BRANDOOGLE

Category: Retailers

  • For some Retailers, Black Friday should be renamed Brown Friday

    When I was in elementary school I had to do a project on my family’s history. I asked my father if any of our ancestors had been war heroes.  He went on to tell the following story:

    In the 1700’s a great grandfather many generations back had been an Admiral in the Royal Navy.  One day a sailor called down from the crow’s nest to report that a Spanish warship had been spotted on the horizon.  The Admiral turned to his first mate and told him to get the Admiral his red shirt. “That way” he explained, “if I am wounded in battle, the sailors won’t be alarmed”.

    A moment or two later, the sailor in crow’s nest frantically called down that it was not just a single Spanish warship, but the entire Spanish armada. The Admiral calmly turned to his first mate and instructed him “Go get my brown pants”.

    I was recently reminded of this story as the first reports started coming in about the weak Black Friday retail store traffic. Shortly after the initial retail reports started coming in, the internet sales volumes were reported, and at surprisingly robust levels.  So the pundits were half right. Sales volumes in total were up, but heavily lopsided towards on-line sellers*.

    How, with all the resources and big data at their disposal, and months of planning did so many experts and retailers get it so wrong?

    How? Because 83% of the sales on Amazon were to third party sellers (as reported by therobinreport.com), and most large retailers don’t participate in Marketplaces. The reason most of large retailers don’t participate in Marketplaces, is the same reason that many consumers are drawn there to shop:

    PRICE

    When online sellers choose to participate in a marketplace (Amazon, Jet, Rakuten, etc.) they commoditize products, and compete almost exclusively on price. Retailers have a much different, and generally higher, cost structure than their online counterparts, and therefore cannot compete solely on price. It then follows that major retailers cannot compete on marketplaces. Unfortunately, it looks like that’s where the shoppers were.

    So despite the huge advancements, and investments, in OMNI Channel infrastructure, technology, customer experience initiatives and web design by most large retailers, shoppers chose to spend their money where they could get the best deal. Interestingly, what the large retailers did not invest in was technology and service providers to help ensure pricing integrity across their assortment. By monitoring which brands were chronically discounted online, they could have steered their assortment into brands that have demonstrated an ability to maintain pricing consistency across channels. In that environment, consumers would have expected to pay the same in store as online. Not coincidently, retailers could have leveraged their customer experience assets to win the sale. Price would no longer have been a part of the equation.

    Regardless of what the reason is, shoppers appear to place a lot more weight on price and 2 day delivery, than the black Friday retail consumer experience.

    A few years ago, the fear was that shoppers would visit retail and buy online (showrooming). This year proved that fear to be misguided. Now retailers are struggling just to get the shoppers in the store. The truth is that the retail landscape is forever evolving. In years past, the major retailers shrugged off the risk of a single product, single brand or single website posed to their business. To continue the metaphor, a single warship. They are now seeing much of their assortment available at much lower prices from an entire armada of online sellers. If retailers choose not to invest in the pricing management solutions in the coming year, then they should probably reach for their brown pants.

     

    *Most of the major retailers have yet to report if e-comm sales, and margins, made up for some, or all, the shortfall in store traffic. Not all retailers break out there numbers by e-comm versus traditional store sales.

     

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com) and can be reached via e-mail at dcoleman@brandoogle.com. Brandoogle is a supply chain research organization that specializes in the identification, investigation, and remediation of pricing irregularities on the internet. Brandoogle works with both Retailers and Brands to improve margins using a proprietary suite of software and services.

     

  • Is Dynamic Pricing the Retail Equivalent of On-Line Gaming?

    In the spirit of full disclosure I am not, nor have I ever been, the CEO of a major retailer. That said, if I was, and my Chief Merchandising Officer told me that his/her strategy to improve profits was “to buy into inventory, and sell it for whatever we can get” I would at the very least  wonder aloud if I had the wrong person in the job, and in a worst case scenario begin severance proceedings.

    Quite frankly, in the retail world, buying into inventory always carries some risk. Be that as it may, the approach described above is not informed risk taking, rather it is unbridled gambling.

    While I seriously doubt any CMO has actually verbally articulated a “sell it for what we can get” strategy to their CEO, there seems to be a growing mountain of evidence that, in fact, some retailers are beginning to follow this approach.

