Newsweek Magazine | Megan McArdle | The Future of Shopping: Get set for luxury to win the battle for the brick-and-mortar marketplace.Like I was saying yesterday about diamonds, it's easy to say that the advantage of physical retailers is that they can provide "service," but it's not clear to me that having an actual salesman around providing "service" is actually that much benefit to consumers. It certainly can be, but I wouldn't jump to list that in the "pro" column without a lot of consideration.
“Clearly unsatisfactory” is what Best Buy CEO Hubert Joly called the company’s third-quarter earnings. It’s a droll bit of understatement—so French!—when words like “plunge” and “dismal” more accurately capture the numbers that the company reported on Nov. 20. Sales were $12.1 billion in the third quarter of 2011; a year later, that number had shrunk to $10.7 billion, with net income working out to just 3 cents a share. Five years ago, in December 2007, a share of Best Buy was worth more than $50; today the company is trading just under $13. This may be some sort of record—from profit powerhouse to basket case in under five years.
This is an actual service:
[Best Buy] is also undertaking extensive renovations on remaining stores to refocus them around personal service—the one thing that Amazon can’t deliver via UPS. “With things like home appliances, people are going to want the things we offer, for example, the delivery to service and install. Or Geek Squad: thousands of people sitting in homes, doing installations, across all the platforms,” says Stephen Gillett, the digital wizard who helped lead a turnaround at Starbucks before joining Best Buy eight months ago.But too often I hear people say physical stores can provide customers with service without really laying out what that's going to be. I don't know about you, but my experience with the employees at places like Best Buy is that they're usually disorganized, sullen and uninformed. They're not as bad as the employees at Staples, but they're not particularly pleasant to interact with or helpful. Perhaps this is the introverted geek in me speaking, but at a lot of retail locations I would pay extra not to deal with employees. If I was in charge of a big box retailer I would be really hesitant about staking out a strategy that revolved around those people as linch-pin assets.
Another thing to consider: if "service" really does become a competitive advantage for traditional retail chains, there's not much reason to believe online chains couldn't snatch that away from them. No advantage is permanent, after all. (See: "What Killed Michael Porter's Monitor Group? The One Force That Really Matters".) Didn't Geek Squad start out as an online operation? Is there some reason Amazon couldn't staff up it's own teams of in-home installation & repair experts?
If you're Best Buy you need to invest in a couple of people in every location who are helpful and knowledgable enough to help people make good decisions about buying a TV. If you're New Egg, you only need a few dozen people who can do that in the whole country. They don't need a home stereo expert waiting around in every single store waiting for someone to come in looking for advice and education about BlueRay players. I would not simply assume that online retailers won't be able scale "service" the same way they have scaled up everything else.
One example: my experience with Land's End customer service over the internet and phone has been exemplary. Really first rate stuff. My experience with them in stores has been maybe 3/10 stars. I can get far better service not in person than I can in person, and that's within the same company.
“Home Depot and Lowe’s will survive, because people who go into those stores need a lot of help,” he says. So do many electronics consumers, and Dubé believes that the best way to win them back is to provide expert in-store service.I'll believe most of the people who go into a hardware store need help. But I'd be surprised if most of the revenue comes from people who need much help. If someone could siphon off all the small contractors and tradesmen from Home Depot & Lowes I think those stores would end up looking a lot different.
I'm getting into speculation now, but I'd think number of builders who would be comfortable ordering most of their tools & supplies from an online retailer isn't going to be shrinking in the next twenty years. And it doesn't just have to be an online catalog-with-delivery. There's a lot of possibility for new business models like "tools-as-a-service.")
But upskilling the workforce means swimming against the trend for retailers, who have been steadily moving to more part-time workers on lower wages and shorter shifts. Sophisticated software now allows managers to project store traffic flows based on time of day, holidays, even the weather. Workers plug in the hours that they’re available, and the computer spits out a schedule that uses them only when they’re most needed, which can shave labor costs by 4 or 5 percent.Again, this works in New Egg's favor. They can hire someone to sit in front of a webcam 40 hours a week and answer customers questions from anywhere in the world rather than trying to guess when to staff experts for a couple of hours in a thousand places. (It's also easier to predict how many people you'll need, since you're trying to estimate a single Poisson process using lots of data rather than an independent process for every single retail location using much thinner samples.)
In a business with thin margins and high labor costs, this can mean a big improvement in the bottom line. But it’s hell on workers, who complain that they have to make themselves available for 60 hours in order to get 20—while never knowing which 20. [...] This is not the way to attract a high-end labor force that can sell your customers on service. But giving up those savings means that the price gap between brick-and-mortar and online stores grows wider. And the pressure to use shorter shifts will get even more intense next year when the Affordable Care Act begins to require that companies buy health insurance for any employee working more than 30 hours a week or else pay a stiff penalty.
Is Grandma going to be comfortable using a webcam to consult with an expert before getting a new microwave? Maybe not. But her kids may be. And her grandkids almost certainly are.
And doing so is only going to get easier. If big box stores got into this mess in the first place because people got more comfortable doing things online and using smart phones and gadgets, then I'd say they'd be pretty unwise to adopt a solution that counts on people not being comfortable doing things online and using gadgets to shop.