Showrooming

Bricks-and-mortar retailers are still scrambling to respond to Amazon’s business model, reports Ann Zimmerman in the Wall Street Journal (1/23/12). "The traditional retailers are still doing business the old way while Amazon has reinvented the model," says Sucharita Mulpuru, a Forrester Research retail analyst. "Walmart and Target are willing to sell a few things at a loss," says Sucharita. "Amazon’s whole business is a loss leader." This is because Amazon uses its other businesses — like cloud data storage — "to subsidize" its lower prices.

Following a weak holiday season, "with sales at stores open at least a year rising just 1.7 percent, about half of what analysts expected," Target issued a letter to its vendors seeking "special products that would set it apart from competitors and shield it for the price comparisons that have become so easy for shoppers to perform on their computers and smartphones." It also "asked the suppliers to help it match rivals’ prices" and "said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise."

Target hopes this will help reduce "showrooming," or the shopper practice of looking for an item in a store, and then buying it from an online rival. Target has suffered particularly "in electronics, movies, books and music … Those products accounted for 20 percent of Target’s annual sales of $65 billion in 2010, down from 22 percent in the prior year." The retailer has also re-launched its website and says "it will open a series of temporary boutiques" featuring items "from popular regional stores." While the boutiques may help differentiate Target, analyst Colin McGranahan says "they are completely immaterial" to its bottom line.