    This shift in retailer behavior is being driven by the intersection of two powerful market forces: consumer price sensitivity, and dynamic pricing technology. The price sensitivity of consumers has been a market force for eons, but with advances in data analysis we can now see for the first time at a granular level how price sensitive consumers truly are.  A recent report by Cognizant (as reported by retailtouchpoints.com) suggests that 90% of shoppers will switch retailers over price. The second market force, dynamic pricing, is the relatively new ability of retailers to instantly re-price goods based on real time information about competitor pricing.

    When the market forces of price sensitivity and dynamic pricing collide, retailers can draw the erroneous conclusion that in order to generate sales, and thus profit, they must price match their competitors. (This may be one of the underlying factors driving the recent earnings warnings offered by Walmart).

    One of the underlying assumptions about price matching competitors is that they actually have inventory on hand that is immediately shippable.  But what if they don’t?*

    Unfortunately, even with the current advances in price monitoring technology, it is impossible to know if a competitor has inventory on hand, or whether the competitor is simply waiting to receive and order before they procure the product.

    If the competitor doesn’t have inventory on hand, should the retailer really be price matching? And if they do, how much profit has the retailer forgone on the sale?

    There are no simple answers to this dilemma, but there might be alternatives.

    • Only work with vendors that aggressively enforce their MAP policies
    • For those vendors with weak pricing enforcement, only take product on consignment
    • Only use price matching on chosen loss leaders
    • Demand exclusive packaging or SKU numbers from vendors
    • Some combination of the above

    The upshot is that for retailers, buying into inventory always carries some risk, but buying into inventory and applying a dynamic pricing matching tool without a reasonable understanding of probable margins goes well beyond normal risk taking and borders upon institutionalized   gambling.

     

    * Analysts at Brandoogle estimate that anywhere from 3-5% of the time, the web site posting the lowest price cannot immediately ship the selected item.   

     

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com) and can be reached via e-mail at dcoleman@brandoogle.com. Brandoogle works with both Retailers and Brands to improve margins and combat grey markets using a proprietary suite of software and services.

     

  • PRICE MATCHING: Have Retailers Created a Monster?

    Price matching is a known margin killer. Yet, the fear of losing in-store sales to on-line competitors has retailers aggressively implementing discretionary price-matching policies.

    In the past, all sellers had very similar cost structures. Store hours and location convenience played a significant role in consumer behavior. In order to utilize price-matching, a consumer had to:

    A. Be aware that a better price existed

    B. Jump through a number of hoops to prove it

    C. Prove that the competitor was within the local trading zone

     

    Not only was this process inconvenient, but the difference between prices was generally small. As a result, price matching was widely offered by retailers, but rarely employed by consumers. This was a win-win scenario for retailers because they could appear competitive without actually taking much of a loss. However, the internet would change all of that.

    Technology has empowered consumers. Price matching no longer favors retailers. Today price shopping is not only practical, it has become valuable. Price spreads among sellers, both on-line and off, are no longer in the 3-5% range, but often in the 30-50% range. Now price-shopping an item is easier than ever thanks to advances in Comparison Shopping Engines such as Amazon, Rakuten, and Overstock. In the internet age, the store is located right in the palm of the consumer’s hand, and the store never closes.

    Consumers flocked online to shop and retail stores grew quieter. Declining sales pressured retailers to rethink their price-matching policies. With consumers clearly willing to walk out the door, a few retailers began to offer price-matching internet sites. This allowed consumers to have the best of both worlds. Now they could get the benefits of on-line pricing along with the convenience of “have it now” retail delivery.

    Retailers that offered internet price-match guarantees really had delivered an exceptional customer experience. Naturally, once consumers discovered this, they began returning to those stores. These successes made internet price-matching a competitive necessity and forced other retailers to follow suit.

    A number of retailers achieved their goal of increasing sales this season. Thus, the internet price-match policies were initially regarded as a great success. Unfortunately, as the financial results were released this January it appears that the incremental sales did not generate any incremental profit. In fact, some retailers actually saw their profits shrink. To make things worse, rolling back these programs will be very difficult, as consumers have now begun to expect internet price-matching.

    Clearly price matching to generate sales, but without the consideration of profit/loss impact is not a sustainable strategy over the longer term. The key to a retailers’ profitability going forward will not be a function of “me too” pricing, but rather merchandising a product assortment that appeals to consumers, but has limited internet price competition.

