It’s happened to everyone.
You’re out shopping for a new pair of jeans, and on your way to the checkout counter, you come across a belt that’s a perfect match. You’re already spending $60—so what’s another $15?
Bricks-and-mortar retailers have mastered the art of the impulse buy, scattering low-ticket items such as lip gloss, nail polish and accessories near the cash register. Even without these ploys, consumers are more likely to add a few items to their basket when shopping in-store, as it’s easier to find and be tempted by products that can be touched or tried on.
But as shoppers shift their spending to the Web, traditional retailers are missing out on these impulse buys in the digital space.
“I think that’s always kind of the challenge with fewer store visits,” said Forrester Research analyst Sucharita Mulpuru.
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Encouraging shoppers to snatch up those extra items is key for retailers, said Kantar Retail’s Anne Zybowski, particularly as the industry becomes synonymous with price slashing. As such, companies are investing in strategies that encourage shoppers to spend more each time they visit.
Tricks of the trade
One way they’re doing so is offering shoppers the opportunity to buy online and pick up in-store—a maneuver that, on the surface, makes consumers think they’re saving money by eliminating shipping costs. Similar to giving shoppers the option to make returns in-store, it’s a way retailers can snag the online sale, while driving traffic to their stores and encouraging further purchases, Mulpuru said.
Sticking purely to online, traditional retailers such as Wal-Mart and Target have offered deals of the day to stimulate extra spending, while others such as Nordstrom suggest products to “complete the look,” or show customers what shoppers with similar interests have looked at.
Though it’s a step in the right direction, bricks-and-mortar retailers still lag behind Amazon, which tries to expose shoppers to new products on every step of the experience, from when they first open the homepage to checkout.
“Very few retailers make that level of an investment in such deep recommendations,” Mulpuru said.
Shipping order minimums also play a key role in getting shoppers to add another item to their cart. Although having a high shipping minimum could cause bricks-and-mortar retailers to lose a few online sales, Mulpuru said that with the exception of Amazon, most retailers act in lock-step with their competition. Therefore, a $25 difference in shipping thresholds doesn’t make much of a difference to shoppers.
To be competitive with the online pure plays, retailers could consider lowering their shipping thresholds, but there are adverse effects that come with the decision, Mulpuru said.
“You end up getting a lot of one-unit orders that may be low value. They create a lot of overhead, [and] that’s not something that retailers can necessarily afford,” she said.
Wells Fargo analyst Paul Lejuez wrote in a recent note that these issues are more of a challenge for traditional retailers because they have higher costs than stores that exist only online.
A more cost-efficient way to increase spending is to follow up on purchases with an email, Zybowksi said. Stores like Pottery Barn send recommendations based on past purchases and encourage shoppers to pull the trigger on abandoned digital shopping carts. Online grocers have begun keeping a list of shoppers’ replenishment purchases so they can spend their time looking at new products.
“The quicker I can use digital tools to facilitate that … the more likely I am to engage that shopper in recipes, or other things that will get them to spend more on impulse,” she said.
E-commerce doesn’t solve everything
As e-commerce continues to command a bigger share of consumers’ wallets—ComScore said online sales increased 14 percent last year, to account for 12 percent of overall retail spending in the fourth quarter—it’s important to remember that shoppers aren’t spending more, Lejuez said. Instead, they’re simply shifting their dollars, which comes at a cost to bricks-and-mortar stores even when they win the sale.
Because online shopping is so convenient, it’s easier for consumers to do price comparisons. This results in retailers cutting their prices to remain competitive.
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“Just as e-commerce doesn’t make people spend more, it also doesn’t make them buy more at full price,” Lejuez said. “If anything, deals offered online are usually better than in stores.”
Lejuez said he remains cautious of retailers who cite e-commerce as being more profitable than their mall stores, noting that as these channels grow, margins are declining across the industry.
He used Abercrombie & Fitch as an example. The teen retailer’s fourth-quarter online sales grew 18 percent, but its margins still moved lower. He also noted that stores such as Michael Kors and Ross were some of the few that experienced higher margins in 2013, and neither has a significant e-commerce presence.
“We believe investors should be skeptical of those companies that sing the praises of higher margins in e-commerce,” Lejuez said.
Despite these headwinds, online shopping is not something that’s going away. Retailers need to figure out a way to make the channel more cost-effective, because if they don’t have an online presence, they stand the risk of losing the sale altogether, Mulpuru said.
“Stores are losing and the Web is winning—there’s no questions about that,” she said.
—By CNBC’s Krystina Gustafson. Follow her on Twitter @KrystinaGustafs.