Are chains cannibalizing their own in-store sales with e-commerce?

Discussion
Source: big5sportinggoods.com
Mar 07, 2017
Tom Ryan

Steven Miller, CEO of Big 5 Sporting Goods, last week became the latest exec to assert the notion that retailers are cannibalizing their own brick & mortar sales when they pump up their online sales efforts.

Asked by an analyst on his company’s fourth-quarter conference call about e-commerce, the CEO noted that the chain’s online sales remain “not material” and that its model is centered on “the convenience of our stores.”

The goal is to make e-commerce not only “accretive” to the business with “modest” investments but “not one that cannibalizes” sales at its physical stores.

Said Mr. Miller, “It is certainly not lost on us that much of the retail world has been struggling with, I guess, the omnichannel-current debt — investing huge sums of money and at the end of the day seemingly just transferring sales from stores to e-com at less profit. We believe as retailers shut doors we’re going to be there for the customers who appreciate our convenience.”

The risk of cannibalization was heard in the early days of e-commerce until online selling took off. Cannibalization chatter appears to be making a comeback as online gains accelerate, in-store traffic declines and store closings become epidemic.

Neil Saunders, managing director of GlobalData Retail, told The Seattle Times that Nordstrom’s holiday struggles were partly due to shoppers buying online and visiting stores less. He said, “In this sense, Nordstrom is a victim of its own success and needs to explore ways of improving connections between its channels, or of persuading online customers to shop more frequently and to buy more.”

An analysis last year by HRC Advisory found that e-commerce gains had been “chipping away” at sales at physical stores across a number of soft goods channels since 2011. Said Antony Karabus, HRC’s CEO, at the time, “Most retailers haven’t yet figured out how to grow and maintain brick and mortar profitability while trying to keep up with the likes of Amazon in today’s increasingly digital environment.”

After Target reported fourth-quarter store sales were down 3 percent and online sales jumped 30 percent, Jim Cramer on CNBC’s “Squawk on the Street,” exclaimed, “It’s a total cannibalization of itself.”

DISCUSSION QUESTIONS: Is online’s cannibalization of in-store sales becoming a bigger problem? Are retailers with a major physical presence making the right adjustments?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Retailers who are successfully selling (and cannibalizing) their wares online are surviving in the digital age."
"The important thing to remember is that the organization needs to be healthy on a whole, not looked at as individual online/in-store silos."
"It’s called competition and yes, that it the crux of the issue for any individual retailer. But I’d rather compete with myself."

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27 Comments on "Are chains cannibalizing their own in-store sales with e-commerce?"


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Ben Zifkin
Guest

It depends on the timeline that you are looking at. Over a long period, providing strong customer service and options for your customer will lead to greater loyalty and sales. In the short-term, that may mean there is a dip in in-store sales. The important thing to remember is that the organization needs to be healthy on a whole, not looked at as individual online/in-store silos.

Mark Ryski
BrainTrust

Yes, online is cannibalizing in-store sales to some extent and it’s easy enough for retailers to analyze their transaction data to determine exactly by how much. The problem is that retailers are in a classic catch-22. If they don’t have a strong online presence, they risk becoming irrelevant in an increasingly online world; if they do have a strong online presence, they face even more aggressive price competition from online players and they risk cannibalizing their own in-store sales. It’s a delicate balance and, as the article points out, most retailers are still trying to find the right balance. But finding a balance is exactly what all retailers must do.

Dick Seesel
BrainTrust

“Cannibalization” may be the wrong term, because retailers with true omnichannel strategies need to think about how to grow the overall pie. Continuing to think about business silos (e-commerce vs. brick-and-mortar) will stand in the way of a consistent overall approach to the business.

But there’s no doubt that brick-and-mortar is losing its relevance, as seen in the growing number of chains closing locations or throwing in the towel altogether. To go back to the question of how to grow the overall pie … why isn’t that happening? Why aren’t strategies like BOPIS (intended to drive traffic to stores) driving incremental sales?

These aren’t easy questions to answer, but I continue to believe that the operating demands of turning a physical store into a mini-distribution center are eroding the service-centric reasons why consumers shop in those stores in the first place.

