Downfall of offline stores

Customers browse through sunglasses and cosmetics at a duty free shop in Changwon, South Gyeongsang Province, Thursday. An increasing number of consumers are opting to browse at offline retail stores but make purchases online, as they are able to get the same products at cheaper prices. This type of behavior has been termed "showrooming," as brick-and-mortar stores end up serving as showrooms for products which consumers buy on the Internet. / Yonhap

Brick-and-mortar retailers become showrooms as purchases take place online

By Kim Bo-eun

Lee Ji-young, a 26-year-old office worker, has principles when it comes to purchasing clothes and fashion items. While she likes to buy items from brands in department stores, she has stopped purchasing from offline stores and instead shops online to get better deals. However, her visits to department stores continue.

Browsing around department stores, when she finds something she likes, she tries on the item to see if it suits her and checks which size fits her best. Then she takes the note of the product number. When she gets home, she types in the product number on the Internet, and is provided with a list of online retailers which informs her where she can get it at the cheapest price.

“The main reason I buy items from online retailers is to get them at lower prices. But simply viewing them online and getting them without trying them on has its risks, because at times, you find that the clothes do not fit you, and then you have to go through the hassle of returning it,” she said.

Like Lee, an increasing number of consumers are turning to this method to maximize shopping satisfaction. This behavior is known as “showrooming,” because offline stores are referred to as showrooms where products to be purchased online are displayed.

A survey conducted by the Korea Chamber of Commerce and Industry (KCCI) last year on 310 consumers in capital areas and major cities across the nation showed 43.2 percent had experience utilizing both offline and online resources when purchasing a product. And among them, 53.7 percent checked the product at an offline store before purchasing it online. Other forms of consumption included first checking products online and purchasing them at offline stores afterward.

Background

Higher prices serve as the dominant factor in deterring consumers from making their purchases at offline stores. Brick-and-mortar stores need to pay their rent, bills and staff salaries, which keeps prices high. Online retailers on the other hand, are free from such costs and therefore can offer products at cheaper prices. However, price is not the only factor that consumers consider — an eyes-on experience of examining the product of choice is regarded as equally important.

According to a study by the LG Economic Research Institute (LGERI) earlier this year, this behavior arises from the desire of consumers to get the best from both offline and online shopping experiences. Basically, consumers want to check quality by examining a product when it is physically in their hands, and then want to get the product at the cheapest available price. The survey by the KCCI also indicated that seeking price satisfaction and quality satisfaction were the greatest reasons for showrooming.

Increased confidence in online shopping has also contributed to rising rates of online purchases. In the past, before online shopping became a major medium through which to buy products, consumers did not trust online retailers and wondered if it would be safe to expose their credit card information. However, now that security systems protect personal details and credit card information, and there are proper refund policies in place, more consumers are making online purchases. Online product reviews by other purchasers also play an important role.

In addition, the growth of the percentage of the population with Internet access has also led to increased online purchases. According to the LGERI’s study, 90 percent of those in their 20s, 78 percent of those in their 30s and 49 percent of those in their 40s go shopping online.

Moreover, the rise in smartphone users and apps which provide price comparisons, has also contributed to the trend. According to Google Korea Monday, the nation’s smartphone penetration rate for the first quarter stood at 73 percent, which is triple the rate of two years ago. Smartphones come in handy during offline shopping experiences because they enable consumers to type the product number and get the information they need right on the spot.

Smartphones serve as the hardware while price comparison apps are the software which save consumers time and effort when comparing prices and purchasing a product. Online sales company Amazon has a price check app that lets users know how much cheaper they can purchase a certain product on Amazon when they scan the bar code on its tag or upload a picture of the product.

Foreign cases of tackling showrooming

Showrooming has been taking place in developed economies for some time. Offline retailers have been struggling to maintain business, sometimes being forced to declare bankruptcy.

Prevalent showrooming at U.K. photography chain Jessops led to its collapse. A sign at a shop window read “The staff at Jessops would like to thank you for shopping with Amazon” shortly after the British camera chain went into administration, according to news reports.

In an attempt to battle against the trend, the retailers have been introducing various methods to keep afloat.

The former CEO of America’s largest electronics retailer Best Buy Brian Dunn resigned last year after the company determined it needed new leadership in dealing with the threat of showrooming. In an attempt to combat the trend, it introduced an online price matching guarantee against e-retailers such as Amazon. However, Best Buy posted an $81 million first-quarter net loss on the price cuts this year.

Target, the second-largest discount retailer in the U.S., stopped selling the e-book reader Amazon Kindle, a product most commonly purchased online, and is focusing on offering products exclusive to its stores. Walmart, the number one U.S. discount retailer, is allowing its customers to pick up their online purchases at its stores, as a way to save them shipping costs and increase the retailer’s sales.

A number of fashion specialty stores in the U.S. and Australia have gone as far as charging a “fitting fee” for trying on items, which is refunded when customers make a purchase.

Direction for offline retailers

Meanwhile, studies show that showrooming is bound to continue in Korea. In the KCCI study, 79.9 percent of the respondents said they plan to make their shopping habits of utilizing various retail channels more frequent.

“Forms of consumption utilizing various retail channels are increasing among young workers in their 20s and 30s, in order to purchase products with which they can be satisfied both in terms of price and quality,” said a KCCI official.

“Forms of shopping that fuse various retail channels will become a trend which brings a change to the retail market.”

This means that domestic offline retailers will have to brace themselves and come up with measures to keep in business. While they can learn from their foreign counterparts, they are advised to try to provide a better retail environment as well as services that can entice consumers to make their purchases on the spot, rather than introducing possibly self-destructive methods such as matching prices with online retailers or charging “fitting fees.”

“For consumers, ideal retailing gives consumers assurance in quality and provides them with economic benefits in a convenient way that saves them time and effort,” said Choi Kyung-un, analyst at LGERI.