Since moving to LA, I’ve had to shop for more than the usual quota of household items - towels, sheets, some electronics, etc. I’m an Amazon Prime customer, so a lot of that stuff has been ordered online, but there are some things where I’m still not completely converted to online buying - sheets and towels, for example, still seem like something I want to touch and see in person before buying. But my experience this month may change that. And I don’t think I’m alone.
It’s pretty clear to me that a lot of large chain stores, like Bloomingdale’s, Macy’s, and Best Buy, just don’t understand the new retail reality. Whoever is managing them and setting prices doesn’t understand that they’re being cross shopped with any number of online retailers that can offer similar (and in some cases, superior) service and selection. And they don’t seem to realize that in a world where the friction of cross-shopping has been reduced to nearly zero due to the removal of geographic penalties on shopper movement, pricing strategy has to change, or they risk alienating shoppers permanently.
Let’s be clear: I generally like Best Buy. They’re definitely better than Circuit City ever was. Generally, I’ve found that their pricing and selection on big-ticket items has always been reasonable — maybe not as good as online, but close enough that the immediacy of buying in person made up for it. I’ve generally felt similarly about Bloomingdale’s and Macy’s, although I’m far less likely to ever shop at those stores - shopping Macy’s Herald Square flagship is generally enough to make me want to pull out my hair. But that was just part of the charm of the place.
Here’s an easy example, and one I’m choosing because it’s even in place online. Let’s say you buy an HD television at Best Buy. Maybe because you saw the low price in your Sunday paper. And a nice Blu-Ray player to go with it. Chances are you’re going to need an HDMI cable to connect them, because that player doesn’t come with one (even though it’s only video output is probably HDMI — I guess they figure you might not want to actually use it.) The cheapest HDMI cable they sell in their store, a Dynex 6’ HDMI cable (Dynex is Best Buy’s house brand - it’s essentially a total generic product) is going to run you $29. A similar cable from NewEgg, a top online retailer that ships 90% of its orders within 24 hours? $5. Amazon has similar pricing.
That additional 580% markup probably represent as much profit as Best Buy is making on the television (unless you buy the extended warranty - but that’s a whole different highway robbery.) I understand consumers may pay a premium for convenience, but that’s ridiculous.
Essentially, Best Buy is counting on the hope that it’s customers won’t check prices online, or ask a friend what a cable should cost. Rather than delivering a reasonable value to their customers at a reasonable markup, they’re gouging consumers on the follow-on purchases associated with big ticket items. It’s an application of the behavioral psychology principal that once you’ve already made a big purchase decision, you’re less inclined to sweat incremental purchases of a smaller size.
I had a similar experience in Bloomingdale’s yesterday. I’m considering buying a coffeemaker but I’d like a value-priced one (all they really are, after all, is a water tank, heating element and filter holder - that shouldn’t cost $200.) Bloomie’s had one on “super clearance / bargain price” (there were GIANT signs) for $130. I took my iPhone, ran an app called RedLaser and snapped a shot of the bar code on the side of the product’s box (you could also just search by name in the Amazon iPhone app.) Within seconds, prices from several retailers came back - and they were all lower, everyday prices than Bloomingdale’s “deep discount” markup. Imagine if I’d bought that unit /before/ it was put on sale, got it home, and then looked it up on the net.
Walmart and Target, I suspect, understand all of this, with their “everyday low pricing” strategy of simply being competitive on pricing and avoiding the “40%-off, end of season” sale cycle.
If upscale stores don’t figure out fast that their customers are just as much, if not more, inclined to cross-shop them with online retail (especially for big-ticket items), they’re going to have an even worse Christmas than last year. There’s always been a trust between consumers and big retailers that prices had some kind of connection to fair value, even if some items were a bit overpriced. It only takes being overcharged by nearly 6X once or twice to start checking every price online using your phone. And it’s not far from there to simply buying online, because you know that an online retailer like Amazon or New Egg has to compete on price with the entire Internet, instead of just trolling for unwary consumers to gouge.
(Disclosure: I work for a subsidiary of a subsidiary of Amazon.com. Neither my company, nor its parent, is in the retail space.)
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