Big-box retailers take on Internet

Big-box retailers are confronting their Internet competition head-on this holiday season.

As the peak shopping period kicks off this week, Target and Best Buy will be leading the charge against Amazon and other Internet rivals by matching prices that shoppers find online.

“The holiday is evolving,” said Marshal Cohen, chief industry analyst at NPD Group. “It’s a paramount issue and retailers had to respond.”

The first-time offer is a reaction to the practice known as “showrooming,” in which consumers visit stores to evaluate an item but choose to buy it online for less. In fact, 75 percent of consumers will shop around online to look for a better price before making a purchase, according to a Discover survey.

In the past two years, Best Buy’s share of the consumer electronics market has decreased from 17 to 15.5 percent, while Amazon’s share has increased from 2 to 4 percent. Both Wal-Mart and Target quit selling Amazon’s Kindle products earlier this year, refusing to give sales to a pesky competitor.

Even Internet companies have started to match prices. Amazon will match prices on televisions this season, and PayPal will match advertised prices on many new items, including plane tickets.

All retailers, online or off, are trying a grab a bigger share of the $586 billion that is expected to be spent on holiday purchases in the 2012 season. Merchants take in 25 to 40 percent of their annual sales in November and December, according to the National Retail Federation.

Retailers realize that shoppers will look around for low prices, but by offering a price-match policy, they hope to transform them into one-stop shoppers.

Even if consumers don’t ask for a price match, and most of them won’t, advertising a price-match policy makes consumers perceive a retailer as a low-price leader. “It gives consumers confidence that a retailer’s prices must be at or near the low end, even if they’re not,” Cohen said.

Neither Minneapolis-based Target nor Wal-Mart, which have matched local prices for years, would quantify the percentage of shoppers who ask for price matches. “We don’t see a lot of it,” said Target spokeswoman Jessica Deede.

Cohen expects that less than 5 percent of shoppers will ask for it during the Christmas season.

One reason for such a tepid response is the lack of consumer awareness. But lack of convenience plays an even bigger part, said Edgar Dworsky, founder of ConsumerWorld.org.

“There are tricky provisions and fine print that limit their usefulness and actual savings for shoppers,” he said.

Walt Hinkley of New Brighton, Minn., uses the price-match program several times a month and estimates that he saves 25 to 50 percent. He has tested Target’s and Wal-Mart’s policies, but he prefers Wal-Mart.

“At Target, they charge me regular price when I go to the register, and then I have to go to customer service for the price-match adjustment,” he said. “At Wal-Mart, I can save skip a step by just going through the register.”

Although Wal-Mart does not match online prices as Target does during the holidays, it will match Walmart.com prices in the store. Hinkley saved $35 on a sewing machine for his wife when the Walmart.com price was $134 and the in-store price was $169.

When Emily Hippe of Chanhassen, Minn., heard about Target’s holiday price match, she thought it sounded like “a lot of work for little savings.”

She also noticed in the fine print that Target limits an online price match to one item. “That’s a bummer, since each of my twins is getting a Playskool Rocktivity Rider,” she said.

Most retailers with price-match policies have a long list of caveats and restrictions that might intimidate some shoppers. Most are standard, but shoppers should check for restrictions specific to the 2012 holiday season.

For example, some stores will only match prices from certain online retailers, and some will black out certain days around Thanksgiving.

Internet price matches will require a wait in line while store reps head to the backroom computer to verify that the price is still current, since online prices can change several times daily.

Still, the savings can be real. In a survey by William Blair & Co., a financial services firm in Chicago, Target’s prices are about 14 percent higher than Amazon’s, Best Buy’s about 16 percent higher and Wal-Mart’s 9 percent higher.

Another advantage is that consumers can ask for a price match after the purchase, not just at the point of sale. At Best Buy, for example, a customer could have purchased a Panasonic Viera TV for $1,400 last week and get a $200 price adjustment if Amazon sells it for $1,200 at the end of the month.

Retail analysts expect that the price-match policy will goose sales, but at the expense of profits. Although stores such as Target and Wal-Mart will continue to match local competitors’ prices, the online price matching ends before the holiday, said Sucharita Mulpuru, an e-commerce analyst at Forrester Research in Massachusetts. “The current strategy of matching prices is not sustainable long-term,” she said.

You won’t see year round online price matching, Cohen said. “But it will be back next season.”

(MCT Information Services)