January 16, 2014, 11:25 AM

E-commerce and higher operational costs put pressure on retail chains to change

Forrester Research’s Sucharita Mulpuru delivers a frank talk at the National Retail Federation’s annual conference.

Lead Photo

Sucharita Mulpuru

Nearly 30,000 retail executives and vendors gathered in New York this week at the National Retail Federation’s annual conference to talk shop and strategize for the future. The 800-lb. gorilla in the exhibit hall—only occasionally acknowledged—was the effect e-commerce is having on the store-based retailers that make up the core of NRF’s membership.

The e-commerce question is clearly worrying many retail chains, as reflected in the standing-room only attendance at Forrester Research Inc. vice president and principal analyst Sucharita Mulpuru’s session, “First Look: 2014 Outlook for Digital Retail.”

Mulpuru’s presentation highlighted the statistics many e-retailers are already familiar with—such as the year-over-year growth of e-commerce and how consumers are shifting their retail dollars to the web—and also delivered frank advice on where retailing is going and what store retailers can do to adjust.

“There are not a lot of solutions [available] to retailers except to introduce dynamic pricing in stores,” she said, by way of addressing the issue of price transparency and consumers’ increasing use of mobile devices to compare prices. She displayed Forrester data revealing that the price premium consumers are willing to pay to store retailers to get a product right away isn’t large. When a price in store is 1% to 5% more than what a consumer could buy the same product for elsewhere, 52% of consumers in Forrester’s Lifecycle Survey said they’d buy it there. That percentage drops to 18% when the price is 6% to 10% more.

Today, she said, “Everyday low pricing dies because the web always has a lower price.” As evidence, Mulpuru pointed to data price-monitoring vendor 360pi gathered during the holiday season that showed Amazon.com Inc.’s prices were an average of 15.4% lower than the online prices of leading retail chains in select product categories.  “This is why [Amazon] gained an advantage,” she said. “As a retailer you are going to have to change.”

One of Mulpuru’s suggestions for store retailers in 2014 is to invest in in-store mobile capabilities to serve the dual purpose of improving customer service while potentially lowering store operational costs, which she noted might go up thanks to current political pressure to raise the minimum wage. A smartphone could potentially assist a customer in finding the information she needs without consulting a store associate.

Mulpuru also encouraged retail chains in 2014 to exploit a key advantage of stores: the ability to offer site-to-store shipping on their e-commerce sites. That’s because shipping carriers charge less to ship to commercial addresses than they do to residential addresses, and by shipping to stores retail chains can save on fulfillment costs while also drawing consumers into their stores. “Freight costs and free shipping are the Achilles heel of e-commerce,” she said.    

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