Today I read an article on Time Business about Best Buy making two announcements which will take effect just in time for the upcoming holiday season:
- They would begin price matching online retailers
- They will offer free home delivery on merchandise that is out of stock in stores
In an attempt to combat the recent trend of “showrooming,” Best Buy will now match the prices of their online competitors
These changes are surely a retort to companies like Amazon.com, which as of late has been contributing to the recent trend of “showrooming” which has plagued brick-and-mortars like Best Buy over the past couple of years. “Showrooming,” for those that aren’t familiar with the term, is when a customer examines products in a brick-and-mortar store, and then purchases the same item online, usually at a cheaper price. As a result, it is estimated that Best Buy is host to around 15% of shoppers who come into their stores to test their products with the intent of purchasing online. This number has increased roughly 3% in past two years. In addition, it’s estimated that 43% of electronic buyers bought something online after checking it out in store.
Best Buy is taking these steps to improve the percentage of shoppers who actually enter their stores and leave with a purchase, which is currently about 40% of all shoppers. In addition, Best Buy believes that 20% of all “showrooming” shoppers end up making their purchase in the store, another figure which they would like to increase. “We have a tremendous opportunity to increase that close rate,” said Matthew Furman, a spokesman for Best Buy.
Expect to see more of these signs at your local Best Buy
Although it comes a bit late, I like this move by Best Buy. They acknowledged that they were missing out on sales and took action to increase their conversion rate, which has been in decline for quite some time. This suggests that they’re taking an honest look at their competition and recognizing that online retailing is becoming the preference for shoppers who purchase electronics. According to ShopperTrak, analysts have also forecasted that this trend will continue as foot traffic is expected to decrease by 8% in electronic stores this upcoming holiday season.
However, I see this move being successful in the short run as opposed to the long run. It’s estimated that overhead costs of brick-and-mortars add roughly 10% to prices, so it’ll be interesting to see whether or not Best Buy can survive by matching the lower prices of their online competitors as it will squeeze their margins even further. Doug Fleener, president of Dynamic Experiences Group shares these concerns.
“If you are willing to match price, you let competitors determine your profitability, and if customers know that, you’re only encouraging that behavior. This is not a sustainable strategy with the overhead Best Buy has, and limited time will mean nothing to consumers — there will be no going back.”
Will simply selling more by the volume fix their problem? What will happen come January when sales are sure to decrease after the holiday season? Is there a way to decrease their cost structure in order to remain competitive with e-commerce giants like Amazon? Only time will tell…