A couple weeks ago, Target issued an urgent letter to vendors, suggesting suppliers create unique products for it to carry so that it could better compete with online merchants bent on underselling Target through price-comparison mobile apps. In short, Target is sick and tired of being used as a showroom.
"Where special products aren't possible, Target asked the suppliers to help it match rivals' prices," wrote Anne Zimmerman of the Wall Street Journal (Jan. 23). "It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise."
For large department stores like Target, Macy's, J.C. Penney or even Walmart, the ability to compete is largely determined by the product mix they select from suppliers and manufacturers. Target carries thousands of products, each attempting to carve out an identity for itself on crowded shelves. The store has a simple function: to sell all kinds of products to all kinds of people. Back in the day, this was the big-box department store's advantage -- it could sell you everything you needed within its four walls.
On the other hand, for retailers like Apple and IKEA, the situation is much different. These companies manufacture all the products in their respective stores. More than a place where products are sold, the Apple store is an extension of the Apple brand. Not surprisingly, Apple and IKEA stores tend to be a lot more fun spaces than your local Walmart. They're spaces where you can dream and play and hang out; where you might move a little more slowly, and spend less time looking at price tags. Because they sell the products that they make, they don't have to worry so much about the margins, and what the store across the street has on sale. Instead, they can focus on delivering a pleasant experience and build relationships with customers in the process.
How do they do this? Once a year, IKEA stores host sleepover parties. People show up in their PJs and sleep in IKEA beds. Nothing is bought or sold, and people show up in droves. Part of Apple's genius is that it offers services in their stores that aren't directly related to sales. They'll sell you products, sure, but they'll also talk to you about computer issues, let you play with their new gadgets and allow you to hang out as long as you please. McDonald's sells hamburgers, but they also invite kids into a fun little world complete with a cast of cartoon characters, toys, and play areas.
This experiential approach to retail -- creating attractive spaces and allowing people to enjoy them (see Public Places) -- is something that online retailers cannot offer, but it's an approach that will be difficult for the big-box stores to emulate. And losing the price battle with online retailers is also why Best Buy is going out of business.
When a brand is built exclusively on, say, "everyday low prices," there's little to differentiate it from what Amazon offers. And if it comes down to a price war, the online retailer wins every time.
"That's fine and dandy, but I'm not Apple or IKEA. I rely on suppliers. What can I do?"
There's no sense competing on the basis of price. We've written about this before (see Amazon's Price Check App). Retailers must do what Amazon can't do: Offer a superior in-store (demonstrate value, convenience, service, etc.) and let customers walk out with the product in hand, not wait a couple weeks for it to be shipped to their doorstep. As we've seen with the Apple Store, price isn't everything -- people are willing to spend more for a better experience.