    The first retailers to make this transition away from discretionary price matching will be the retailers of the future. Those that don’t, will face a monster of their own making.

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com). Brandoogle works with retailers and brands to develop strategies that help them achieve their pricing goals with a proprietary suite of software and services. He can be reached via e-mail at dcoleman@brandoogle.com.

    Sources:
    http://www.retailwire.com/discussion/17893/walmart-considers-online-price-match-guarantee
    http://www.retailwire.com/discussion/17919/walmart-stores-get-burned-matching-online-prices

  • 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.

     

     

  • Win or Lose, Retailing in an Omni-Channel world is a Team Sport

    I have been a player, captain, coach, referee, and spectator of team sports for the better part of three decades. I have always been amazed at the parallels between business and sports. When reflecting on the day’s events, be it a game or a business challenge, I often find myself concluding “it all comes down to fundamentals…right players, right training, right coaching”.

    That said, a friend recently shared a very interesting story about his attempt to buy a basketball pole. On the previous Saturday afternoon he visited a local discount sporting goods retailer, and spent a little less than an hour evaluating his options. Eventually he settled on a pole that cost about a thousand dollars. He pulled the inventory ticket (they don’t store these kits on the sales floor) and headed to the cashier. With credit card in hand, along with his customer loyalty coupon, he presented the inventory tag to the cashier. That’s when things got a little weird.

    She informed him that the item he had selected wasn’t in stock, and that he, the customer, should  call around to other stores to see if they had one in stock.

    Not a word of it a lie.

    Then he dropped the punch-line. He informed me that he went home, with the intention of finding the phone numbers for the other stores, and found himself shopping for the item on-line. The net-net of the story he proudly announced was that he saved $300 by purchasing the item on-line. “I never would have thought do that, if the cashier hadn’t recommend it” he chuckled. “Free shipping, and no sales tax. What a deal!”

    In sports parlance, what the cashier did by encouraging the customer to do the inventory availability research himself, and in essence showroom the product, amounted to nothing short of a “forfeit”. In retrospect, I would say this is a team loss, not just poor play by an individual.

    What went wrong? Where do you begin? And most importantly what do you need to do today to prevent losing this way again in the future? This loss was due to a combination of poor players, poor training, and poor coaching.  Below I will delineate the most glaring short comings by functional area.

    • Basic Sales Training – The cashier could have completed the sale, by recommending
    o A specific store that had the product in stock and offering to put a “Hold” on the item
    o Offering to have the product shipped to the customers home
    o Offering to have the product shipped to her store, and allow the customer to pick up the item later in the week

    • Inventory Management – If the product was on display on the sales floor, why wasn’t the product in the back room?

    • Pricing Management – Why was there such a gap between the retail price, and what could be found on-line?

    • Systems – Did the cashier have the ability to see inventory availability at other stores?

    • Systems Training – If the system functionality existed, was it user friendly, and had the cashier been trained on it?

    Unfortunately, retailing  isn’t a game, and with the advances in technology, and the growth of internet retailing, the retail playing field is only going to get more competitive. For those retailers that have started investigating  different interpretations of omni-channel marketing as a new way to compete, it’s important that they stay focused on the fundementals of retailing.  Winning the sale, either in store  or online, starts with the right people, inventory, tools and training in place.

    With cashiers turning down thousand dollar sales, working on showrooming solutions can’t begin soon enough.

    David Coleman is the CEO and Founder of Brandoogle (brandoogle.com) and can be reached via e-mail at dcoleman@brandoogle.com. Brandoogle works with both Retailers and Brands to improve margins and combat showrooming using a proprietary suite of software and services. 

  • 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.

  • 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.

