What is likely to last – webrooming or showrooming by Sutherland Global Services

What is Likely to Last – Webrooming or Showrooming? February, 2014

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Webrooming

Showrooming

Showrooming vs. Webrooming • Defined as act of browsing products in a physical store and buying online • Notably a trend where a customer visits a store but then uses his / her smartphone to find the same item for a lower price online • In 2012, showrooming was a big problem for retailers such as Best Buy • In 2013, many of these retailers moved to match prices and are generally being more aggressive against Amazon

• A newer and reverse trend where customers do their initial research online but then end up buying at the store • At times the online research is disengaged from the definition and it is said that the customers who buy from a brick and mortar store having found an item online, in order to save the shipping costs, should be more appropriately be termed as Webroomers • It is considered that Primary motivations for webrooming include avoiding shipping costs and being able to touch and feel a product before purchase, and get instant gratification on purchase

Search for product at store

Step 1

Buy product at home

Step 2 Step 2 Buy product at store

Step 1

Search for product at home

_________________________ _________________________ _________________________ _________________________ ______________

Source: Secondary Research, Sutherland Research and Analysis

www.sutherlandglobal.com February 24, 2014

Online and Brick-and-Mortar Shopping Spread in the US

Higher Online Shopping Equal Online and Brick and Mortar Shopping

By Metro Core Based Statistical Areas

Higher Brick and Motor Shopping

Source: Buxton

www.sutherlandglobal.com February 24, 2014

Some Corresponding Statistics

As per Urban Land Institute, in case of electronics, 38 percent purchase online, but, of those, one-quarter go to stores first to “showroom” the items and then buy online

According to Urban Land Institute, 50% of consumers age 18-34 prefer to research their purchase online before heading to the store, while only 11% are said to prefer showrooming

40% of Americans Have Showroomed at Least Once

Walmart is considered as the biggest winner with 67% of people who webroom at Walmart.com ending up buying at Walmart store!

As per Harris Poll, Two-thirds (67%) of those webroomers who typically do their investigating at Walmart online say they usually go on to make their in-store purchases at a Walmart brick and mortar store

Six in ten webroomers have showroomed and nearly nine in ten showroomers have webroomed; suggesting that the trend of showrooming and webrooming are not mutually exclusive

Desperate to stop consumers from showrooming some Australian retailers had resorted to $5 “just looking” fees !

According to Harris Interactive Survey, 46% of U.S. consumers have showroomed in 2013, but as against 69% of the consumers who webroomed in the same period

84% of shoppers do use their phones while they're still in the store

Source: Secondary Research, Sutherland Research and Analysis

www.sutherlandglobal.com February 24, 2014

What are the Experts Saying?

…After years of assuming shoppers would firmly shift to trying on jeans or testing smartphones in the store and then heading online for a better price, experts say webrooming is booming because consumers are not strictly looking at dollar signs… – RR Donnelly

… the days of worrying about what channel you sell through are dying quickly. The reality is whether it's mobile, Web or physical it's coming from the same wallet… – Beth Jacob, CIO, Target Inc

… brick-and-mortar retailers have learned how to play the ecommerce game… The reality is the Internet is now as much a part of how these retailers interface with their consumers as their stores… – John Talbott, Associate director of the Center for Education and Research in Retailing, Kelley School of Business

… there’s not really a lot anyone can do about showrooming – it’s not illegal and people are always going to compare prices. Retailers need to accept this, embrace showrooming and use it to their advantage… – ecoconsultancy

..If customers aren't buying, then businesses need to figure out why ... Window-shoppers are part of the retail equation .. it's up to the retailer to either ignore them or turn them from looky-loos into bona fide buyers…

…when it comes to the battle for consumers' holiday shopping dollars, all retailers are upping their games … online versus brick and mortar retailers each have their own advantages, and poaching customers from competitors is all about playing to those strengths…

– Chris Morran, Consumerist

– Mike de Vere, President , Harris Poll

… traffic is down because shoppers are visiting fewer stores per shopping trip, but sales are up because shoppers are heading to stores with the intent to buy. Rather than spending time moving from store to store to window shop in a traditional way, browsing is done online ahead of time, but some of the purchasing is done instore. That's webrooming… – Bill Martin, Founder, ShopperTrak … the webrooming trend underscores the internet's increasing use as a shopping tool, and retailers' websites should be ready to offer functional browsing and competitive prices … – Mark Huffman, Consumer News Reporter for ConsumerAffairs.com … To take advantage of the webrooming trend, leading retail brands are launching initiatives that expand consumers' access to information online, while retaining control over the customer journey by emphasizing brick-andmortar as the customer's final destination… – Dr. Gary Edwards, chief customer officer at Empathica

