11/26/2012 7:30 PM ET|
Holiday price war rages in real time
Physical-store retailers are turning the tables on their e-commerce competitors, using their websites to quickly match rivals' discounts.
While shoppers jostled and shoved their way through the usual long lines for Black Friday retail deals, a new and more pitched battle was being fought online that promises to redraw how stores plan for their big door-buster specials.
The historical race between e-commerce retailers and their physical-store rivals continues. But in a new development, bricks-and-mortar retailers are turning the tables, using their websites to match rivals' marquee discounts more aggressively than ever.
When Target (TGT) advertised plans to sell a $400 Dyson Ball vacuum cleaner for $269, Best Buy (BBY) responded by cutting its online price for the vacuum by $80, to $300. Best Buy wasn't immune. When the electronics retailer published a circular advertising it would sell a $1,500 Nikon camera for $1,000, Amazon.com (AMZN) followed up Thanksgiving morning by cutting its price for the same camera to $997.
The fast price changes during the year's most competitive shopping period highlight a sea change in how retailing is done. The rise of e-commerce, along with an explosion in data and the power of technology for analyzing it, has made it possible for retailers of all stripes to monitor their rivals' pricing strategies and react in seconds, sometimes with computer algorithms making the decisions.
Store chains have long battled each other to offer the best deals. But new technology has enabled them to do so more accurately, comprehensively and faster than ever. For consumers, that could mean access to the best bargains without the need to wait in long lines in the cold and dark. For retailers, however, the risk is the profit-killing discounting that already characterizes Black Friday could expand as chains are forced to be more aggressive to stand out.
To fight online competition, retailers also try to shift as much as possible to exclusive gear that can't easily be matched. They're also matching more of their offline deals in their online stores.
Electronics and gadgets retailer Brookstone now manufactures or lines up exclusives, which now account for 75% of what it sells, said CEO Stephen Bebis. This year, the chain made most of its in-store sales available online as well.
The spread of e-commerce, however, means most retailers will have to get used to more flexible pricing.
Sam's Club, the warehouse discount chain owned by Wal-Mart Stores (WMT), started offering deals online at 10 p.m. Wednesday, giving the company time to adjust prices. "We felt good about our prices, but if an item wasn't a price leader, we would adjust it," said Todd Harbaugh, the chain's executive vice president for operations.
Amazon said it constantly revises its listings, a practice known as dynamic pricing, that may help it match or beat competitors' prices or cause rivals to drop theirs. Amy von Walter, a Best Buy spokeswoman, said the retailer routinely monitors its rivals' prices and aggressively makes adjustments to stay competitive.
Wal-Mart's e-commerce team in Silicon Valley has built sophisticated tools that let it adjust prices throughout the day to stay competitive.
The stakes are high as retailers begin what is expected to be a less-robust holiday season than in recent years. Retail analysts at consultants Bain & Co. expect holiday-shopping sales to grow 3.5% in 2012, a little slower than in the past two years. Consumers are confident, but they're also still cautious.
Black Friday, with its deep discounts, isn't good for profits. But chains that don't participate risk losing shoppers' attention at a time when a fifth or more of their sales can be on the line. Shawn Score, Best Buy's newly appointed head of U.S. retail operations, said the point of all the discounting is to earn shoppers' loyalty for future purposes.
"Some we don't make money on, some we do," Score said.
Amazon jumped aggressively into the fray last year, offering early discounts and encouraging shoppers to use its Price Check app while in rivals' stores to see if the e-commerce giant's prices were cheaper.
The Seattle retailer has been offering one-time discounts and shipping deals this year, and pulled ahead its Black Friday deals by three days to Monday. On its site, Amazon has been offering Lightning Deals, or short-term discounts on certain items, such as a recent 40% cut in price of Ralph Lauren men's loafers.
Some of those deals were exact replicas of door busters announced by Wal-Mart and other big box retailers, said Diana Schulz of Dynamite Data, which monitors online pricing in real-time and then sells the data to businesses such as Samsung Electronics (SSNLF) and Western Digital (WDC).
Mike Fridgen, the chief executive of retail price monitor Decide.com, said Amazon changes its prices more frequently than other retailers on any given day. In the last few day days, the e-commerce giant made significant numbers of changes to match door busters offered by bricks-and-mortar rivals.
The developments could mean Black Friday becomes worse for profits than it already is. Women's clothing retailer Nicole Miller dropped out of the specials race over a decade ago. CEO Bud Konheim said, "it became bigger and bigger discounts and we saw diminishing returns."
Of course, there's no place like a mall on Black Friday.
On Friday, shoppers on Chicago's Magnificent Mile on Michigan Avenue marched through biting winds that swept in off nearby Lake Michigan. Thousands took refuge in the eight-level Water Tower Place mall.
"I'm the headquarters" for the family's expedition, said Henry Grimme, sitting in a brown leather chair with a cooler and shopping bags beside him, reading a book. The retired software developer for 10 years has camped out for eight-plus hours while his wife and daughter search for sales and return with their finds.
"They love it," he said. "It's an outing for the family."
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