Camille P. Schuster, PhD.
BrainTrust

What a wrong assumption that question uses. Yes, the online sales may cannibalize in-store sales — IF and only if the company sees online and in-store sales as separate and does nothing to create experiences or reasons for consumers to come to the store. If companies see these functions as separate then they should quit the online sales, let Amazon take them and go out of business. Consumers only see retailer, regardless of location, and if the retailer does not see it that way they will eventually lose to the stores that treat all sales as benefiting one company the way the consumers see it.

Ian Percy
BrainTrust

Reading your post before writing my own saved me some time this morning Camille! As enlightened physicists have been trying to convince us about how the universe functions: It’s all ONE thing!

Marketing guru Seth Godin points out that Newtonian thinking has “taken us as far as it can” but retail still hasn’t gotten the memo. You could not be more on point.

Jasmine Glasheen
Staff
Jasmine Glasheen
Contributing Editor
2 years 18 days ago

Cannibalization wouldn’t be a problem if retailers offered customers an in-store experience that made leaving home worth it. Take T.J. Maxx, for whom online sales are not a priority. The deals and excitement are at the store. Although customers still shop online, e-commerce is more of a safety net than a focus.

Retailers fretting over cannibalization would be wise to ask themselves what their in-store experience offers that isn’t offered via their website. This doesn’t always mean loud, manic events with cheap cookies and Top 40 blaring out of speakers at innocent passersby. It can be as simple as offering customers a serene shopping environment where they can find deals and product/lifestyle information that can’t be found online.

Cathy Hotka
BrainTrust

This is a question that was settled a long time ago. Retailers must have a robust online presence or risk irrelevance and stores must have endless aisle capability. That said, will retailers make the investment?

Lyle Bunn (Ph.D. Hon)
Guest

The adage that “a business should always be looking to cannabalize itself before somebody does it for them” is the foundation of multichannel, omnichannel and opti-channel. Retail is about product supply and physical stores are really about customer experience for discovery, browsing, purchasing and more recently a destination that serves branding, loyalty and transactions. Physical retail is adjusting slowly to changes in consumer expectations. Some categories such as sporting goods, electronics, grocery, fashion, automotive and mobile phones have more resilience in the role of physical retail, but even these have to adjust to browsing and information gathering that is internet-enabled.

Gib Bassett
BrainTrust

I think it’s becoming a bigger problem as market trends accelerate (online sales) at the same time that investments in online channels increase. Anticipating growth, retailers are being let down by slowing in-store sales that offset gains in online channels. I think it’s raising the issue of integration and working to architect the retail business as a unit, as opposed to operating stores and online separately. The places where integration is happening (click and collect, buy online/pickup in store, buy online/return in store) are not sufficient from a leverage standpoint. It highlights to a large degree how retailers are not using insights into the online to offline shopping journey to optimize their operations fast enough.

Michael Day
BrainTrust

I agree with Ben: The retail “organization needs to be healthy as a whole.” To achieve this at a time of full-scale digital transformation, I believe large retailers have to plan future-forward for at least 20 percent of their sales coming from online (and an even larger percentage of in-store sales being directly customer-influenced by the retailer’s digital presence, etc.). Do retailers really have a choice right now, anymore, but to figure it out? To pull out all stops to make their online and digital go-to-market efforts work for them, not against them?

Jon Polin
BrainTrust

Retailers should focus on getting their customers to buy wherever, whenever and however their customers want. Instead of even thinking about channel cannibalization, retailers should worry about losing their customers to competitors who do a better job of empowering consumers.

Brandon Rael
BrainTrust
The idea of a retailer’s e-commerce platform cannibalizing the brick-and-mortar business is an outdated philosophy. As we all know and can agree upon the lines between the physical and digital are being blurred, however providing a superior customer experience across ALL shopping channels is critical to sustain brand loyalty, profitability and sustainability. To remain relevant in today’s retail world, retailers absolutely need to remain grounded with their biggest and most ardent fans by providing a transporting in-store experience. Statistically speaking, 90 percent of all retail transactions are influenced by the brick-and-mortar locations. The consumer may ultimately make their final purchases on the retailer’s mobile app or desktop site, however nothing to this point can effectively replace the emotional, physical and multi-sensory experience that a store can provide. So are the online channels cannibalizing the in store sales? Yes and no. However, in the grand scheme of things, the ultimate goal is to complete the transaction. Whether or not the customer buys it in-store or leverages the digital channels, the retailer needs to have a singular… Read more »
Liz Crawford
Guest

Better to be on the bus than run over by the bus. Retailers who are successfully selling (and cannibalizing) their wares online are surviving in the digital age. Those who are not “cannibalizing” themselves may not live to see tomorrow. How long will physical stores exist as destinations? At a minimum, there will be (and are) fewer actual trips to brick-and-mortar … therefore — stay online, stay alive.

