BRANDOOGLE

Category: News

  • Traditional Retailers Get A Boost From A Most Unexpected Source…UPS/Fedex

    UPS and Fedex have both announced rate increases for the coming year, but this year’s increases come with a little twist. Both carriers have announced that they will start using a “dimensional weight” freight rating system (a system that considers package density as well as weight). This new pricing structure is a game changer.  The battle for the consumer’s dollar that has waged on for the last decade between traditional brick and mortar retailers and small internet sellers may have just taken a taken a new, and very dramatic, turn.  

    The dimensional weigh program won’t affect all shippers equally. Those shippers that ship large parcels with low weight to residential addresses will feel the impact most severely.

    So why is this a game changer? The reason is simple. A significant number of small internet shippers that sell in low density, low value, categories (diapers, lamp shades, light bulbs etc.) that compete solely on price, will now see the freight component of their business model jump considerably. I would not be surprised to learn that some web sellers will see their freight costs double. For years these sellers have grown their businesses because they have enjoyed a significant cost advantage over traditional retailers. All of a sudden, all that is about to end. A number of websites that sell low value, low density, items will find the dimensional weight rates put them at cost disadvantage to the traditional retailers.

    Traditional retailers that sell in low value, low density categories will benefit as price conscious consumers migrate from low cost internet sites back to the brick and mortar stores. In fact some categories will probably see price increases at retail, as retailers will raise prices (and increase profitability) in categories that no longer compete with small internet sellers.

    In certain product categories, this change in shipping prices could potentially have a larger benefit to traditional brick and mortar retailers, at the expense of small internet merchants, than the concept of a national internet sales tax.

    (The Marketplace Fairness Act has been stuck in congress for years.)

    One could ask “Won’t the FedEx prices go up for the traditional retailers as well, making everything equal again?” Probably not. Most major retailers are already very big accounts for both FedEx and UPS. As such, they will be in a position to negotiate away, much, if not all, of the price increases related to package size.

    It’s not clear how all this will pan out eventually, but the early signs are that Traditional Brick and Mortar Retailers just got a huge boost in the battle for the consumer’s dollar.

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com).   Brandoogle works with retailers and brands to combat showrooming with a proprietary suite of software and services.  He can be reached via e-mail at dcoleman@brandoogle.com.

     

     

  • Is Best Buy’s Showrooming Strategy Flawed?

    About a year ago I blogged that “Showrooming is no longer a sideshow, but now the main event”. (Showrooming is the practice of evaluating an item at a retail outlet, and subsequently purchasing the item online for a much lower price.) In this blog I went to great pains to show that showrooming risk impacts earnings, and that investors would shun business models that had a high degree of showrooming risk. I even went as far as to use Best Buy (BBY) as an example of where Wall Street analysts predicted that showrooming would hurt earnings, and subsequently beat down the stock price.

    I was wrong. Well, at least partially wrong.

    Since the writing of that blog Wall Street bid up the price of the stock from the mid-teens to the high forties. Management proclaimed that Best Buy would “be the Ultimate Holiday Showroom.” The theory was that this would improve foot traffic to the stores, and subsequently dramatically increase sales. The theory was proven out, and throughout the year management demonstrated that same store traffic was improving and Best Buy became one of the great turnaround stories of 2013. They were taking on Amazon.com head on, and winning. The 2013 holiday season would be Best Buy’s victory lap.

    And then the bombshell. In mid-January Best Buy released their earnings for the previous quarter and the results could not have been more of a shock to Wall Street. While same store sales were essentially the same as the previous holiday season, the practice of “price matching” Amazon had decimated margins. Management claimed that this was an “unexpected speed bump on the road to recovery” and was the result of operating in an “extremely promotional environment.” In the days following the earnings announcement the stock was bid down to 50% of its 52 week high.

    I would argue that we are not in “an extremely promotional” environment. In fact, quite the opposite. The advances in technology, along with merchants offering price matching guarantees, has created unprecedented pressure on retail margins. There is nothing “extreme” in this environment. This is the new “normal.”

    So should investors completely abandon the entire retail sector, in favor of industries that promise higher returns? Not at all.
    Before making a bet on a retail stock, investors should understand the showrooming risk profile of the company, and what management is doing to address this risk. If management can’t tell investors how much exposure they face from online price competition from deep discounters, investors shouldn’t walk away, they should run. On the other hand, if management can tell investors precisely what their risk exposure is, investors should listen to how management intends to manage that risk. If management simply suggests that price matching is how they will combat this risk, ask for their resumes to see if any of them used to work at Best Buy.

