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Click-and-mortar sellers hold edge in big-ticket tech

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It’s well documented that the consumer tech market has been an online destination for longer than most retail categories. Among the industries NPD Group Inc.’s Consumer Tracking service follows, consumer tech’s online penetration in 2015, at 27% of revenue, was the highest. And with holiday quarter numbers at 30% and two of the largest tech categories, TVs and smartphones, severely underpenetrated online, that number is clearly a starting point, not a ceiling.

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Stephen Baker

Consumer tech has a long history and experience in dealing with the online channel. In the earliest days of the web the main focus of competition for retailers was their own suppliers, as direct-to-consumer businesses like Gateway and Dell posed considerable challenges. Today most of those challenges have migrated to competing with online retailers such as Amazon.com, who provide a more complete shopping experience, one posing a deeper challenge to the storefront than the limited manufacturer-direct market ever did. One reaction to this has been the increasing emphasis retailers have paid to their web presence and linking their online and offline presence to leverage the store capabilities they have.

Tech customers in particular have long had a tortured relationship with retailers, one that has only increased as the web has enabled, indeed empowered, consumer knowledge and research capabilities in as complicated a category as technology. That said, consumers are loyal to particular retailers. For example, Amazon consumer technology buyers spent nearly half of their online consumer tech dollars at Amazon, according to NPD’s Checkout Tracking service, which is able to analyze purchase data at the receipt level and basket level. That’s up a few points from the prior year. No other significant online tech retailer has achieved that kind of loyalty growth.

Given the steep competition from Amazon, click-and-mortar retailers — those who have both an online and an in-store presence — have a significant barrier to overcome among the more loyal Amazon Prime members. However, the purchases made at Amazon, versus other retail sites, are revealing. At a total industry level, Amazon buyers’ purchase frequency (regardless of category) was 34 times per year, according to Checkout Tracking. Any other major online retailer pales in comparison, likely largely due to Prime membership. By comparison, our data indicates that mass merchants like Walmart and Target Corp. averaged around 2.5 online purchases per year. Surprisingly, even Best Buy Co. barely generates 2 online purchases a year among its customers.

Amazon uses the power of its transactional model to drive traffic; but all traffic, especially in the consumer electronics market, is not equal. Amazon has morphed into a classic transaction retailer in consumer tech, driving an enormous amount of shopping trips yet unable to close the deal on the high-ticket items that drive the business and tech basket (the challenge presented by the aforementioned weak online penetration for very high-ticket categories like smartphones and TVs).

With products that can sell for thousands of dollars and ones that sell for just a couple of dollars, the value of a transaction can have very different meanings in consumer tech. According to NPD’s Checkout Tracking, while Amazon buyers’ purchase frequency is much higher than other key online players, average revenue per order (among all transactions) is less than $40, whereas Target and Walmart’s order totals are north of $65.

Specifically in consumer tech, the average price paid for a single Tech item bought online carried an even greater spread: Checkout Tracking data shows Amazon’s average price was under $50, while Walmart and Target hit over $90 per tech item. Best Buy took advantage of its position as the leader in monetizing online transactions, with an average item price that exceeded $180. Clearly Best Buy does not have to generate Amazon’s traffic levels, given its ability to monetize the transaction. With an overwhelming existing franchise in those categories that have proven difficult to take online, Best Buy has an opportunity to extend its advantage in transaction value.

This monetization capability opens a wide opportunity for click-and-mortar retailers online. Leveraging the advantage they possess in selling those high-ticket, highly researched items that consumers overwhelmingly prefer to buy in-store versus online give retailers who sell products a starting point in driving the next phase of retail transformation. As this next phase of tech comes online, our data is telling us that those click-and-mortar retailers who have the expertise to sell these categories in-store will be the best positioned to sell them online.

Stephen Baker is the lead technology hardware analyst at NPD Group. He can be reached at Stephen.Baker@npd.com.


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