Retailers aren’t all lumbering behemoths being driven into extinction by online merchants. Many have figured out that they are actually running showrooms and charge the manufacturers rent for displaying their wares. Supermarkets have been playing this game for years, renting shelf space by the foot to people like Coca-Cola.
Meanwhile, people like WalMart make a business out of logistics, they only carry stuff where they have a strong financial advantage. It’s not impossible, but it’s hard to beat their prices when you factor in shipping.
It will be interesting to see how Amazon and WalMart match up against each other over the next decade. I wouldn’t be surprised if WalMart start displaying higher online prices right beside their merchandise in the store.
What shipping? Amazon ships for free on any decent-sized ($25+) order.
I'm skeptical that Walmart can really beat Amazon via logistics. They're both top-notch operators in that realm, but Amazon's product pipeline is a huge advantage - they don't have to manage nearly as many locations, nor do they have to hold as much inventory relative to sales volumes because they have fewer fulfillment centers.
The dollar value of shipping isn't the only cost - 2+ days is a long time to wait and Wal-Mart is only a couple of miles away. Some things can wait and you can plan ahead to account for shipping times, but not everything can be planned for and sometimes you just want or need something tonight.
Weekends are especially bad - once Thursday afternoon passes, you're probably not going to get what you order until Tuesday or Wednesday.
Fair enough, if you live close to a Walmart (and I know many do.) Personally, I find the 2 day wait is generally a reasonable trade for being able to order from my iPhone wherever I am, saving me an hour of driving to Walmart, going in and driving back. Moving errands from time blockers to parallel processes is a win in my view.
This is exactly what I love about Prime. Need something? Take 3 minutes to go online and order it. Then forget about it. It will come in a few days and requires no mental overhead (i.e. "remember to buy X at the market next time") in the mean time.
But Wal Mart's shipping can be much cheaper due to their predetermined, set routes. A truck is going to that store every night regardless of what is on it. They often offer free shipping to the store because the marginal cost to them for putting one more box on a truck is negligible.
Unless you've arranged to live within walking distance to a Walmart, you've got to get there one way or another; by buying gas and driving, or by taking the bus subsidized by the local municipality.
Seems to me like UPS (or whoever delivers for Amazon) also has predetermined set routes. Also, just because marginal cost is zero doesn't mean cost to shipping customer is zero.
Everyone has to use distribution centers and ship things multiple times - items come from Asia in shipping containers, which you have to break up and load into trucks, since individual stores don't stock inventory in amounts that large. Walmart has an extensive network of warehouses around the country that receive goods before they're shipped to the retail locations.
Additionally, given the lag on orders of new inventory from overseas (which can be months), Walmart and other retailers have to maintain a pool of merchandise here in the US that they can ship to individual store locations based on local demand to replenish inventory.
Of course, the "free shipping" takes a lot longer (sometimes a week longer) than even their standard shipping. If you want free shipping that takes place reliably quickly, you have to sign up for Amazon Prime, at which point free shipping is no longer free.
Prime's about what, $7 a month? Each mile I drive costs $0.20 in gas. If having Prime saves me just half an hour / 35 mi of driving a month (less than two trips to Walmart), it's cheaper than going to the store.
If you amortize it over a year, compare it to the cost of driving to a store and include the cost of free streaming videos then Prime is virtually free.
Walmart makes special deals with those they buy from. It's more like Walmart tells them what the price is. I don't think Amazon has that kind of leverage.
To a certain extent Amazon does; they wield a lot of clout in book pricing and an enormous amount in ebook pricing. Outside that traditional core competency (and Amazon Android Appstore) not so much
"people like WalMart make a business out of logistics, they only carry stuff where they have a strong financial advantage. It’s not impossible, but it’s hard to beat their prices when you factor in shipping."
Exactly and true except for long tail items.
In theory if you take an item and stock, arbitrarily 500 of it in a Walmart you only have the cost to ship 500 in bulk to the Walmart. The customer costs zero to come and pick it up (and they don't factor their time into the equation either). Intuitively that has to be much cheaper than using UPS or Fedex to have a driver stop off at 500 different places. Just like it would be cheaper to have everyone pick up their mail at the post office. Walmart is in essence an efficient warehouse.
