Target Seeks Allies in Battle Against 'Showrooming'

By Adam Blair
The nightmare that has, of late, had retailers waking up in a cold sweat goes something like this: They spend millions to build and staff stores, fill them with great merchandise, and advertise to get customers in the door. The customers come in, browse and find something they like – which they promptly purchase from a low-cost online competitor via their mobile device. (To rub salt in the wound, they use the same mobile device that clued them in about the lower price in the first place.)

'Showrooming' has struck fear and/or anger into the hearts of many brick-and-mortar retailers since mobility became a potent force. Now Target is explicitly seeking help from its suppliers to combat this phenomenon. In a letter sent earlier this month and signed by CEO Gregg Steinhafel and EVP of merchandising Kathee Tesija, Target asked suppliers to create special products that would set it apart from competitors, or if that wasn't possible, to help the retailer match rivals' lower prices.

"What we aren't willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands," said the letter, according to published reports.

A Cry for Help?

Target's seeking suppliers as allies in the showrooming battle has drawn mixed reactions, with many industry experts expressing doubt about any retailer's ability to stop the showrooming tide. Others believe Target's request for more differentiated products could be a successful strategy.

However, Paula Rosenblum, principal at RSR Research, was surprised by Target's plea: "Here's a fundamentally innovative company that seems to be giving up and asking for help," Rosenblum told RIS News. "It seems so out of character."

The idea that Target is throwing in the towel or simply complaining about showrooming was summarized by the Retailing Today headline, "There's no whining in retail," referencing Tom Hanks' League of Their Own admonition when his team manager character reduces a player to tears after berating her for a bad play: "There's no crying in baseball!"

Others noted that the business models of competitors like Amazon.com made it unlikely that traditional retailers could successfully compete with them on price. Amazon uses profitable units such as its cloud data storage service and fees it charges others to sell via its site, allowing these to subsidize the retail side of its business.

"The traditional retailers are still doing business the old way while Amazon has reinvented the model," said Sucharita Mulpuru, retail analyst at Forrester Research, quoted in a Wall Street Journal article. "Walmart and Target are willing to sell a few things at a loss. Amazon's whole business is a loss leader."

Showrooming as Symptom

However, Richard Hastings, macro and consumer strategist at Global Hunter Securities, believes the issue is less about price and more about better analysis and use of data.

"Data analysis tells the retailer and its brand partners that there are two major pivots from the 50,000 foot level: simplify pricing, or simplify merchandising," Hastings tells RIS News. "If you over-simplify both, then you get boring and shoppers look for new catalysts to spend. Showrooming is a symptom of the pricing and merchandising dilemma confronting a lot of shelf durable, slow-moving consumer goods. On the surface it looks like consumers doing price and product comparisons, but it's all about the availability of data."

Product categories that are particularly vulnerable to the showrooming effect include toys, electronics, household small appliances, games, sporting goods and some branded housewares, notes Hastings – a good description of much of the merchandise offered by Target.

Hastings believes Target and its suppliers can achieve levels of differentiation that will mitigate, if not eliminate, showrooming's effects. "A lot of suppliers have discovered that their general contractors are capable of building products of greater variety with very little change in unit cost," he says. "Small changes in product style and size are easy to achieve now, so mega-retailers can get this effect from big contractors, unlike the Neiman Marcus model¼of very small suppliers providing very unique products in smaller quantities.

"Instead, we're looking at relatively large suppliers cranking out highly differentiated products with faster seasonal turnovers," Hastings adds. "Now we're hearing similar ideas from Target and JCPenney – all about seeking differentiation at the product level. The capability is there."

In Hastings' big-picture view, the rise of mobility simply accelerated an underlying trend: "It sounds like the consumer adoption of devices pushed the retailer-brand relationship into a new evolution a bit ahead of schedule," he notes. "No surprise here, since this was going to happen inevitably."

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