It had been some time since I heard about them but this week they kept finding their way into my conversations. At a large independent retail conference they were a central point of discussion, while working for a major metropolitan design center client I also heard my share about them. Who are they? Direct Buy of course.
Direct Buy which has actually been around since 1971 positions itself as a home improvement and furnishings membership club with a growing footprint of locations and a membership in the 500,000 range. The essential aspect of their offering is the sale of memberships for approximately 5000 dollars up-front, in return for access to wholesale prices on approximately 7000 items provided directly to the consumer. According to the independent retailers at the conference where I presented, Direct Buy recruits members in a fairly small retail environment during an approximately 90 minute interview process. Allegedly, Direct Buy shows the invoice price that retailers like Best Buy or smaller independents might pay for a refrigerator and contrasts that to Best Buy’s marked-up price. While all that makes business sense for Direct Buy, the worst allegation of all is that Direct Buy purportedly encourages members to go to Best Buy to see the product (since Direct Buy does not stock most of the products it sells and instead facilitates catalog orders). While at the Best Buy store, the independent retailers suggest that Direct Buy members are told to get on their mobile device and place their order through Direct Buy.
Having not done the “cloak and dagger” stealth work of attending a 90 minute long Direct Buy sales pitch, I can’t attest to the veracity of the claims made by the independent retailers who passionately discussed these issues. What I can confirm is that the “brick and mortar” retailer is in a state-of-concern about the Direct Buy’s of the world. Assume you pay steep overheads for large buildings, staff, training, lighting, and inventory. Further assume the manufacturers who sell to you, and benefit from your showcasing their products, now also sell to Direct Buy. The consumer can come and look at the product at your store but can only see a picture in the Direct Buy catalog. The product sells at retail prices of 30% to 50% higher at your store and is offered to Direct Buy members at what you can buy it for to have it in stock. Can the brick and mortars create an experience that will assure their survival, or will they go the way of the tyrannosaurus and the full-service gas station?
More importantly is one way of doing business better than the other? Right now those who don’t have as much overhead (many internet companies that simply drop ship products without large inventory or commercial real estate cost) have an advantage on their competitors. Not only are the “brick and mortar” operations losing market share but their staff are serving visitors who want to experience the product before they go ahead and buy it on line. Some day there may be no stores to experience these products.
Two studies from the holiday season amplify the concern of “brick and mortar” businesses. Motorola demonstrated that 51% all consumers and 64% in the 18-to-34 age range, used mobile phones for in-store shopping-related activities. (Comparing prices, finding user reviews, and making a purchase via their mobile phone). Forrester added to those results by noting that their is a 43% likelihood consumers will switch channels during the shopping process (e.g. in-store to mobile device) and as they move across those channels there is about a 50% chance that the consumer will change which retailer they will end up purchasing from (e.g. from Best Buy to Amazon.com).
So what does this have to do with all the rest of us, who are not running retail enterprises with large overhead? Well there are many indirect social costs of saving a few dollars by sending away for items and not shopping locally but I won’t go on to that soap box in this setting. From a learning perspective, the Direct Buy, Best Buy, Local Electronics store example forces us to ask ourselves whether the “experience” we provide justifies the infrastructure expense it costs to deliver it or will consumers become so commoditized to the point where only price matters? Further, how do we avoid creating tangible experiences so that others won’t benefit from us as they sell through channels where customers can’t touch the item or kick the tires?
Ultimately, the question is this…..what valued experiences can you create that makes price less relevant?