Friday, January 27, 2012

Rethinking Retail: Transforming Bricks and Mortar

Photo by Waldec

The news has had articles about retailers struggling with the concept of “Showrooming”. This occurs when shoppers come to a bricks and mortar store to touch and feel products, and then go to the internet to buy them. Most recently Target has been highlighted for sending a letter to its vendors asking them for help with the issue, but is likely a problem for other retailers with physical locations, such as Best Buy, or even WalMart.

It appears that Target is taking defensive action to protect its turf, but would it be possible to embrace the trend and take advantage of Target’s physical presence? What if Target, literally turned itself into a showroom? Consider how this would work.

In a department, such as televisions, Target would no longer carry any stock. Instead, it would have displays and demonstrations of products sponsored by manufacturers. Manufacturers would choose the products they wanted to insert into the Target showroom, and they would pay for the privilege. For a basic fee, a manufacturer would be allowed to put a product on display with an information card. Increased amounts of money would allow the manufacturer to set up kiosks and videos, and even have their own representative in the store to answer questions. Aggressive manufacturers may purchase enough space to create their own mini-stores.

Target would sell real estate instead of products. Given the very tight margins in the retail electronics business, this could prove to be much more profitable. This approach could also be used throughout the store, but it doesn’t mean that Target would get out of the retail business. Consumable products, such as health and beauty, drugs, and groceries would still be stocked in the store and available for immediate pickup.

Furthermore, Target would have two additional sources of revenue. First, Internet kiosks throughout the store would allow customers to purchase the products from the showroom. In true showroom fashion, customers would be free to study the products and order from their home. However, the path of least resistance would be an in-store purchase. This purchase option could be Target itself, or it might be an online retailer who offers Target a sales commission.

The second new source of revenue would be an ecosystem that addresses the shortcomings of online shopping. This would include a shipping department and a warranty department. Customers could choose to receive products directly at the store, and could go to the store to send back returns. Warranty issues could be handled in the store itself, and product support would be available. Think of this as a Genius bar from the Apple store, except that it handles all manufacturers.

The shipping department could even be used to facilitate peer-to-peer transactions. When you buy something online from your favorite classified web site, the product is shipped to the Target nearest you. You don’t pay until you pick it up and verify the condition of the goods, but the seller is ensured that money will be collected before the item leaves the store.

I really believe that this would be a profitable approach, but the thought process behind this is even more important. At some point in time, a business must recognize that its business model is under threat. Profits will be maximized in the short-term if you defend the status quo, but it will lead to a dwindling business that has no long term chances of survival. The most recent example of a business that tried this approach was Kodak.

Instead, a successful competitor will look for opportunities to capitalize on the new trends. It may be that current bricks and mortar retail models are facing a losing proposition. The question is whether there is a new opportunity that makes the most of the strengths of these companies.

1 comment:

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