Local Retailers CAN Compete with Online Giants

Published March 22, 2012 Share

It looks like channel conflict issues are again getting coverage from the mainstream media. Writers at the NY Times and Global Toy News have recently picked up on the same issue. Both have written articles chronicling retailer frustration with competition from big online websites like Amazon, Zappos and others.

And retailers have a right to be frustrated. More shoppers are simply coming into their stores, trying out products and then leaving to complete their purchase online at a discount. Not only do retailers feel used and abused, they are losing business, and some have even been forced to close shop.

Of course we, as consumers, are allowed to browse products where we want and buy them where we want, but the costs of stocking and running a retail store must be paid for somehow. If those costs are not paid through purchases from those stores, how will they be paid – store browsing fees?  Probably not, but the fundamental differences in prices online and in stores, exacerbated by tax-free status for out-of-state eCommerce stores, is creating a real problem for brick-and-mortar retailers.

So what can these retailers do?

There is hope. One promising tactic is retailer cooperation. It has been proven effective by The Bike Cooperative, a buying group of well over 300 independent bike dealers across the US. These local dealers have joined together to share expertise, pool buying power and cut costs in order to better compete with larger chains and online competitors that threaten the success of their businesses. The cooperative, started in 2003, offers marketing services, group-buying discounts, shared training programs, and reduced credit card processing fees to its members. But this is not an advertisement for the buying group, it is a post about how a group like this was able to enter the eCommerce age.

Early last year, The Bike Cooperative and its members saw the challenge of online sales. Bike dealers’ sales were falling even as interest in cycling and endurance sports was on the rise. And it was pretty clear that a major cause of this was online sales. Powerful new competitors like Amazon.com and Backcountry.com had entered the cycling market and started to lure customers out of the bike dealers’ stores with better online prices.  That did not necessarily mean that they had less people in their shop, just that those people were now trying out more products, and getting the same amount of advice, but buying less.

Rather than throw up their hands or whine to the vendors that this was not fair, the bike dealers’ response was to fight fire with fire.  The Bike Coop decided to create an eCommerce website and order management solution with Shopatron. Their solution, BikeStoreGuys.com, is a single central eCommerce website that sells aggressively online, then sends all sales to the bike shop closest to the customer.  Instead of having to compete with Amazon.com individually, the member stores of the cooperative pool their resources to compete as a single unit. Smart. They now cooperatively invest in online marketing to drive shoppers into their single online store and coordinate promotions to drive sales based on their tight partnerships with vendors.

This kind of cooperation helps local shops compete. They can now offer a similar volume and variety of inventory like larger online marketplaces can. Plus, by using Shopatron’s distributed order management solution, they are able to provide local, in-store service and assembly even when the sale is completed online. That is something Amazon will never be able to provide - personalized, hands-on knowledge and service from a local cyclist.

In these days of global commerce and big-box stores, people want to get back to local.  It’s about time little shops get together to give them the “local” they want.

And there is hope. Another development that bodes well for retailers is the pending federal online out-of-state tax legislation. Price may be a reason people shop online, but it is not the only one. Removing the online sales tax loophole will take a huge subsidy away from online retailers who will no longer be able to offer an automatic 6-10% discount (depending on the state tax rate) to customers. Local brick-and-mortar retailers will see big benefits from standardized tax legislation, putting them on a more level playing field with their online-only counterparts - a playing field where they can win through customer service, expertise and convenience.

Mom-and-pop retailers have been hit hard by the massive presence and marketing budgets of big box stores on- and offline. Individually, they can’t easily compete, but collectively they can offer shoppers the choice and convenience that their competitors provide, as well as the knowledge and service that no mega retailer can touch. (When was the last time you asked for and received a usable, informed response about a product from a sales associate in a big box store? For me, I can’t remember the last time I didn’t know more than the store employee about the product I was considering.)

This kind of collective approach to eCommerce actually gives local retailers a stronger foothold in their own community. Add to that increased support from the brands they carry, who can also send online sales to them, and local retailers will continue to be a key component of the retail buying equation.  This is good for us all – some studies show that twice the money stays in the community from purchasing from a local shop versus a major chain store.

It’s time for a retailer resurgence that combines what we love about mega stores, competitive pricing, with what we love about eCommerce, convenience and pricing, and what we love about shopping local, service and expertise.  It’s possible.  Just ask the Bike Store Guys…

It’s always good to get mainstream vindication of your own predictions. Our Shopatron Prediction #6 in the whitepaper 10 Ways “Online” Will Change Life for Brands and Retailers in 2012 stated, “The more branded manufacturers begin selling direct to consumers online, the more retailers are going to feel the pinch and resent those sales being pulled out of their stores.”

Then there was our blog post over the holidays that featured a bonus prediction from Shopatron’s founder, Ed Stevens. That blog predicted the loss of UPC codes due to local retailer frustration with lost sales due to price-checking apps. Seems a little less far-fetched just three months later, doesn’t it?