Charles Dimov
BrainTrust

Simply put — it’s about giving the customer the experience they want with your brand.
Rather than cannibalizing, think of going online and doing omnichannel as a method of KEEPING your customers. If the customers choose to go online and your brand isn’t there, they will surf to the competitor site and your brand just lost a customer (never mind cannibalization).

An online presence keeps your brand top-of-mind with your customers. Omnichannel retail makes it easy to shop online AND get instant gratification. When customers are in-store, that’s your opportunity to upsell, sell extra items and gain customer loyalty through great service. It’s all in your strategic approach.

Lee Peterson
BrainTrust
You bet there’s cannibalization. Do a little regression/progression analysis and you’ll see that if your online sales keep increasing year-over-year at the same rate they are now, say, 15 to 20 percent and your physical store sales keep decreasing year-over-year at the same rate, say, 3 percent, after eight to 10 consecutive years of that you won’t need stores at all to produce the same revenue you are now. The AUV will be so low (which will make the stores super expensive to keep), you’ll close most of them anyway. That’s the pure quantitative side of the equation. But clearly, in order to maintain that rate of online sales increases, you’ll still have to have some physical presence to continue to act as a foundation for the brand itself. A living, breathing ad so to speak. A place where people can touch, feel, see and talk to what you’ve positioned as your reason for being. I think you’re already seeing that now, with store closings that cover the next few years, like what J.C. Penney… Read more »
Tom Dougherty
BrainTrust

Of course they are cannibalizing their in-store sales.

But Steve Jobs once warned Sony that you needed to cannibalize your own before someone else eats you.

Sony didn’t see it with Sony records and the online sales of individual songs (like iTunes). They still wanted to sell albums.

Steve said “[Sony] had the inventory and the distribution but they hung onto a failed model (selling entire albums). That ship had already sailed.”

Retailers need to be where the shopper is. They need to be willing to eat their own young if they are to survive and prosper.

Brian Kelly
Guest
2 years 18 days ago

By definition, online is cannibalization. However the term and its dated language and usage is no longer appropriate in today’s marketplace. Now it’s the same brand that is capturing sales in different channels.

Traffic in stores is falling and there are many reasons for that. Of course, it depends upon the store location. As an example, Deb Weinswig claims there is a $2.5 billion opportunity created by the recent shuttering of various department stores. But is there? Those stores are not closing because of cannibalization, rather it’s lack of marketplace demand caused by economic conditions (wage stagnation and job loss), aging population or brand relevance. Sales channel displacement in rural areas is not as big an issue as in urban areas.

Furthermore, by-category shopper knowledge of solutions as well as on-hand inventory are as much deterrents to store visit as online purchases are. I’d like to know more about in-store conversion trends. My hypothesis is that conversion is up.

Scott Magids
Guest
2 years 18 days ago

There’s no doubt that there is a shift towards online taking up a bigger percentage of sales, but I wouldn’t call it cannibalization. Rather, it’s an essential shift and part of the new reality for retail. Companies putting money into online retail may not see an immediate increase in sales, but certainly, companies that are not putting money into online retail will see a decrease. That’s the reality of what shoppers are looking for, and it is incumbent on retailers to provide it. Making the right adjustment means creating an online presence that is more than just a web portal with pictures of goods, but rather, a destination with emotional appeal which has the same conveniences and personalized attention as the brick-and-mortar store.

Guy Mucklow
Guest
Guy Mucklow
President and Co-Founder, PCA Predict
2 years 18 days ago

With today’s consumer demanding speed and convenience when shopping, having a strong online presence is essential for retailers across industries to compete. Instead of focusing on whether online sales are taking away from in-store sales, retailers need to consider the value of a robust omnichannel e-commerce strategy, where physical stores and online stores work in harmony to increase brand recognition and boost a business’ bottom line. Beyond increasing revenue potential by opening the door to customers unable to visit a physical store, a strong e-commerce presence can lead to increased in-store revenue—it builds brand awareness among consumers, many of which first encounter a company online. Creating a positive online shopping experience for customers will lead them to expect the same experience in stores, strengthening a company’s overall brand and positioning them for long-term success.

