The competitive landscape in the realm of retail has changed and is continuing to change in recent years. One factor that has helped to shape and change the field is the notion of showrooming. Showrooming involves consumers going into brick-and-mortar stores to check out a product only to later purchase it at a cheaper price from an online retailer. This is a real and tangible problem directly impacting the bottom line that retailers must figure out how to deal with.
Target is attempting to combat the issue of showrooming. The costs associated with being a brick-and-mortar retailer, such as the cost of the building, inventory holdings, and labor in a marketplace that is extremely competitive, create a situation where every sale counts. When you as a retailer have invested in a brick-and-mortar location and your customers come in to look at your products, you need them to make a purchase—from you. Showrooming involves customers using information technology to price-shop for the products you are displaying but ultimately making their purchase from a lower-cost online retailer. This is a recipe for disaster. This case touches on Target's current campaign to address the issue.
Read the case below and answer the questions that follow.
Organizations today face a wide array of challenges that organizations in the past never have. One looming problem that can have a drastic impact on an organization's profitability—and perhaps even their long-term viability—is the issue of "showrooming." We have all done it—gone to a local retailer and looked at a product only to find out that you can buy it cheaper from an online retailer. And many customers will do just that in order to save some money. Target is one of the victims of the showrooming trend.
Information technology and the increased popularity of smartphones have created conditions where brick-and-mortar retailers like Target are having to compete on a regular basis directly with online retailers. And that playing field is not necessarily a fair or level field. Unlike brick–and-mortar retailers, online retailers do not have the same cost structure to factor into their pricing strategy. For example, online retailers have significantly lower labor costs, oftentimes do not collect sales tax, likely do not have the same inventory carrying costs, and also do not have the same costs associated with their sales location. Online retailers also have a competitive advantage globally over brick-and-mortar stores with limited availability.
Target is attempting to counter this trend by asking its suppliers to create special products that would set it apart from online competitors and shield it from the price comparisons associated with them. Where special products aren't possible, Target is asking suppliers to help it match rivals' prices. The store also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise.
Vendors are likely to have little choice but to play ball with Target because of its clout as the second-largest discount chain. Target declined to comment other than to issue a statement saying it has long "prided" itself on having truly collaborative vendor partnerships and "we continually work with our vendors to remain competitive in the ever-evolving retail environment."
Some analysts said Target's new tactics are unlikely to reverse the showrooming trend because they fail to address the root cost structure problems traditional retailers face. Compounding that problem is that online retailers such as Amazon use a different business model entirely; Amazon can sell products so cheaply because it uses its other profitable units—such as cloud data storage and fees it charges others to sell on its website—to subsidize the rest of its business.
"The traditional retailers are still doing business the old way while Amazon has reinvented the model," says Sucharita Mulpuru, retail analyst at Forrester Research. And consumer preferences are also moving online. "That is where we're heading," said Adrianne Shapira, retail analyst at Goldman Sachs. "You can try and dance around it, but it's a fact."
Source:
Excerpted from Ann Zimmerman, "Showdown Over 'Showrooms,'" The Wall Street Journal, January 23, 2012, pp. B1, B5.
Which of the following managerial challenges discussed in this chapter was NOT something that was apparent in this case?
Managing for Information Technology - Dealing with the New Normal
All of these were described in the case
Managing for Competitive Advantage – Staying Ahead of Rivals
Managing for Globalization – The Expanding Management Universe
Managing for Diversity – The Future Won’t Resemble the Past