy and Target are starting to fight back by offering to match any price found on the Internet, but they remain at a disadvantage until the entire nation requires etailers to pay state sales taxes.
According to an article in The Wall Street Journal, Target is working with its suppliers to create unique products that would only be available in Target stores. However, these efforts are unlikely to curb Amazon’s and others’ ability to offer products cheaper than brick and mortar retailers. The cost structures and business models are different. As The Wall Street Journal points out, “Amazon can sell products so cheaply because it uses its other profitable units – such as data storage and fees it charges others to sell off of its Web site – to subsidize the rest of its business.”
Sucharita Mulpuru, a retail analyst for Forrester Research, wrote in an HBR blog, “Wal-Mart and Target are willing to sell a few things at a loss. Amazon’s whole business is a loss leader.” That’s the reason Amazon is winning the in-store war.
A THREAT TO DPH PROS?
So, how much of a threat is showrooming to decorative plumbing and hardware? According to a July 2013 study, Dynamic Pricing in a Smartphone World, A Shopper Showrooming Study, the threat is ominous and growing. Parago’s Dynamic Pricing in a Smartphone World found that showrooming is up 400% in the last year. That figure should send shock waves through our entire industry.
A Pew Internet Study conducted in May 2013 found that 56% of all adults 18+ have smartphones and 33% of smartphone owners are using them to price-check while in a brick and mortar store. Parago’s study found that 59% of households with incomes in excess of $200,000 – the DPH industry’s sweet spot – make purchases from their phones while in a brick and mortar store every week. And price really does matter the most unless the retailer can establish trust and explain its value proposition. Half of all shoppers, Parago found, will buy a similar $500+ item at Amazon if it costs 5% less – even if the product is not an exact match of what they are looking at.
Research by L2: A Think Tank for Digital Innovation confirms Parago’s findings. L2 found that 58% of smartphone users will go to a brick and mortar store with the sole intention of trying or testing products before purchasing them online. L2 estimates that almost 50% of online sales are the result of showrooming.
How can you fight showrooming? Some retailers are stepping up their game by offering improved in-store experiences that demonstrate the value of buying from a brick and mortar store and the premium associated with it. Showrooms will need to capitalize on the advantages created by having the opportunity to meet face to face with potential customers.
If your staff is only capable of taking orders, you’re in trouble. If they know and can sell the value proposition that you offer, then you have more than a fighting chance to win customers over.
Trust is another arrow in the brick and mortar quiver. While many retailers, due to their poor customer service, have lost the consumer’s vote of confidence, that’s not the case with specialty retailers. Most customers come to showrooms not focused on buying products per se, but rather on obtaining guidance and expertise to complete their jobs. They don’t necessarily know what they need or what they want or they may just have enough information to be dangerous. Trust can be won by leveraging your experience, knowledge and sales capabilities that prove your value proposition.
But will this be enough? Dynamic Pricing in a Smartphone World also found that 88% of shoppers will purchase online if an in-store product is priced $500 and it costs $425 online – a savings of 15% or $75. Parago reports there is a “silver lining” for brick and mortar stores: More than 60% of customers will buy from a brick and mortar store across all income levels and retail categories if online pricing is matched with in-store rebates.
Yes, there probably aren’t too many DPH brick and mortar showroom owners who would view price matching as a “silver lining,” even with in-store rebates as opposed to simply lowering the price to match what is available online. If brick and mortar DPH showrooms have to compete solely on price, they more often than not are going to lose.
If you can’t win the pricing game, another obvious strategy is to offer exclusive, limited distribution merchandise. While that sounds like a winning proposition, only a small percentage of DPH products are truly exclusive or unique. And there are many products that are similar to those exclusive products, which erodes their competitive advantage.
If you don’t want to compete on price matching, then your best bet might be to partner with manufacturers whose products are protected by a rigorously enforced Minimum Advertised Price (MAP) policy or an enforced minimum sell price policy. If you want to truly maximize your profit margins, and increase the odds of closing sales, then emphasizing lines that decrease your chance of being undercut online should be a central part of your battle against showrooming.
This is not to suggest that in-demand, big brands should not be part of the merchandising mix, but the focus needs to be balanced.
Are you devoting the lion’s share of your space to low-margin, highly shopped brands that are featured at the big national chains and sold at deep discounts on the Internet? Or is your focus on selectively distributed lines with enforced Internet policies that significantly increase the chances of providing you with both higher closing rates and larger profit margins?
Think of your showroom as the board game Monopoly. Different board spaces have different values. The spaces in the front of the showroom are often the areas of higher visibility and therefore have greater traffic flow. Knowing the value of space in your showroom and lines that offer higher margins should help you rethink your showroom displays.
Brands that offer limited distribution and protection from Internet discounters are assuredly going to bring you greater margins than those that come with downward pressure either from the mass merchants or the Internet. Beyond increasing margins, they will also help you increase the odds of closing more sales. Use this knowledge to allocate space and position your displays. If you don’t, your options are often either to lower margins or hold fast to your pricing requirements and risk losing sales on easily shopped products and brands.
Getting your interests aligned is key to maintaining margins and the overall health of your business. Emphasizing brands that reduce your closing rate or lower your margins can be devastating to your bottom line. Everyone in the showroom needs to understand which lines generate the greatest margins, in addition to being focused on making sales.
Gravitating to higher-margin products rather than low-margin order taking requires training or retraining your sales team. The objective is to help educate those who come into the showroom and help them make good selections rather than just take an order for products that they were “told” to buy. This may also require educating or re-educating those who “told” the consumers what products to purchase.
Sales training, as opposed to product training, is a key component here. Salespeople often get product knowledge from manufacturers’ reps, but rarely do they receive sales training. You may want to consider sales training for those on the selling floor. Your return on that investment should more than make up for the cost.
Finding brands that offer limited distribution and protection from Internet discounters is a key to realizing much healthier showroom profits. Yet, these lines and manufacturers are often neglected or simply overlooked. Higher margins are there to be had. This requires the proper focus by the showroom owners, managers and everyone on the sales floor.
You have to be naive to believe that showrooming is not affecting your business now or will not adversely affect it in the future. The entire retail and purchasing paradigm has changed. DPHA will address many of the issues and strategies showrooms can explore to counteract showrooming, improve in-store experiences, better understand customer journeys and convert the Internet from adversary to ally at its October 9-12 Annual Conference and Product Showcase in Chandler (Phoenix), AZ. It’s content that your business needs to become better.
Steven Weinberg is the national sales manager for California Faucets and served as a past president of the Decorative Plumbing & Hardware Association.