Showrooming, the mortal enemy of brick & mortar merchants, is about to get much worse. Many goods are cheaper online than in traditional stores. But you often want to see and feel an item before committing to purchase. Many consumers, consequently, engage in showrooming — the practice of deciding what item you’re going to buy while at a physical store but then going online to procure the good at a discount. To borrow my 7-year-old son’s favorite word, showrooming is “unfair.” Unfortunately for many stores, it’s also rational consumer behavior.
Amazon.com intends to garner further benefits from showrooming by offering same-day delivery. In the extreme you could go to Best Buy, identify the laptop you want to get, use your smartphone to see that it’s being sold for a lower price on Amazon, purchase the item on Amazon, and have it arrive at your home before you get there. In such a world it’s hard to see how stores like Best Buy could offer significantly higher prices than Amazon does.
But brick & mortar merchants almost have to charge higher average prices than Amazon. It’s expensive to maintain physical stores, and to stay in business you have to somehow cover this cost. Many consumers are currently willing to pay more at traditional retailers because the consumers can get their goods immediately. But same-day Amazon delivery will decimate this brick-based advantage.
So how will physical stores survive? Many won’t, and this will actually help our economy. Lots of resources that have valuable alternative uses go in to maintaining retail establishments. The land these stores occupy, for example, could be turned into residential lots. An implication of same-day delivery, therefore, would be lower land prices in areas zoned for commerce.
It’s true that the demise of much of our physical retail sector would throw a lot of people out of work, but over the long run an economy benefits when technology destroys jobs, freeing up valuable human resources to work in other sectors. Just as agricultural equipment such as tractors benefited the United States by pushing many farmers into factory jobs, a more efficient retail sector holds the potential of increasing our economic growth rate by causing salesmen to become, say, nurses.
Brick & mortar stores could perhaps demand that manufacturers forbid Amazon from selling products for less than the physical stores do. Even assuming that this strategy could defeat antitrust challenges, it would be nearly impossible to pull off in product categories where there are close substitutes because Amazon could then just specialize in selling the less expensive goods.
Despite being a brick & mortar retail giant, Wal-Mart could potentially benefit from the collapse of the traditional retail sector. Wal-Mart has an extremely efficient low-cost distribution system that would be ideally suited to cheaply offering same-day delivery. Although Wal-Mart would certainly suffer to the extent that its physical stores attracted a lot less business, it would still gain by being one of the top online distributors. Today Wal-Mart doesn’t have an incentive to cannibalize its own sales by encouraging most of its consumers to just buy from it online. But if Amazon is going to destroy Wal-Mart’s physical business anyway, Wal-Mart might just transform itself into Amazon’s No. 1 competitor.
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