Market analyst firm Canalys said this week that it expects more big-box retailers like Best Buy to disappear like CompUSA and Circuit City. But who will replace them? Supermarkets.
Canalys predicted that the largest electronic retailers will continue fading away, as more and more consumers shop on price, and not the ability to touch and feel electronic items. Those retailers may eventually just evolve into physical showrooms for vendor products, possibly even moving out of retailing altogether, Canalys wrote.
The Canalys report was predicated on the decision of Best Buy to shut down 50 stores, even in prosperous areas like Scottsdale, Ariz. Soon after, Best Buy chief executive Brian Dunn resigned, following the departure of Best Buy CTO and Geek Squad founder Robert Stephens last year.
CompUSA faded out five years ago, followed by Circuit City in 2009, leaving Best Buy and perhaps Target as one of the few retailers to compete with Amazon. Canalys said it believes Best Buy will eventually disappear as well.
Canalys noted that more and more shoppers now prefer to visit a big-box retailer to play with an evaluate the gadget, then tend to buy the item online and have it shipped to their homes. It dubbed the trend a "strategic failure" by the retailers.
"They were hit by a perfect storm of competition from the Internet and supermarkets," said said Canalys chief executive Steve Brazier in a statement. "They lost too much business to competitors undercutting them on price and failed to respond to the many attractions of Amazon's online approach, such as its vast stock ranges, peer reviews, recommendations, free delivery and excellent returns services. Today's consumers are even willing to browse for a book in a local store then order it from Amazon at a higher price simply because they want Amazon to understand their entire library, to optimize future recommendations. This is more than 'showrooming' – this signals a fundamental shift in consumer perception of value."
Instead, more and more goods are being sold online, with some products - CDs, books, and even movies - moving more and more into the digital space. That also means that profit margins on other electronic items are shrinking, as well.
What other business can sell low-margin products and thrive? The supermarket, Canalys said. Grocery stores tend to sacrifice margins to entice shoppers into their stores, and have always run promotions for low-end products.
"They have the locations and the parking facilities, which make them convenient for collection of heavier items," said Alastair Edwards, principal analyst for Canalys. "Many have good online tools and make deliveries too. In many countries, supermarkets are the most efficient route for shipping a single product in high volumes."
Canalys suggested that some retailers will attempt to emulate Apple, who, according to a 2011 report by RetailSails, pulls in $5,626 per square foot in its retail stores, about twice that of its nearest competitor, Tiffany & Co.
Canalys suggested that Apple may be a special case.
"Do the stores attract the customers, or do customers come simply because Apple's products are so popular?" Chris Jones, a Canalys vice president, noted. "Competitors should be extremely cautious before trying to emulate Apple's approach. The product ranges of most other companies are unlikely to generate customer traffic at anything like a similar rate."