If you want to scare a traditional retailer, whisper the word "showrooming" in its ear.
Showrooming -- the booming trend that finds shoppers checking out potential purchases in bricks-and-mortar stores, then whipping out their smartphones to find the same products cheaper at online retailers -- is crushing many chains.
It isn't a fair fight. Physical retailers just can't compete with the lean overhead and occasional state-sales-tax advantages of Web-based retailers. Since any given mom-and-pop shop is now competing against every single online outlet -- instead of merely a slightly cheaper rival at the other end of town -- it's hard to keep loyal customers when the savings can be substantial in cyberspace.
Why do you think Borders closed down last year? The liquidation of Circuit City two years before that wasn't a matter of people tiring of consumer electronics. There are plenty of chains on the ropes right now that probably won't be around in a few years because of showrooming.
However, a few retailers seem to be holding up just fine in the fight against discounting dot-com merchants. Some of them are taking steps to fortify their physical storefronts, while others simply have models that provide some natural protection.
5 Bricks-and-Mortar Retailers That Are Showrooming-Proof
At a time when Best Buy (BBY) is closing stores and looking for a new CEO, rival hhgregg is thriving.
The consumer electronics retailer saw net sales climb 21% in its latest quarter, and it's planning to add 20 to 22 new stores in its fiscal year that began in April.
Why is the awkwardly named hhgregg growing at a time when Best Buy is shrinking? Well, hhgregg emphasizes heavy appliances and mattresses, which are among the many items that may be too big to effectively sell online. Can you imagine the shipping charges on a washer/dryer combo? It also helps that hhgregg doesn't rely on regular traffic from folks picking up the latest CDs or DVDs, as digital delivery of music and video is also clobbering Best Buy.
The cheap-chic discounter is tackling the showrooming trend head-on. Earlier this year, the company revealed that its plan to keep Amazon.com (AMZN) at bay involves a steady diet of exclusive products.
Target routinely teams up with trendy designers for product lines that can only be purchased at Target. If vendors can't provide the chain with Target-exclusive products, the company is asking for pricing discounts so it can match online-only rivals.
It's not a perfect strategy, but Target also has a level of panache that's lacking at its rival discount department stores. People gab about going to Target -- or "Tar-zhay" -- on Twitter or Facebook. You'll probably never see anyone bragging about heading out to Kmart.
Warehouse clubs are used to cutting costs to the bone. The exposed beams, stacked racks, and frills-free decor aren't an intricate theme. The warehouse setting is deliberately bare-boned to pass the savings on to end users.
It also doesn't hurt that items are being purchased in bulk for deep savings. And, naturally, the perishable nature of many of its items also makes them a natural choice for in-store, rather than online, purchases.
How popular is Costco? Well, it pushed through a 10% increase in its monthly membership fee -- yes, Costco shoppers have to pay for the right to shop there -- and customers didn't flinch at all.
Another Best Buy rival that's showing no signs of online stores nibbling at its market share is Conn's. The company's latest quarter saw comparable-store sales soar 17.8%. As Best Buy copes with shrinking margins, Conn's gross margins expanded to the point that it was able to deliver quarterly operating profits and net income that more than doubled over the prior year's performance.
Part of Conn's recipe for success is an emphasis on the appliances and mattresses that have been keeping hhgregg immune from the deadly dot-coms, but Conn's also goes even further by offering full furniture lines.
Conn's 64 stores are also in the farming heartland of Texas, Louisiana, and Oklahoma -- places where the prevalence of homes on large tracts of land benefit its sales of lawn tractors and zero-turn mowers.
CarMax is the country's largest retailer of used cars. Its 112 used-car superstores offer haggle-free pricing, and they'll buy your used car even if you don't buy one. Why not? The company's gross profit on used cars is three times greater than the gross profit on new vehicles.
Being a category killer has its advantages. Even the success of eBay (EBAY) with its eBay Motors ultimately can't compete with CarMax's regional presence in 56 markets.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Amazon.com, Best Buy, and Costco Wholesale. Motley Fool newsletter services have recommended buying shares of Costco Wholesale, eBay, hhgregg, and Amazon.com.