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‘Showrooming’ is the growing phenomenon of shoppers using physical real world stores (like Best Buy) to check out products that they end up buying online.Victor Anthony of Topeka Capital got a first hand lesson in how much this trend is creaming Best Buy.
In a new note out today he writes:
We visited several retail stores including Best Buy , Target, Wal-mart, Staples, and Toys R Us, used the Amazon Price Check app, and had conversations with several sales reps about the impact of the Internet, and Amazon in particular, on their respective businesses. The main takeaways are: 1) for the majority of the products we price-checked, Amazon’s price was lower; 2) the sales reps, especially at Best Buy, stated that everyone is using their smart-phone and the Price Check app to comparison shop; 3) Best Buy’s sales reps were less enthused about the ability of their firm to survive the impact from Amazon; 4) Target and Wal-mart sales reps did not view Amazon as a material threat; 5) Best Buy was the only store willing to match Amazon’s price, if asked; and 6) electronics and toys were the two categories, where 100% of the time, Amazon had the product and the price was lower.
That is a brutal characterization of what’s going on. Everyone is using the Price Check app, Best Buy reps are demoralized, and when you press Best Buy sales people, they’ll always end up matching Amazon’s price.
No wonder the company is in such dire straits.
What Does This Mean for Traditional Retailers. We are reminded of this Charles Darwin quote when thinking about the effect on traditional retailers: “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Traditional retailers are responding to Amazon’s threat on their businesses, but we wonder if it is too late. Best Buy is matching Amazon’s price, but only if the consumer asks. Wal-mart is testing same-day shipping from their stores but history has proven that to be difficult to implement successfully. Staples recently announced stepped-up investments in online/ mobile. One thing is certain – responding to Amazon will pressure margins at traditional retailers but that may be a necessary pain point they will have to endure.
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