Jun 1, 2012


Is big-box electronics retailing a thing of the past? - This question gets me all wired up as I see the electronics brick and mortar stores struggle to maintain their grip on the consumers pulse as well as their bottom-line numbers.

As we move further into 2012, we can see that the pressure from the online-only retailers on specialty brick and mortar electronics retailers have increased considerably over the years. Do they press the alarm bells yet? Well, the analysts and investors already have. The farsightedness and the tenacity to look into the future, asking some hard questions and doing course correction is a virtue most of the retailers could use at this juncture. There has not been a greater threat to their existence than Amazon-the 800 pound gorilla in the room, which is breaking down all previously held sacrosanct tenets of retailing and every electronics retailers are running helter-skelter not really knowing how to fight it. 

The online retail boom has, in a way, revolutionized the industry as well as the buying behavior of people. The game, rules and the playing field have changed. If current trends are to be extrapolated, the time is not far when the existing big box electronics stores would struggle to stay profitable and ultimately would serve no other purpose other than being glorified showrooms for online retailers. One thing that hits you, as you enter any retail store, especially the big box electronics retailer is that they have decent footfalls but the conversion rates have consistently been on the southern side. The root cause lies in the heady mix of higher prices, online deals, and customers coming to check-out the products and compare prices in their mobile apps and then buying it from the vendor offering the best deals. If we add together the Inventory carrying cost, Opportunity cost of capital as well as the margin pressures, there is no logical way they can sell their products at a lower price than online-only retailers. This might look like doomsday prophecy but we cannot ignore the tectonic shifts happening in this industry where online shopping is becoming big, real big. It has attained critical mass which is leading to a new and irreversible development in the retail space and is increasingly bringing consumers from the traditional retailers into its fold. 

So how does the Best Buys, Staples, Fry’s, Radioshacks and HH Greggs of the world fight back? – Do they sit back and look hapless at the rate at which software and virtual stores are eating away a quintessentially traditional business? Do they even realize that the Tipping Point has been reached and in the aftermath they have to find a strong raison d' etre to remain in business? Study of Consumer behavior tries to explain the when, why, how, where people buy or do not buy a product and the entire decision making process. It is as much a psychological decision as an economic one. Price will, ceteris paribus, be the most dominant of the marketing metrics in the post-apocalyptic scenario (for big box retailers at-least!) where online retailers will call the shots. How are they going to fight with the likes of Amazon, other e-commerce sites, daily deal and auction sites as well as the physical discount retailers like Wal-Mart and Target eating into their market share? Too many questions, answers… not many! 

If specialty retailers like Best Buy, Radioshack continues to focus on their brick and mortar stores and don’t go all out on their online business that would be the utmost dis-service they can do to themselves. The one most important metric of any brick-and-mortar retail business is Sales per Square Foot and after the economic downturn this is not going up anytime soon. Simplistically put, there are no USPs of note which can shoot up sales; no amount of customer service, pick up at store, experience centers can make a customer to pay higher dollars for the same product which is available online at a lesser price, coupled with good customer service and faster delivery. The number of substitute products also means that one cannot charge a premium for a product which is also available online at a reasonable price. Best Buy, once the blue-eyed boy amongst the American specialty retailer of consumer electronics, accounting for 19% share faces the same uncertain future as many of its competitors. If it cannot bring the customers to their doorsteps it should make its product available where the customers are heading i.e. online. When it comes to online sales, Best Buy remains a laggard, which will continue to be so as long as they don’t address the central issue of Pricing vis-à-vis the competition. 

Remember the times when buying a camera meant visiting the electronics store and buying one after a few minutes of deliberation and consultation. Nowadays, it is a far more complex process- as consumer electronic sales begin with comparison shopping/browsing on the internet, extensive product research, visiting physical stores to check out the product, do an in-store price comparison using smartphones and then buying it from the vendor (both online/offline) which offers the best deal. The growth of m-commerce due to greater smartphone usage and the fact that consumer electronic sales start on the internet and more often than not end on the internet provides a sliver of opportunity for these traditional retailers to join the online bandwagon with a newer zeal. According to a Branding Brand study, in 2014, 26.4 billion in sales, or 53.2%, will stem from smart-phones. Moreover, more than 80% of shoppers access online product reviews before they buy electronics goods. All these points to the fact that sales of electronics goods, m-commerce and online sales share a close synergy. 

The winds of change have also shown up during Black Friday sales as well. Traditionally, this has been a day where major retailers open up their doors with promotional sales to kick off the shopping season but now people have increasingly warmed up to the idea of visiting online retail sites on Black Friday. Although not yet a huge number, yet all trends indicate that the fortress has been breached. Black Friday sales boast of $816 Million in U.S. Online holiday spending. This might look like small change as compared to the $11.4bn in sales reported by traditional retailers but they only grew 6.6% YoY as compared to the 26% Percent growth YoY witnessed by online sales. During 2011 traditional retailers did ramp up their online efforts to compete with the usual suspects like Amazon and other online retailers. 

The future of the big box electronics retailing doesn't lie in the big box anymore. As per the changing trends, their marketing mix should focus on the 2 Ps of Price and Place. Lower Price can happen if they cut costs and be more efficient, Place- Isn’t online the most frequented place by consumers for electronics goods? What will happen to their brick and mortar stores? Well, the emphasis should be on opening smaller concept stores to showcase big ticketed and popular items, complete with experience zones and carrying minimal inventory and facilitating instant/deferred delivery of items purchased at the store. They should let go of the big box stores (or at-least some if it) and adopt a lean(er) strategy and then pass on the cost savings to the customers in the form of price reduction and focus more on engaging with the online customers. Sounds too simple, ain’t it? 

Will they still be able to out-fight and out-box Amazon’s clout? Well, let that be a story for another day!


Buy Guitar said...

Thanks for sharing...

here is one more good online shopping site in india: Online Shopping in India

Unknown said...

Reading this post is really an awesome experience. I find it very informative, and appreciate this blogger.

Business Management