Ever since Amazon's Price App appeared on the retail scene some 18 months ago, pundits have prophesized the demise of big-box retailers. There's no question that Amazon's innovation went right for the jugular of any volume- and price-focused retailer selling commodity goods like consumer electronics and household wares. Indeed, retailers from Best Buy and Target to Bed Bath & Beyond, PetSmart, and Toys R Us are in danger of becoming mere showrooms for Amazon and its ilk. But innovative retailers are responding to this threat by turning "showrooming" to their own advantage.
One obvious strategic response has been to fight back with in-store experiences and proprietary merchandize that Amazon cannot match. The quintessential example is the quirky local book store, which sells antiques, unusual knick-knacks, offers free Wi-Fi, and hosts a café — an eclectic mix of experiences enriched by products, services, and community that trump online retailing. But this approach has many limitations, chief among them is that it's hard to scale.
A less obvious response that's accelerating in the global marketplace is to accept that stores are showrooms — and design them accordingly. Samsung showcased an array of the company's products from around the world that consumers could examine, play with, and admire. They just couldn't buy them. Its retail clerks pointed consumers to nearby locations where Samsung products were for sale. It was an actual showroom. Having helped establish Samsung as a consumer electronics megabrand, the showroom served its purpose and has recently closed. By contrast, Miele, which makes and markets everything from kitchen equipment to household wares, runs 10 "Centers" in the United States. They host cooking presentations, master classes, and wine tastings, but, other than obvious accessories, they don't sell the company's products. They just showcase them. As Samsung demonstrated, sometimes a showroom is just a showroom.
By contrast, the UK-based retailer, Tesco, has launched an array of "virtual" stores designed to sell products with no merchandise. The world's first virtual store was a Tesco Homeplus opened in the Seoul Subway in August 2011. This wasn't really a store: it was a wall that displayed over 500 of the chain's most popular products, each with an associated barcode that users could scan to populate a shopping basket that Homeplus would deliver to their homes the same day. Since launch, the Homeplus Smartphone App has become the number one shopping app in Korea, with over a million downloads to date. Homeplus has extended this concept to bus stops. The goal? Says one Homeplus executive: "Make the shopping experience easier and more convenient for our customers." Homeplus is now the market share leader in South Korea.
UK-based Ocado, a pure-play online grocery retailer, has taken the Tesco innovation one step further. It's opened physical stores — actual "high street" locations — where consumers can roam a branded space, browse products, scan barcodes, and complete their shopping task by ordering online from a physical location. One major draw: you don't have to carry those heavy groceries home. Ocado's first actual store, in a London mall, was a hit. (Like Homeplus, to access the service, consumers have to download a proprietary shopping app, called Ocado "On The Go.")
The strategy is a striking success. Nearly one in four orders at Ocado is now placed using mobile devices. According to shop2mobi, a Dutch Internet start-up that works with retailers to launch QR-code based virtual stores, over 300 virtual brick-and-mortar stores were "published" worldwide in 2012. The firm claims that 2,000 are already planned to open in 2013.
All of which brings us back to the dilemma facing traditional retailers. Many big-box retailers are fighting back by accepting that their stores are showrooms as well as points of sale. They are using the techniques of virtual stores in their physical locations to make it easy to shop online while in store. These include Wal-Mart, Best Buy, and even Tesco itself. Offering a combination of shopping apps and QR codes, these retailers are replicating the convenience Amazon promises (many with a price-match guarantee) by enabling shoppers to use the stores to showroom their own goods — and then buy directly from them. The message is clear: in-store experience matters. The more compelling and unique — think REI with its climbing walls — the better. But the overlay of attributes associated with online shopping is also essential to survival. Otherwise, the Big Boxes that dot our retail landscape will, indeed, become an artifact of the past. (Circuit City, anyone?)
The lesson for marketers is fundamental. Don't count on bringing customers to your brand. Bring your brand to your customers. Place your offerings squarely in the context of your customers' lives. Otherwise, they'll likely take the path of least resistance — and that could mean they don't buy from you.
An HBR Insight Center