Back-to-school shopping is kicking it into high gear, and retailers are bracing for another wave of savvy shoppers armed with price-comparison apps on their smartphones.
There's a lot at stake -- $69 billion, in fact.
Back-to-school shopping is the second-highest money maker for retailers, behind the holiday selling season, pulling in an average of $600 per child to $800 per college student -- for a total of $69 billion in merchandise sales -- according to Ellen Davis, vice president of the National Retail Federation.
This season, shoppers are ready to eke out every penny in savings they can. That leaves retailers playing defense to protect their revenues and margins.
Shoppers Schooling Retailers
"It's hand-to-hand combat with the smartphone customer in the store," says Greg Girard, an IDC retail analyst.
Consumers have an advantage right in their pockets: With smartphones in hand, shoppers are swiping manufacturer bar codes and running their own price-comparison checks at competing online and brick-and-mortar stores.
With the growing use of smartphones -- which jumped by 88.6% to 101.2 million handsets in the fourth quarter over the previous year -- and the popularity of price-comparison apps, retailers have had to find a way to fight back.
Here are four ways they're taking on technology to protect their turf.
Getting label-conscious: Retailers that carry unique items not offered in other stores, or have their own private labels, have an advantage when it comes to shoppers looking to make a direct comparison. "The comparison-shopping apps are good for commodity items, like comparing the price on Nike shoes at different retailers, but retailers who focus on their own private label brands do better," Davis says.
Using sticker shock: Some retailers are fighting fire with fire, going as far as covering the manufacturer's bar code with their own in-store bar code, or including several bar-code labels like an in-store bar code, a shipping-label bar code, and a manufacturer's bar code, say industry players.
Davis notes, however, that it would be too labor-intensive for retailers to peel off the manufacturer's label as a means to avoid comparison shopping, especially when a store is dealing with hundreds of thousands to millions of products.
Instituting open pricing policies: Some retailers encourage comparison shopping. Online retailing giants Amazon.com (AMZN) and eBay (EBAY) both offer free comparison-shopping apps, such as Amazon's Price Check app and eBay's own iPhone app.
If you can't beat 'em, pay 'em: Best Buy (BBY), which some Wall Street analysts say was hit hard over the past holiday shopping season by consumers wielding price-comparison smartphones, has teamed up with TheFind, a comparison-shopping app, and begun paying to advertise on it. When consumers use TheFind's app to scan the barcode on an electronics product, the app delivers a list of brick-and-mortar and online retailers with the lowest price and tells users whether they're within proximity to the store where the barcode was scanned, says Siva Kumar, CEO of TheFind. At the bottom of the listing, a Best Buy ad appears that touts similar items that are competitively priced at its nearby stores, or it may include other value-add services or products to make that desired product the "best offer."
Searching for a Smarter Phone Strategy
Analysts say retailers have taken some steps to respond to the growing use of comparison-shopping apps on smartphones, but overall they've achieved very little. "Since Christmas, I don't think they've done anything to become smarter," Girard says.
TheFind, which relies solely on advertising for its revenues, counts Best Buy as its sole customer to date, though Kumar says the company has been in talks with other major retailers about a similar advertising strategy on its comparison-shopping app.
He says most retailers have yet to develop a policy on how to treat meeting or beating prices from online retailers, or even their own online stores. And with the increased use of comparison-shopping apps, the ability to compare online prices is going up.
The National Retail Federation's Davis says her members' focus is elsewhere. "Mobile comparison-shopping apps are a drop in the bucket," Davis says. "They're maybe costing retailers thousands of dollars, whereas retailers are more concerned with looking for ways to make smartphones and mobile apps increase their revenues by the millions."
Motley Fool contributor Dawn Kawamoto owns no stock in any of the companies listed. And although she isn't an avid shopper, she has become a human ATM to her daughter, who is. The Motley Fool owns shares of Best Buy. Motley Fool newsletter services have recommended buying shares of Amazon.com, Best Buy, and eBay.
Get info on stocks mentioned in this article: