Showrooming: New Internet Retailing Challenge for Retailers

While e-commerce is more than 20 years old, it is still a key driver of change. Facebook’s IPO, the third biggest in history and the largest for a technology company, may not be seen as important for retailers at the moment as social commerce is still negligible, but the way social networks allow consumers to connect and exchange information is unprecedented. The raised funds from the IPO could allow Facebook to develop more effective tools to tap into the information exchanged between consumers, allowing retailers and manufacturers to influence the purchasing decision process to a greater extent than ever before.

However, while social media will have a longer-term impact on retailers, e-commerce is having a more immediate effect. Internet retailing has been the most dynamic retail channel since 1999, offering unprecedented growth opportunities and exerting strong pressure on store-based retailers. Internet retailing generated US$399.2bn in 2012 according to the latest Euromonitor International research. Non-grocery retailers are under the most pressure as consumers have turned to the internet in their search for better deals. New technologies, particularly the strong penetration of smartphones within developed markets over the last couple of years, have given rise to a new threat for store-based retailers – that of showrooming. Grocery retailers are somewhat less affected as the majority of their products are of a lower value and are purchased either on impulse or as part of a bigger shop. However, a number of large grocery retailers, for example Tesco or Carsino, have reported plans to reduce their number of hypermarkets as internet shopping limits the need for larger stores.

Showrooming, a term initially applied to bookstores, has become a much more widespread phenomenon, affecting a wide range of retailers from electronics and appliance and apparel specialists to leisure and personal goods specialists. The heavy adoption of smartphones, which provide access to the internet and allow users to download different applications, has enabled consumers to easily compare product prices online and offline. Amazon, the leading online retailer, has been quick to jump on this trend, releasing an application which allows consumers to scan product bar codes in stores so as to compare prices with the Amazon online catalogue and even receive discounts if they decide to purchase from the pure-play online retailer.

On the other side of the fence, store-based retailers are looking for ways to mitigate the effects of showrooming. Best Buy, the leading electronics and appliance specialist, has suffered from this trend. The chain has even been called Amazon’s showroom by some as consumers visit its stores to look at a product only to then purchase it at a cheaper price through Amazon. The company has accepted the impact of consumers searching for better deals and is now examining alternatives. Recently, its chief marketing officer indicated that there might be a different route for Best Buy and it should embrace showrooming to become “the best showroom we can be” by earning revenue not so much from mark-ups on sales but from manufacturers paying a fee to exhibit their products within the store.

The immediate effects of showrooming are likely to increase and spread to more product categories. Pure-play internet retailers will continue to benefit from showroom-generated sales and like-for-like sales for many store-based retailers will continue to deteriorate. Over the long term, however, showrooming could impact those manufacturers which mainly distribute through store-based retailers as visibility of their products diminishes.

The impact of showrooming varies greatly depending on the product mix of the retailer. Typically, higher-value items which require inspection prior to purchase are most susceptible to showrooming. However, several other factors influence whether or not consumers are likely to use stores to showroom a product.

Euromonitor International has published a series of articles examining showrooming and its impact on retailers and manufacturers. The articles also assess which products are likely to be most affected by showrooming and recommend strategies for retailers and manufacturers as to how to adapt to the trend.