Retailers will turn to technology to combat their biggest online competitors

TORONTO - Canadian retailers are taking steps to counteract what they see as the ultimate betrayal — customers who browse and inspect items in their stores before they buy online from a competitor for less.

It's a practice called "showrooming," and analysts expect the industry to shift more energy this year towards reshaping the role that bricks-and-mortar stores play in getting customers to spend money.

"This is the year of action," said Jim Danahy, chief executive at CustomerLAB, a retail advisory firm, and a veteran retailer himself.

"All these retailers are now struggling to hit that balance."

Danahy has watched the traditional retail space fall out of favour with some customers and says executives have been searching for new ways to keep people both walking into their stores and walking out with product.

A survey released last fall by consulting firm Accenture found that nearly two-thirds of respondents planned to visit traditional stores to browse gifts over the Christmas shopping season, but then ultimately buy them online.

What retailers want is to stop those shoppers in their tracks and ease them towards the cash register with incentives.

One of this year's first steps comes from telecom giant Rogers (TSX:RCI.B), which will unveil a partnership on Tuesday with mall operator RioCan that uses location-based smartphone technology to send customers special offers.

The Mobile Shopper application marks an early step in the process of intercepting customers during the shopping process. The voluntary program lets customers sign up to receive targeted offers and gives them the ability to pay for products directly from the device.

"Down to an individual section in the store, we can trigger something different," said Mansell Nelson, vice-president of advanced business solutions at Rogers.

"It's about how we give retail businesses in Canada a platform to better communicate with their customers when they're in-store and out of the store."

Mobile Shopper will launch at select RioCan malls in Ontario by the middle of this year, Nelson said.

The perception of exclusive offers and discounts now is expected by shoppers, who have grown accustomed to chasing the lowest price amid the deep discounts at big-box stores and constant sales at overstocked clothing retailers.

Already, retail chains such as Best Buy and Target Canada have jumped on aggressive price strategies that not only match competitors, but also tack on an extra five to 10 per cent discount.

While customers used to fumble to present ad flyers as evidence of a lower product prices, a growing number of retailers now accept a quick glimpse of a competitor's website by a staff member to match the price.

Those types of discounts will only be part of the strategy.

Other major changes will affect the design of stores and the number of employees who work at each location, said Daniel Baer, a retail analyst at Ernst and Young.

"People who are buying online are not going to stores as much, and that means revisiting the business model," he said.

"Retailers won't look at their store as a traditional bricks-and-mortar store, but as a distribution centre, or part and parcel of their e-commerce strategy."

During the past few months, evidence of the changes have become apparent at big names such as Best Buy Canada and Canadian Tire Corp. (TSX:CTC.A).

Last week, Best Buy announced it would show 950 employees the door as it reduced its layers of management at Best Buy and Future Shop locations. The retailer has put more energy into its "reserve and pick up" strategy which allows customers to buy items online before they swing by the store.

Meanwhile, after years of staying out of online retail all together, Canadian Tire Corp. (TSX:CTC.A) plans to launch an e-commerce website later this year that allows customers to buy items on the Internet before they pick them up at the store.

"You're going to see more hiring in technology and systems and IT and distribution centres," said Brian Yarbrough, a research analyst at Edward Jones in St. Louis.

While naysayers have suggested that retailers will continue to lose market share to online retailers like Amazon, not everyone is convinced the situation is so dire for traditional retail.

Shipping packages to a customer's home can still be very expensive and it delays the instant gratification that comes from buying online and then picking up the item in a nearby store, said Danahy.

"The last mile in the e-commerce world — delivery to home — is what has defeated most purely online (companies)," he said.

"At some point it becomes more expensive to ship it then you actually make on the goods, and that's especially true with perishable products."