Internet Price Risk…Buyer Beware

As the summer winds down, the all-important fall buying season for retailers is heating up. While the role of the retail buyer has never been easy, the advances in technology, savvy online retailers, as well as increased use of mobile devices, the job is now infinitely more challenging.

Historically, retail buyers have managed a series of macro risks when determining how to deploy their open-to-buy dollars to maximize their Gross Margin Return On Inventory (GMROI):

• Trend Risk – Will the product resonate with consumers?
• Inventory Risk – What is the optimal inventory needed to meet demand?
• Delivery Risk – Can the supplier deliver product to ensure the smooth flow of goods throughout the selling season?

Now, the retail buyer faces an added internet price risk – commonly referred to as Showrooming.
Simply defined, Showrooming is the likelihood a consumer will find product significantly discounted online and purchase the product on a discounted site rather than through the retailer. If this risk is not understood and mitigated it could make all other traditional macro risks seem inconsequential.

Both advances in mobile technology and comparison shopping apps in the last year have amplified the Showrooming risk. These advances have led to increased convenience, speed and ease of comparison shopping, and have been adopted by consumers at unprecedented levels. Retailers can find themselves in trouble when the product can be found online at a significant discount despite their best efforts to choose proper trends, brands and products.

Best Buy is perhaps the most well documented example of mismanaging the Showrooming phenomena. Best Buy’s strategy of price-matching, coupled with multiple delivery options, to compete with pure e-tailers resulted in similar year over year sales numbers. That said, when the impact of price matching on GMROI was revealed after the holiday season, a near panic ensued among shareholders. So despite significant investments by traditional retailers to deliver a robust omni-channel marketing strategy, large retailers still face an uphill battle when a pure “e-tailer’s” pricing creates a dramatic gap in pricing.

Not all brands suffer the same fate. Several brands exercise incredible price discipline in both retail and online channels: Apple, Stihl, and KitchenAid to name a few.

So what should a retail buyer do to manage Internet Price Risk?
The first step in curbing Showrooming is to monitor the online pricing behavior of brands being considered for the fall assortment. By monitoring the products and the brand within the category assortment, the retail buyer can quickly determine which brands take online pricing discipline seriously and which ones do not. Once the buyer knows the risk posed by the brand they can shift open-to-buy dollars to brands that offer the lowest Internet Price Risk and protect the GMROI.

With the National Retail Federation projecting that traditional retailers are in for another tough year, while Amazon is projecting another year of double digit growth, it’s more vital than before for retailers to win the war for consumer dollars. For retail buyers, the success of this coming holiday season will depend largely on how well they manage Showrooming and Internet Price Risk this current buying season.

No Comments Yet.

Leave a Reply