The Impact of Retail “Showrooming” on Vendors

For those of you that have not heard the term “showrooming”, it is a term that has been coined to describe the practice of consumers heading to a store to see a product in person and then proceeding to buy it from an online retailer, generally at a lower price. Mobile applications such as Amazon mobile for iPhone even simplify the showrooming process by allowing a consumer at a retail location to take an image of a product barcode with their mobile phone and immediately “price check” the product at Amazon.com.

Last week, the Wall Street Journal reported that Target’s CEO has penned a letter to vendors asking for their help in combatting this practice in their stores. Even Target, with all its clout as the second largest discount store chain in the US, is frustrated and feeling the impacts of this phenomenon. I am sure we are all very aware that Best Buy has also been having difficulty with the impact of online competitors such as Amazon.com.

TechCrunch has most recently reported on a PEW Research Center Study that suggests over the holidays, 38% of cell owners used their phone to call a friend while they were in a store for advice about a purchase they were considering making, 24% of cell owners used their phone to look up reviews of a product online while they were in a store, and 25% of adult cell owners used their phones to look up the price of a product online while they were in a store, to see if they could get a better price somewhere else.

Clearly, using one’s handset for purchase decisions is now going mainstream. In my mind, these events beg the question, “What fundamental changes will brick and mortar retailers need to implement to stay relevant as ecommerce pressures grow?” and “How will future retailer requests impact the branded vendors that supply the products to their retail stores moving forward?”. In considering the impact of such questions from a consumer electronics vendor perspective, I would expect increased short term opportunity for brands to partner with key retailers on exclusive skus, supply retailers with private labeled products (like Best Buy’s Rocketfish) or differentiate skus around value added bundles (Costco has demanded such support for years). But with these opportunities come the struggles associated with the increased costs and supply chain demands of  managing many special skus for a variety of retailers. These pressures are especially relevant for many of our clients, early stage technology companies entering the channel, possibly for the first time.

In light of the above trends, I would recommend that vendors find ways to design flexible product platforms that allow for simple product customization. By using colors, materials and finishes with flexible tooling configurations, vendors can create value and differentiation while keeping supply chain costs minimized. One great example of a vendor that understands this approach is Sol Republic with their line of Tracks headphones. Their modular design approach, use of colors and inter-changeable components allows for an almost unlimited assortment of products based on a few tooled parts and allows them to support retailers with “exclusive” skus as required.

Vendors that build this design flexibility into their product development process will position themselves to be more successful across the retail channel as brick and mortar retailers continue to evolve or fade away.

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