Source: Secondary Research, Sutherland Research and Analysis

www.sutherlandglobal.com February 24, 2014

How Companies are Reacting to Showrooming? • Price Matching – In February, 2013, Best Buy promised to match the prices of 19 online competitors, as well as local stores • Leveraging store presence – Best Buy has begun to leverage its 1,000+ locations by enhancing merchandise shipped from it’s stores to online customers • Price Matching Woes – However, Best Buy’s efforts with price matching has shrunk its margins as it competes with companies with different cost structures • Exclusive and Low Priced Products – In January, 2012, Target asked its vendors to make products that can be exclusively available at Target’s stores and lower their prices in order to help Target match its prices with that of Target’s online competitors. As an example, fashion brands such as Missoni and Jason Wu, work exclusively with Target • Price Matching – In January, 2013, Target announced extending it’s price-matching policy introduced during the holidays to the rest of the calendar year • Undercutting Prices – Target offers an additional 5% discount on purchases made at Target stores by shoppers using a Target credit card • Price Matching – In August, 2013, Toy’s R Us announced to match prices from selected online retailers • Consumer Engagement – Shoppers are required to shop around and prove to a store clerk that a competitor is offering a lower price for an identical item, including shipping costs, thus encouraging a possible means to engage with the Toys R Us customer and pleasing them • Low Consumer Interest – However, only about 5% or 10% of shoppers followed this process of price matching

• Unique Experience – At John Lewis, executives adds unique services and experiences such as helping shoppers learn how to fit in car seats or how to fluff pillows that can never be experienced online • Trend Reversal – The UK retailer has achieved some exceptional results such as – over 60% of consumers research online before going to the store, more than 20% purchase online and pick up in store, 40% use their phone to interact with John Lewis while in their stores, thus proving the omni-channel behaviour of the UK customer • Multi-channel Fulfillment – Nordstrom was one of the first retailers to adopt multi-channel fulfillment, order, receive, return via online or offline channels • Win More Customers – In 2013, Nordstrom rented out store space to online bridal jewellery company Blue Nile. A similar partnership was made in 2012 with online men’s dealer Bonobos

Source: Secondary Research, Sutherland Research and Analysis

www.sutherlandglobal.com February 24, 2014

How Companies are Reacting to Webrooming? Address the advantage of Same Day Delivery • Amazon has still not confirmed opening physical stores, however, they are looking at profitable options of opening stores. Amazon suggests that they would use physical stores only to sell Kindle devices at the moment • Amazon is investing in warehouses for building its same day delivery to customers (Amazon Prime customers, in addition, are promised ‘same day’ or ‘next day’ delivery) • Amazon is the most popular destination for shoppers doing product research, with 48% of “webroomers” visiting Amazon before buying from a store Address the advantage of Look and Feel: • Westfield Group's Westfield Labs and eBay Inc. partnered with Sony, TOMS and Rebecca Minkoff to Launch Digital Storefronts in San Francisco. Shoppers can touch and interact with digital storefronts for Sony, TOMS and Rebecca Minkoff to select and purchase 100s of products • eBay’s RedLaser and Milo is helps merchants offer their local inventory online or through mobile devices and helps consumers find what they are looking for at local stores. RedLaser allows consumers to scan bar codes in order to find the goods they are looking for in a range of locations, both online and offline, while Milo enables local inventory to be viewed online or on a mobile device Garnering exclusivity of products • Tonx is an online retailer which sells farm-sourced coffee, this reduces its susceptibility to “webrooming”, as shoppers can’t get their product anywhere else

Source: Secondary Research, Sutherland Research and Analysis

www.sutherlandglobal.com February 24, 2014

Closing Notes

Showrooming and Webrooming has been shifting the balance of sales between Brick-and-Mortar and Online retailers

Brick-and-Mortar retailers have been actively pursuing strategies such as “price matching” to overcome Showrooming

Alternatively, Online retailers are looking to close the gap between online and offline sales with services such as “same day delivery”

Brick-and-Mortar retailers are making investments in order to develop their online presence, however, Online retailers are not readily investing in physical stores

Both Showrooming and Webrooming are here to stay as consumers’ buying trends evolve and shoppers can derive benefits from multi-channel buying

Source: Secondary Research, Sutherland Research and Analysis

www.sutherlandglobal.com February 24, 2014

End of Presentation