    This new “normal” presents great opportunities for both retailers and investors. Those retailers that “get it” will well outperform their peer group. Those retailers that don’t, present a great opportunity for those investors who like to operate in the “shorts” market.

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com). Brandoogle works with retailers and brands to combat showrooming with a proprietary suite of software and services. He can be reached via e-mail at dcoleman@brandoogle.com.

  • Retail Showrooming is Dead

    According to a recent IBM report, retailers should no longer feel threatened by the practice of retail showrooming. Time to pop the champagne, right? Retail showrooming is a known margin killer and according to the IBM report, it now occurs at so such low levels, as to not constitute a measurable threat. So rest easy, brick and mortar retailers, you’ve dodged calamity. No more sleepless nights worrying about shrinking margins, plummeting sales, and unsold inventory…all is well.

    Or is it?

    While I agree with the IBM report that retail showrooming is dead, unfortunately, that’s not the story. The IBM report completely misses the elephant in the room…while retail showrooming is dead, virtual showrooming is exploding (virtual showrooming is the practice of comparison shopping and purchasing online without ever visiting a store).

    Data from this past year bears this out. While internet sales dollars were up 40% this past holiday season, retail sales were generally flat to down, and retail foot traffic was down an alarming 15%. Certainly, some of that foot traffic decline can be attributed to 6 fewer selling days (and some inclement weather) but the majority of that decline is from virtual showrooming.

    What’s happening? Consumers discovered that comparison price shopping on a mobile device stinks. While mobile devices are great for updating your Instagram and Twitter feeds, they are terrible for comparison price shopping. Screens are just too small and don’t allow the flexibility and movement of full screen computers. It’s just too difficult, so people don’t do it. But that’s not a cause for celebration. Those same consumers have just switched to a more efficient medium.

    A report from ChannelAdvisors.com bears this out. It found that 75% of online holiday purchases were made using full screen devices. Want to bet how many of those consumers were responsible for that 15% drop in retail foot traffic? As technology and apps get faster and more powerful, does anyone think that this trend won’t continue? Hence, the new challenge. How to stem the rise in virtual showrooming by the price-conscious, tech-savvy consumer.

    Traditional solutions like omni-channel retailing, in-store experience, internet price matching, and loyalty programs will only go so far (see: recent Best Buy earnings report). The key to combating virtual showrooming is to eliminate the opportunity for showrooming to occur in the first place. That means addressing inventory assortment.

    Showrooming can really only occur when what’s available in the store is also available online. Therefore, preventing retail or virtual showrooming, starts with an assortment plan that recognizes showrooming risk before inventory is ever purchased. Most of us wouldn’t extent credit to a customer without checking their credit risk first. So why would a forward-thinking retailer buy inventory without first checking out the vendor’s showrooming risk?

    Technology now exists to measure showrooming risk comprehensively and analytically. The retailers that will survive and prosper in this new environment will be those that are as savvy with technology-enabled assortment planning as the consumers are with technology-enabled comparison shopping. But do traditional brick and mortar retailers have the capability to adopt new thinking? Do they even understand the problem? Or, will they continue to bury their heads in the sand and celebrate “the death of retail showrooming?”

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com). Brandoogle works with retailers and brands to combat showrooming with a proprietary suite of software and services. He can be reached via e-mail at dcoleman@brandoogle.com.

  • Brandoogle Launches Website

    Brandoogle Launches New Website

    March, 2012 – Brandoogle is pleased to announce the launch of its new website. This new, online portal provides users with a full overview of Brandoogle’s capabilities and cutting-edge software as well as highlighting the many challenges facing brand owners, retailers, and licensees in preserving online brand equity.

    Founder David Coleman hopes that the site will not only highlight the critical challenges facing online brand managers but encourage companies to take a proactive approach in online brand positioning. “We want our site to be a forum for sharing ideas and identifying emerging threats to brand equity. We want to educate retailers, licensees, and brand owners that there is a immediate and growing threat to their brand equity and that they need to take action,” says Coleman.

    Coleman, a veteran brand management and supply chain executive with nearly two decades of experience, and his staff will also provide the site with regular commentaries, blog postings, and discussion topics which will illuminate issues relevant to brand executives.

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