Friday, April 12, 2013

Is Showrooming Really so Bad?

For those of you who follow business news, I'm sure you've heard all about showrooming and Best Buy's plan to unveil store kiosks sometime in the future to combat showrooming.  Showrooming is something we've  all probably unintentionally done before, and I'll give you the following scenario:
You're in the market for a new set of speakers and you go to the local electronic goods chain to see what they have. The store's great because you can see side by side comparisons, the sales staff answers your questions, and you can try the speakers out. Then you get down to brass tacks and find out how much it costs. Always the conscientious shopper, you decide to hold off for a few days to see if you can find a better deal elsewhere for a lower cost. If not, then you'll simply come back to the store and purchase the speakers. When you get home you go on the internet and see that not only can you buy the same speakers from Amazon, but you can buy them for 10 percent cheaper than the store's price.
Congratulations, you've entered into the brave new world of showrooming.
Businesses say that this is a bad thing; they're having to pay for the stores, the sales people, and the inventory only to have people come in and test products only to buy them elsewhere. In other words, businesses are bearing the cost of this benefit to consumers. Is this bad? It sure is if you're the brick and mortar store. But it's great if you're the customer! You're effectively saving whatever the price difference is between the online store and the local store. And what if that price difference would be a deal breaker at the brick and mortar store? You're still able to make the purchase because of the online retailer. Economists might say that showrooming increases consumer surplus at the cost of producer surplus and allows more marginal buyers into the market. The layman would say that it allows more people to buy goods at a lower price than what they'd pay.
Some might say that this is unfair, but quite honestly this is no different than any other competition a B&M retailer would face. Prior to online shopping, customers probably did the exact same thing that they're doing now by shopping around for the best price. I think the only difference is just the volume of sales being completed online.
So what could be the outcomes for B&M retailers that are combating showrooming and online retailers?
  1. The B&M retailers launch their own online stores and duke it out with Amazon and their like until one emerges victorious.
  2. B&M retailers lobby congress for some sort of online sales tax. The losers would be the consumers who can't buy goods for cheaper and online retailers.
  3. B&M retailers get better at controlling their costs or more effective management of inventory so that they can offer their goods at competitive prices compared to the online retailers.
  4. B&M retailers effectively go out of business or convert to serving specialty and niche markets with online retailers servicing the majority of consumers. Due to the increased volume of sales and required costs to support it, the online retailer is forced to increase prices.
I'm sure the permutations and different combinations are more numerous than the four I've listed, but one thing is for certain: consumers will be able to determine the outcome by their purchasing preferences and their willingness to pay.
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