Jan. 27, 2012
Shoppers know they can buy Abercrombie-labeled sweaters at Abercrombie, the Victoria's Secret brand of perfume at Victoria's Secret and Coach purses at Coach stores. Now, Target is hoping to follow in the vertically integrated footsteps of specialty retailers.
The retail giant sent a strong message to e-commerce sites like Amazon and eBay last week when it wrote a letter to its vendors asking them to create in-store-only products. The store is hoping to stop what it calls "showrooming," where customers shop at brick-and-mortar locations, often using apps like eBay's red laser to compare prices, but then purchase the same item for less online.
"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," according to the letter signed by Target chief executive Gregg Steinhafel and Kathee Tesija, Target's executive vice president of merchandising.
While Target wouldn't comment on whether its vendors have responded, retail analysts predict they'll get on board with the request.
"This isn't something new; it's just something new for big-box channels," said Ken Nisch, chairman of JGA, a company specializing in retail branding and design. He expects other major big box chains to make similar moves — if they haven't already.
Bob Phibbs, AKA the Retail Doctor, agreed, saying that he's certain that others already made similar requests of their vendors.
"I can't imagine Best Buy or Walmart not having said this awhile ago," he said. "If brick-and-mortar retailers don't throw their buying power around now, they may lose the advantage they truly have."
And that advantage is big: 90 percent of all merchandise is still bought in stores.
How to differentiate products
The problem facing Target that Abercrombie and Coach, for example, can avoid is that it sells a lot of products that aren't unique. While Abercrombie may the only spot to buy a certain sweater, the same Sony TV is in a variety of stores.
Finding ways to differentiate these "standard" products will be the challenge, Nisch said. For example, maybe a big-box retailer develops a partnership with a major designer and Sony to create a specific TV to be sold only at that location. Another example could be selling a greener version of a standard cleaning product.
"It can't just be a shell game though," Nisch said. "It may be tempting to just use a different SKU or manipulate the shell, but the customer will figure it out, and that will be a huge black mark for the retailer."
If done correctly, Target's strategy makes a lot of sense, said Andrew Swedenborg, executive vice president of King Retail Solutions.
"As a big chain retailer, Target already sets its in-store shopping experience apart through its inviting physical environment and distinct product offering," he said. "But consumers are often, and understandably, looking for the best value when making a purchase."
Online retailers have done an excellent job commoditizing and lowering prices, causing brick-and-mortar companies to be threatened by the Amazons of the world.
"Realistically, a brick-and-mortar retailer like Target has no chance of competing with Amazon based purely on price as their heavier overhead structure just won't allow it," Swedenborg said. "In addition to doing all it can to price match, Target must find other points of differentiation in order to compete, and developing proprietary products seems like a savvy avenue for this."
Swedenborg predicts that Target's partners will comply with the company's suggestion. Not giving customers easy price comparison options will only help them in the long run, but it's also a way for them to make more money.
"This is an opportunity for Target's vendors to create additional revenue channels via additional or somehow altered, products, with a retailer standing by to carry and promote those products. If done right, this could be a huge win/win for those involved, including customers who would now have additional options."
What if you're small?
About 95 percent of all retail operations are single-store units, and although they lack Target's clout, most belong to at least one trade organization or buying group. Phibbs suggested that small retailers band together to make similar requests from their vendors.
"Ideally, vendors have to be willing to create products that are slightly different and aimed for sales in either big box stores, smaller retailers or online retailers — but not for all," he said. "I'm sure many will be skeptical this could work. But if brick-and-mortar retailers can use their buying power to increase personalization through their in-store channel, then they can leverage the advantage they truly need against the showrooming of Main Street."
Small online retailers are conflicted when it comes to taking a side on showrooming, said Ashley Judge, president of The Funtrepreneur, Inc., which operates three niche online retailers.
"While we agree with their frustrations regarding showrooming, Target is hardly the underdog. It's hard for small e-commerce sites to feel sympathetic, since Target's retail prices often match our wholesale prices," she said.
It's an up-hill battle, but there are many ways small e-commerce sites can compete with the Amazons of the Web. Judge recommends that small e-commerce sites:
- Carry a carefully edited selection. "For example, a maternity website, like Chulamama, with extensive stroller knowledge, will help you narrow down your choices to the crème de la crème of safety and functionality," she said.
- Partner with artists and local talents to sell handmade and custom items that can't be mass-produced with SKU's for the likes of Amazon.
- Offer a superior customer service relationship. "We pick up every call. We often include free samples and goodies that we think our customers would like," she said.
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