Consumer electronics retailers at risk of fading into oblivion

Consumer electronics retailers at risk of fading into oblivion

Summary: Consumer electronics (CE) retailers are on their way out if they don't learn from the fallen and better respond to Internet shopping model.In a report released Tuesday, market analyst Canalys predicted a future where CE retailers will go the way of Best Buy Europe, CompUSA and Circuit City and "disappear" as a result of the "strategic failure" of the CE retailing model.

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Consumer electronics (CE) retailers are on their way out if they don't learn from the fallen and better respond to Internet shopping model.

In a report released Tuesday, market analyst Canalys predicted a future where CE retailers will go the way of Best Buy Europe, CompUSA and Circuit City and "disappear" as a result of the "strategic failure" of the CE retailing model.

Canalys CEO Steve Brazier said: "They were hit by a perfect storm of competition from the Internet and supermarkets. They lost too much business to competitors undercutting them on price and failed to respond to the many attractions of Amazon's online approach, such as its vast stock ranges, peer reviews, recommendations, free delivery and excellent returns services.

"Today's consumers are even willing to browse for a book in a local store, then order it from Amazon at a higher price simply because they want Amazon to understand their entire library, to optimize future recommendations. This is more than 'showrooming' [and] signals a fundamental shift in consumer perception of value."

Canalys Principal Analyst Alastair Edwards added that supermarkets have also done a good job running promotions on low-end CE products and shown willingness to forgo bigger margins to lure customers to their stores. "Many have good online tools and make deliveries too," he noted. "In many countries, supermarkets are the most efficient route for shipping a single product in high volumes."

CE retailers in Europe also saw their content businesses collapse, with vinyl, film and film processing, CD and DVD businesses going down the drain, Edwards said. Kindle and iPad apps had also eliminated revenue opportunities in magazines and books, and consumers were moving online to download games and software, he added.

"CE retailers now offer very few benefits to consumers. They appeal to the rapidly shrinking proportion of people who are unable or unwilling to shop online," he noted. "The growth of Internet shopping should not have come as a surprise to the retailers; the threat has been building for 15 years or more. Yet, as a group, they failed spectacularly to respond. Most now have online stores to complement their shops but in nearly every mature market, they are the distant followers, not the leaders, of Internet retail."

"The window of opportunity has closed; they will never catch up with the Internet specialists," Edwards said, adding that CE retailers had started late and underinvested. They also worried about their online businesses cannibalizing and undercutting their in-store sales. "They wrongly assumed the benefits of 'touch and feel' would continue to protect them, but a new generation of consumers has grown up with a different way of thinking. The success of online fashion retailing is a strong indicator that no category is safe from this change in behavior, [and] other retailers should take note."

Canalys suggested that remaining CE retailers would look to Asia for survival but the research firm believed this would prove limited because Internet shopping was "still a niche activity" in some countries such as Thailand and Singapore.

I would argue against its observation about Singapore...Canalys should take a peek at my long shopping history with Amazon, and I know several friends and many others who regularly shop online.

The research firm went on to suggest that some of the CE retailers could explore the potential of setting up showrooms, pointing to Apple as an example of "iconic stores" that had redefined modern retailing. Cupertino picks prestigious locations for its outlets which offer various services including free tips and hints, and paid classroom training. It also establishes partnerships with artistes and introduces events to attract the crowds.

Apple offers 1-1 engagement to optimize cross-sell and up-sell accessories and other sales opportunities. It is also closely integrated with its online shop by providing mixed services such as its "reserve online, collect tomorrow" feature, Canalys noted.

But it warned against simply imitating Apple's model which is successful also because it produces products that are popular as well as its ability to control the brand and customer experience.

By 2020, Canalys said many city centers will be different from what they are today, with many famous retailers gone.

Edwards said: "People will seek retail premises out...for experiences centered around entertainment, relaxation and education; for events such as celebrity appearances, performances and signings; for socialization and sustenance; and where brand exclusivity or the nature of specialization or service required cannot be met by online alternatives.

"A great innovator may find a way to build a next-generation outlet that can shift CE goods while offering some of these experiences. But, it is more likely that the majority of CE retail chains in mature markets will simply disappear within the next five years."

I think it also boils down to understanding what customers want out of their CE shopping experience. In Singapore, for example, local IT retail chain Challenger in January decided to stop offering 24-hour service at its biggest outlet in Funan DigitalLife Mall and return to normal operating hours. The move came less than a year after it first started doing so in March 2011.

A company spokesperson said the low shopper volume late at night and shortage of workers needed to support the round-the-clock operation as reasons for the decision.

But why offer 24-hour service to begin with? IT products aren't typically things you need urgently or in an emergency. You don't typically wake up in the middle of the night and feel the urge to buy a 32GB SD card or a HDMI cable. There was no real need for a 7-Eleven in the IT retail world.

I think the next-generation CE retail outlet needs to be one that is able to marry the convenience and user profiling features of online shopping, with the 1-1 engagement for user tips and quick show-and-tell demos that the in-store experience provides.

Or, they could take a leaf out of Ikea and always strive to think creatively, even when it involves an "old market" like home furnishing. Check out how the Swedish home products company attempts to solve the problem of "how to fit the TV [and all the things that come with it] in the living room".

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About

Eileen Yu began covering the IT industry when Asynchronous Transfer Mode was still hip and e-commerce was the new buzzword. Currently a freelance blogger and content specialist based in Singapore, she has over 16 years of industry experience with various publications including ZDNet, IDG, and Singapore Press Holdings.

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