And it doesn't matter who pays either it's a cost that someone has to bear. One way or another someone is paying for the delivery to the end user if the item isn't being picked up.
Maybe not WalMart, but this is exactly what Best Buy has become for me. I love going into Best Buy, just to be surrounded by all the high tech goodness, but I never buy anything there. I go to check stuff out, then go home and jump online and order the same thing for 20% or more less from Amazon or Newegg.
I've got to say: This is the rational, homo economicus way that textbooks say buyers should behave and, to me, it's just terrible! You may find it pedantic, but I think that if BB provides a utility for you you should reward them. The same thing is happened to large bookstores, music stores, etc., people checked out the wares and then bought it online.
Part of me agrees with what you're saying, and in some cases, I do acknowledge this and try to give business to those that truly provide a valuable service to me.
However, in the case of BB, I'm less inclined to reward them, as I feel they -- in a lot of cases -- take advantage of uneducated customers, and gouge them with certain lines of products. Cables (Monster cables are the worst) being a prime example of this, where they sell cables at a cost sometimes 25-50 times that you can get almost anywhere online (selling a $3 cable for $100).
I don't want this to turn into a discussion about specific stores or products, just using that as an example of why some retailers have lost the respect of some of the more educated consumers. Business is one thing, but taking advantage of the uneducated is another.
But again, I do agree with you about the general notion of giving business to those that provide a valuable service to you.
I recently went into a retail store to purchase a laptop - I had to buy one and didn't give myself enough time for purchasing online.
I asked the assistant which ones had a SSD drive - she told me they all did. 'All of them?' I asked. 'Oh yes, she said'.
I smiled and walked out. I'm sure she thought I meant 'hard drive' and used a funny word for it, but if you're selling laptops and don't know what SSD means - well, what's the point of shopping there?
I went into Home Depot and asked for a piece of two by four to be cut to 38 7/8" length. The guy doing the cutting had to come and ask me what exactly 7/8ths of an inch looked like on a tape measure. It's the really small tick marks, right? I told him the really small ones are 16ths, and pointed to where the tape needed to go for 38 7/8". You can bet I measured that piece of wood after he'd cut it.
I don't mind using Best Buy as a show room when they seem to have plenty of customers unwilling to do a simple google comparison shop before they leave for the store.
As long as wireless routers and HDMI cables continue to be foreign concepts to most consumers, brick and mortars like Best Buy will stick around.
This seems like a rationalization for me. I too dislike BB's tactics, but instead of using them as a free showroom, I just avoid them. I will give nothing to them, but neither will I take anything from them.
I had a very pleasant experience the two times I went to best buy: once to get a phone plan (the guy at the counter saved us good money by suggesting a nice text plan I hadn't come across during my research).
The next time I bought three big appliances: knowledgeable saleslady who smartly realized that I'd done my homework. Didn't waste my time; didn't try to upsell, gave honest opinions on diffs between brands.
I'd go there again. And oh, I order lots of stuff from Amazon Prime too.
Yeah, I stopped shopping at Best Buy for this reason. All they sell for accessories now is their two in-house brands and Monster, all of which are stupidly marked up.
It's not terrible. If Best Buy wants compensation for a service they provide, they should charge for it. It's that simple.
Don't fool yourself into believing that Best Buy deserves success because they are useful. You don't owe Best Buy anything. Best Buy does not care about you. Best Buy is not your friend. Best Buy is a business and should be treated as such.
I understand and you are of course right. Here's the question, though: what if everyone does what I do, i.e. look at the store and then buy from Amazon, etc? Isn't this the tragedy of the commons? Then BB will close (like Borders) or would have to radically adapt (like B&N, who currently carry half books half toys in most stores).
Luckily for all of us who enjoy perusing BB, they are (currently at least) avoiding both fates since (i) they are pretty much the monopoly in electronics stores and (ii) there are a lot of customers lazy or clueless enough to just buy their stuff there rather than online.
