With new rules saying brands can sell to online retailers at a higher price to protect showrooms, Plumbworld CEO James Hickman explains that internet retailers need to invest in their business in ways that aren’t always as visible is.
As CEO of Plumbworld, one of the UK’s leading online bathroom retailers, I would like to correct some of the common misconceptions about online retailers.
There is a persistent myth that showrooms invest more in brands than online retailers.
Physical showroom operators make this mistake because they only see their investment: merchandise on display, sales assistants, and retail rentals. The online retailer’s investment is not so easily visible to him, but just as real.
It consists of stocking large quantities of branded products for next-day delivery, staffing call centers with trained sales and customer service personnel, renting warehouses and offices, spending huge amounts on online advertising, and the expense of graphic designers and web developers to maintain a Brand Presentation on the Internet.
Let’s face it, a couple of shower panels or a couple of bathroom bays in a seedy showroom in a subprime retail location doesn’t really do much to support the brand.
On the other hand, holding millions of pounds worth of stock to ensure consumers get next-day delivery and spending hundreds of thousands on pay-per-click advertising really supports the brand.
Another persistent myth is that people do research in showrooms and then buy online. We surveyed everyone who had bought a shower from us and over 96% had never seen the physical product or been in a showroom before making the purchase. We also sell over £40m each year of online only private label products. These are nowhere to be seen in a showroom. Modern consumers like to buy bathroom products online based on good descriptions, pictures and a strong presentation of features and benefits.
Increasingly, the actual success or failure of a brand depends on how well it conducts research when competing with consumers online. Some consumers will ultimately feel more comfortable completing the transaction in a physical store near them, but increasingly online research is driving brand preference.
Online stores are where this research takes place, with consumer reviews and extensive product information being key factors in forming brand preferences. Consumers don’t trust big brand websites because they will always promote their own products. Online retailers offer more unbiased information about several competing brands. The brands that the online retailer endorses and promotes to the consumer are, in most cases, the ones that they ultimately buy.
In your recent post on changes in competition law [kbbreview, May, page 29]It said: “In the future, distributors and retailers who feel disadvantaged by the pricing of manufacturers and suppliers may try to complain to the CMA or the EU Commission, arguing that the difference in price does not really reflect the difference in the investments made reflects or costs incurred both in store and online channel.”
Far from heralding the beginning of the end of the online bathroom retailer, is this perhaps the final nail in the coffin of the traditional independent showroom?
The independent showroom operator might not want to hear it, but its investment is a tiny drop in the ocean compared to big online retailers.
These online retailers now have the opportunity to complain to the CMA if they don’t receive significantly lower prices from the manufacturers. They are legally entitled to better prices to properly reflect the larger investment they are making in supporting brands compared to smaller physical showrooms.
For showrooms to survive, they must stop looking for the law to stop progress and face the new reality that buying products online has become the default for an increasing majority of people.
Of course, it’s annoying when the business model you’ve relied on for decades is suddenly disrupted by new technologies. The horse and chariot manufacturers were no doubt troubled by the introduction of the automobile. The only choice under these difficult circumstances is to evolve or die. Wishing the Internet would go away or that lawyers would ride white horses to the rescue is not a realistic strategy.
The online business model is extremely successful because it is very efficient in selling and distributing products. This allows online businesses to grow significantly and achieve large economies of scale.
Showrooms still play a role, but they need to move away from trying to sell off-the-shelf products at the lowest price and focus on adding real value in the areas where online retailers can’t compete. A showroom that offers a brilliant design service and a well-managed installation experience has nothing to fear from an online retailer.