Though price sensitivity is nothing new, e-commerce has made it even worse by giving consumers the power to price shop, and allowing new retailers to launch with relatively low overhead.
In its report “Brick-and-Mortar Retailers Fight Back,” The Economist Intelligence Unit queried 256 retail executives to learn how traditional stores are positioning to compete with online-only retailers.
As footfall ebbs and the flow to e-commerce accelerates, 47 percent of brick-and-mortar retail executives characterize competition from online-only businesses as “significant” while 37 percent said pressure from these companies is only “moderate.”
The respondents that are finding it tough to battle these businesses said price, delivery speed and cost, and marketing and brand recognition are the most challenging areas. Of that list, price topped it for 39 percent of retailers.
In response, 44 percent of respondents have cut prices over the last three years to try to remain competitive with online pure plays, while another 12 percent anticipate doing so in the coming years.
An even larger number of respondents have instituted price matching to try to stem the tide of consumers going from retailers that are primarily bricks to those that focus solely on clicks. Seventy-one percent of these executives match prices on request, by default or selectively based on the circumstances.
In the next two to three years, 35 percent plan to offer price matching by default. The report authors caution retailers against adopting a plan like this without ensuring it will have the intended effect.
“In some markets or stores, which as those with fewer competitors nearby or higher customer loyalty, such a program may simply be giving away money without driving incremental sales, while in others, it may effectively retain market share,” The Economist Intelligence Unit said.
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The only way to know whether price matching will benefit businesses is to test a subset of stores, the authors advised.
Of the online players that ranked as respondents’ chief competitors, 42 percent chose Amazon.
In fact, chief economist Jan Hatzius of Goldman Sachs said in a note reported on in The Street that Amazon is contributing to the low U.S. inflation rate—as its rivals adjust pricing to remain viable. The so called “Amazon effect,” has kept core goods inflation down by 0.25% and personal consumption expenditure down by 0.1%, Hatzius said. Though he did note the Amazon effect is less than the Walmart effect was leading up to 2008, when the big-box retailer was responsible for holding core goods inflation down by 0.5% and personal consumption expenditure down between 0.15% and 0.2%. The difference in the impact is based on how quickly Walmart and other similar retailers gained market share compared to e-commerce businesses.