Then either BB will start charging an entrance fee, or they will start charging the manufacturers display fees. At that point they can reduce their prices to about that of online shopping (since you have the value added of being able to purchase the product immediately, but your time spent driving plus gas plus maintenance costs more than shipping).
You could say this about any unprofitable business. It's the business's job to offer transactions to each individual customer that aggregate to the positive for the business. It's not my job to provide corporate welfare to ailing Best Buy.
You could use the same logic to criticize a listener for not buying a bad album from their favorite band.
Heck, even I waited until the price drop on Amazon MP3 to buy The Roots' new album today. (it was $8 last night)
We don't actually disagree. I'm just pointing out the consequences. There are instances where I buy things based on those consequences as opposed to what was best for me.
I hope you're right and they find better revenue models. I would hate for all these "showrooms" we have to go extinct. Could the day come where you pay an entrance fee to browse the latest gadgets at your nearest BestBuy "showroom"?
I doubt if they'll go extinct. As others have noted, they're already getting various coop marketing and placement dollars from manufacturers. And the fact is that they make a lot better margin on accessories and largely bogus warranties than on the big electronics purchases in any case. Add impulse purchases like games and it's hard to see them all going away although they'll doubtless continue to evolve.
Apple notwithstanding, it's generally way too expensive for manufacturers to setup their own showrooms. So they pretty much need some sort of shared space.
(On the other hand, just because it's in individual manufacturers' interests to have a widespread Best Buy sort of store, doesn't guarantee that they'll continue to exist.)
True enough, Best Buy will probably not go extinct. However, this type of thing is so unbelievably damaging to mom-and-pop retail operations who do not have the buying power/leverage with manufacturers that a giant like Best Buy has. If I owned a mom-and-pop place like my parents, I would immediately investigate how I could jam cell signal in my shop. There is no way in hell I would let a customer in to just try some jeans on, watch them scan the price tag, and walk out the door with five extra bucks from Amazon without buying my product.
Also, I think Costco has an advantage because they get custom packaging/bundles for a lot of their products. It's the one place I often can't scan the barcode with Amazon's app.
I wouldn’t be surprised if WalMart start displaying higher online prices right beside their merchandise in the store.
WalMart will compete if they are threatened. A new bargain supermarket moved into the area that puts price comparisons between them, WalMart, and the other local chains in its weekly flyers. In response, the local WalMart started putting signs up in the store showing their price and the competitor's price (and name) for items where WalMart is cheaper.
That is all fine and dandy, but what about locally owned retail operations that simply do not have the reach/power/leverage of a place like Wal-Mart? Do you think that LG would pay "Billy Bob's TV and Appliance" to display its televisions in his store?
Probably not, but why would I even go to Billy Bob's when I can go to Best Buy? And if there are only Billy Bob type stores around, then maybe LG would pay Billy Bob if he had the most traffic in the area.
Perhaps you had a better experience at the local place. Maybe they had a more knowledgeable sales staff that was able to articulate well the benefits of one piece of equipment versus another. There are as many reasons that you would have a good experience there as there are reasons you had a good experience at Best Buy. My point was that because Best Buy has such enormous power with their suppliers, they are in a significantly better position to bargain with those suppliers than a local shop. I would presume it would be pretty difficult for any local shop owner to convince a distributor of name-brand merchandise to pay them to stock those products on their shelves, simply because the buying power of a local shop is not that of Best Buy.
Really, the local operations are getting hit from all angles - online, big box, etc. To me, as the offspring of local business owners, that is disheartening. Like I keep saying throughout this comment thread, it is just a sad thing to watch all of the great little places in your area get driven out of business because of such vicious competition. I am not advocating any kind of corporate welfare here, but when you shop locally, more of your money stays in your area. I invite you to check this out: http://www.localfirstaz.com/local/index.php
Meanwhile, people like WalMart make a business out of logistics, they only carry stuff where they have a strong financial advantage. It’s not impossible, but it’s hard to beat their prices when you factor in shipping.
It will be interesting to see how Amazon and WalMart match up against each other over the next decade. I wouldn’t be surprised if WalMart start displaying higher online prices right beside their merchandise in the store.