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Three Ways Retailers Are Fighting Back Against Amazon and the 'Showrooming' Effect

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Brick-and-mortar stores are hoping that their new strategies will be effective in winning customers back from Amazon.

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Is it too little, too late? For years, big box retailers have been hemorrhaging money thanks to the Amazon (NASDAQ:AMZN) showrooming effect.

The term "showrooming" has become so commonplace that it has even earned a definition on Urban Dictionary:
"The act of going to retail stores like Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT) to check out certain products and then once satisfied with the look and feel, purchasing the item online on Amazon or other retailers.
"Dude this video camera looks amazing but I really want to see how it feels in the hands.

"Let's go showrooming at Best Buy and if I like it I will order it on Amazon for cheaper.
"

According to a poll by Harris Interactive, 43% of US adults have showroomed, having visited a brick-and-mortar store to check out a product before buying it online, most likely on Amazon. Best Buy has been hurt the most from this phenomenon, with 24% of those polled naming the electronics chain as the store they visited most often to view a product they then purchase online. Wal-Mart (22%) was next, followed by Target (NYSE:TGT) (9%), and Home Depot (NYSE:HD) (4%)

Of course, brick-and-mortar retailers aren't simply rolling over for Amazon. Over the years, they've tried out different strategies to outfox the online giant. The latest to take the fight to Amazon are book stores ranging from small independent stores to giants such as Barnes & Noble (NYSE:BKS).

These retailers are now refusing to carry books published by Amazon Publishing, such as the latest from high-profile author and entrepreneur, Timothy Ferriss called The 4-Hour Chef.

"At a certain point you have to decide how far you want to nail your own coffin shut," Michael Tucker, owner of Books Inc, an independent chain with 12 locations in California, told the New York Times. "Amazon wants to completely control the entire book trade. You're crazy if you want to play that game with them."

Similarly, Bill Petrocelli, a co-owner of Book Passage, which has two stores in the Bay Area, said, "We don't think it's in our best interests to do business with Amazon." Books Inc and Book Passage, however, will order The 4-Hour Chef for customers if requested, even if they are not carrying it.

Target and Wal-Mart both ceased carrying the Kindle as well in 2012 for obvious reasons, though Best Buy and RadioShack (NYSE:RSH) still sell the Amazon tablets.

Price Matching

For the most part, customers choose to purchase goods from Amazon and other online stores for one primary reason: low prices. As such, many brick-and-mortar retailers have taken to price-matching policies. Earlier this month, Target announced a year-round price-matching policy that included online prices from Amazon, Wal-Mart, Best Buy, and Toys 'R' Us. Canada's largest consumer electronics retailer, Future Shop, which was acquired by Best Buy in 2001, also introduced a price-matching strategy last July .

Will price-matching work for these retailers? Minyanville's Michael Comeau was skeptical, saying that he "doubt[s] an awful lot of people are going to go crazy to pursue price matching." He added in a column earlier this month:
"I am in the camp that believes physical retailers should focus on offering a better shopping experience (see the Apple (NASDAQ:AAPL) Store) rather than trying to compete with Amazon on price. It's a war of attrition and Amazon is happy to take serious casualties in the form of weak near-term profitability."

However, Christopher Bennett, director of corporate communications for Best Buy, said that the strategy has worked in boosting sales for Future Shop.

"We have seen a double-digit increase in our closing ratio, the number of customers who inquire about a product and then buy it," Bennett said, according to Canadian Business.

Arcus Group retail strategy consultant Merril Mascarenhas also told the site that a price-matching policy was also about "channeling as many warm bodies as possible to stores, where they tend to make unplanned purchases."

Exclusive Products

Another tactic that retailers have employed to thwart showrooming is to offer exclusive products that cannot be found elsewhere. At the start of 2012, Target sent a letter to its suppliers requesting special products "that would set it apart from competitors and shield it from the price comparisons that have become so easy for shoppers to perform on their computers and smartphones," the Wall Street Journal reported.

The Minneapolis-based chain has been known to partner up with high-profile designers like Jason Wu and Proenza Schouler and fashion houses such as Missoni to launch exclusive, limited-edition collections that are affordable and appeal to Target customers.

In their attempts to challenge Amazon for a slice of the music sales pie, Target and Wal-Mart also often carry albums by popular artists that are customized with exclusive content. If you had bought Taylor Swift's latest album, Red, at Target, for example, you would have gotten six exclusive bonus tracks, while if you had bought it from Wal-Mart, you would have receive an exclusive poster, magazine, and four guitar picks, among other things.

Unfortunately for Target, Colin McGranahan, retail analyst at Sanford C. Bernstein, told the Wall Street Journal that the chain's various exclusive products "are completely immaterial" to its bottom line.

Mobile Technology

Emerging mobile technologies may prove to be the best hope in the fight against showrooming for the likes of Best Buy. For example, Nearbuy Systems, a Web startup, provides Wi-Fi solutions that it says will help brick-and-mortar retailers better understand their customers the way that online stores do with browsers using Web tracking tools.

Nearbuy's Wi-Fi technology would allow stores to track shoppers wherever they walk, according to NPR, and "[r]etailers could use this technology to build apps to guide customers through their store aisles to specific products, or even deliver discounts and coupons based on where people are standing in any particular store."

"Offering people personalized prices through their mobile device may be the most effective way to beat showrooming," said Anne Zybowski, director of retail insights for Kantar Retail, a marketing research firm, according to the Journal.

Such technology could also enable retailers to know when shoppers are browsing Amazon or other sites on their phones to compare prices.

"In other words, it could give those retailers who are being showroomed a fighting chance to win back your business before you walk out," Steve Henn from NPR wrote.

(See also: Target Takes on the Amazon-Loving, Smartphone-Surfing, Bargain-Craving Showroomers.)

Twitter: @sterlingwong
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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