Dan Raftery
Guest

I’ll join the chorus. It would only be cannibalization if there was only one retailer. It’s called competition and yes, that it the crux of the issue for any individual retailer. But I’d rather compete with myself.

Another point here – Except for the “food deserts” we have been in an over-stored condition for awhile. Online has simply become the agent of natural selection.

Jenn Markey
Guest
2 years 18 days ago

Shoppers don’t differentiate between in-store and online, so why do some retailers continue with this charade? Your online presence either drives traffic to or from your store — physical and virtual. Better you “cannibalize” yourself, than drive your shoppers into the hands of eager competitors. Online needs to support (not replace) the physical store and vice versa for the best shopping experience — something even Amazon appears to be realizing as it increases its own brick & mortar presence.

Craig Sundstrom
Guest

So the alternative is to have a potential customer go to … another retailer’s website? Dumbest. Thought. Ever. (Or at least in quite a while.)

If the complaint is that e-commerce loses money: maybe true, but again, what is the alternative? As long as Amazon and other well-funded startups consider profit nothing more than an ultimate goal, that’s what you’re up against.

Elizabeth Meaney
Guest
2 years 18 days ago

It was a bit unclear to me in this article: if customer A buys the same product in-store as customer B buys online, does the store profit more from the in-store purchase? And if so, why? Is it shipping and handling costs? Or the loss of opportunity for an upsell or additional impulse purchase which is (I’m assuming) more likely in-store? Would love thoughts on this.

Karen McNeely
Guest

Many consumers expect retailers to have the bulk if not all of their assortments online. I strongly suspect that the alternative for a store getting an online sale is NOT the customer coming to their brick and mortar, but most likely going to another online retailer.

Some of us may remember the old phone company ads that encouraged consumers to “phone first” to verify if a retailer carried something or had it in stock. A store’s website now fulfills this function. Whether the customer ultimately has it shipped, does pick up in store, or shops the brick and mortar, this is often the starting place. Last week my daughter needed a white button down shirt for a new job. J.C. Penney got her business (a place she never would have gone to on her own) because a Google search indicated that they had a few to choose from that might work, so she went to check them out.

Nir Manor
BrainTrust

Trying to not to repeat many good arguments that were mentioned in previous comments, I think this whole discussion misses the point and the argumentation that online sales cannibalizing offline sales is a mere misunderstanding of the business environment and of the fact that “someone moved the cheese.” Both e-commerce and m-commerce are growing fast and presents a huge challenge and opportunity for every retailer. The winners will be those who create a real multi-channel approach (click and collect is a good example), who make a great customer experience in their B&M stores, generate relevant and appealing content in their online channels, emphasize simple and easy to buy UI on their mobile app, track customers past purchasing and understand their “Retail DNA” to enable creation of highly personalized offers that will fit their needs.

Yogesh Huja
Guest
2 years 18 days ago

Despite online selling being around for almost 20 years now and the internet reaching 2 billion plus people, online sales still account for less than 15% of global sales. In India there are 2 concepts which e-commerce & app players are trying: 1) discounting and 2) Cashback.

In order to enjoy such benefits, consumers often do showrooming, where a consumer visits the brick & mortar retailer, experiences the product and then buys online to enjoy discounts and cashback. The programs run by brands to promote the e-commerce channel have fallen flat due to wrong strategy of execution. The sales representative at a brand store is the key driver of cannibalising the sale by letting consumer re route through an e-commerce channel where brand is offering a discount.

I wrote last year on similar topic, have a look.

Carlos Arambula
BrainTrust

I believe cannibalization is the wrong definition. It really should be looked as evolution of the shopping experience. Analysis will tell retailers how to best allocate resources and service their consumers.

Accenture’s “2017 Global Consumer Shopping Survey” concluded that generation Z consumers will switch majority of purchases to retailers that provide the newest digital tools and channels.

Perhaps retail leaders need to change their perspective on online and social media presence and evolve with the consumers.

wpDiscuz
Braintrust
"Retailers who are successfully selling (and cannibalizing) their wares online are surviving in the digital age."
"The important thing to remember is that the organization needs to be healthy on a whole, not looked at as individual online/in-store silos."
"It’s called competition and yes, that it the crux of the issue for any individual retailer. But I’d rather compete with myself."

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