  • The Fall Showrooming Season

    There is no better place to witness the fall color season than Michigan. In my back yard I am extremely fortunate to have a number of large maples of different varieties that change into a cornucopia of colors during a six week period. The view is simply spectacular. That said, I am also very unfortunate to have a number of large maples in my back yard.
    As the first leaves begin to change, I can already feel the blisters forming on my hands in anticipation of the hours, days and weeks of raking ahead. This year, however, will be different. I will be outsourcing the work to a specialist who uses automation to accomplish the job more thoroughly, faster and more affordably than I could do it myself.
    There has always been much discussion in our house about the most effective/efficient way to get the leaves up, as well as the hourly pay rate. (If you have teenagers, you are no doubt aware of how their preference is to spend a lot more time talking about how to do the work that actually doing the work.) Over the years we have bought an arsenal of “improved” rakes, added labor, worked in teams, etc but all these efforts have yielded only minor incremental improvements. The upshot is that there are simply too many leaves to be raked given the limited resources of time and labor.
    Last year our neighbor hired a contractor to gather up the leaves. The contractor brought in a “modified” mower that functioned as a leaf vacuum. The neighbor’s yard was leaf free in less than 30 minutes, and his cost: $25. We spend that much time getting out rakes, tarps, bags, and discussing strategy.
    While watching the Leaf-Vac at work, I saw a strange parallel to raking leaves and retailer strategies. I spend a lot of time talking to retailers about how they determine if the products they are offering in-store can be found for lower prices on-line. Invariably, the task is not at the top of anyone’s list, and is in fact, quite the opposite. Most people try to avoid it like the plague. In the absence of automation, the research is completed one SKU at a time, copied into spreadsheets, sorted, filtered, and eventually reported on. By the time reports are generated, the data is out-of-date, and essentially useless. What an incredible waste of resources. This process is the metaphorical equivalent of picking up leaves one at a time. No wonder nobody is volunteering to put this task at the top of their list.
    Monitoring on-line pricing is not the core competency of any brick and mortar retailer. Their competency is retailing. There is no question, that understanding competitive pricing is a very valuable asset to any retailer. However, this work can be much better accomplished by specialists who can deliver much more thorough results in a fraction of the time, and at a fraction of the cost of trying to perform this task in-house. Retailers would be best served by re-directing the time and talents of the people currently assigned these tasks to projects that help grow the business.

  • How Showrooming Impacts Earnings

    Showrooming is no longer a sideshow. For C-Level executives it has become the main event. The extensive press coverage of the demise of Best Buy was a wake-up call for both brands and retailers. Showrooming is not just simply a nuisance, it can actually bring down a major retailer. The fact that both Target and Walmart, two extremely savvy retailers, now match internet prices is some indication that the Showrooming phenomena now has the attention of management at the most senior levels.
    The internet press made no secret of the fact that a number of items purchased at Best Buy could be purchased on-line at significant savings. Overnight Best Buy became the poster child for showrooming. What happened next went largely unnoticed in the popular press. Some rather bright earnings analysts created a financial model to try to determine the impact the decision to match internet prices would have on Best Buy’s earnings. The news was not flattering. Investors, upon reading and understanding the earnings analysts report, headed for the exits. They gave a serious “thumbs down” on Best Buy management’s decision to match internet prices. The rest, as they say, is history. Well documented history. Clearly Best Buy management made a series of miss-steps over the last few years, but it cannot be denied that the showrooming phenomena played a significant role in the ultimate downfall of this once iconic retailer, and darling of Wall Street.
    Showrooming impacts earnings. How earnings will be impacted is a function of both the scope and complexity of the showrooming challege, as well as how management chooses to address those challeges.
    Can the showrooming impact on earnings be predicted? To some degree: Yes. The earnings analysts have already proven this. However they had the significant advantage of a ton of information innocently provided by others in the retail research world. Can your organization predict the impact that showrooming will have on your earning? Maybe.
    We recently tested this theory. We created a mock brand organization that sold to retailers. We then designed three possible scenarios based on three different Showrooming Risk Profiles™. Due to space and time considerations, we’ll presume that the Showrooming Risk Profiles (SRP) were graded as high, medium and low.
    In the first scenario the organization was rated at having a medium SRP. The impact was losing placement of the 5 best selling SKU’s at their top 5 retailers. Sales dropped 5.3%, and earnings dropped 20.0%.
    In the second scenario the organization was rated as having a low SRP. The impact was that they picked up 5 new SKUs at their top 5 retailers because they demonstrated to the retailers that they had a much better SRP than their peer group. Sales increased a modest 1.1% and earnings increased a healthy 4.0%
    In the third scenario the organization was rated as having a very high SRP. The impact was losing their 3rd largest retail account. Sales dropped 7.3% and earnings plummeted by 27.8%
    A similar exercise was run for retailers with various SRP scores. The results were very similar.
    The message was clear. Even a little bit of showrooming can have a significant impact on earnings. That’s why showrooming is no longer a side show, but is now the main event.