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One consequence of the Global Financial Crisis or as they now are calling it the Global ‘Economic’ Crisis is that Foreign Exchange (FX) rates are now very volatile. 10% movements are now common replacing 1% movements. This brings about interesting opportunities for consumers.
This was highlighted recently when I was looking around for Ben10 Watches for my two boys, Mr3 and Mr5. The US Dollar (USD) price I would have to pay when converted to Australian Dollars (AUD) at an e-commerce portal was almost the same. The two currencies were nearly equal. Within weeks the AUD had changed dramatically versus the USD by 40% as the commodity markets imploded. Accordingly my online price to buy in USD had nearly doubled when I calculated the AUD price equivalent that I would be paying.
At the same time the Kmart retail price in AUD’s was unchanged and on a currency adjusted basis was extremely cheap. So Kmart, the offline retailer, was giving consumers the opportunity to avoid that foreign exchange loss. You could be simplistic about this and say that Kmart buys and sells at the same price and is currency neutral but the reality is quite different. Kmart is in competition with online shopping e-commerce portals. While currency makes Kmart prices cheaper then consumers like me will buy in person at their stores but if the reverse occurs I wouldn’t hesitate to buy online via an e-commerce transaction.
Accordingly Kmart is allowing consumers to cherry pick their prices. It is the right but not the obligation to buy at the cheaper price. In essence, a free option while stock lasts. This produces a negative pricing environment as they keep giving away this free option to consumers. Maintaining static pricing in the face of volatile currency movements is now a significant issue for them. While currencies moved 1% it wasn’t noticeable.
The big problem for Kmart and others like them is two-fold. Firstly they need to decide how much currency they need to hedge against their purchasing. In effect they are increasing their activity in a non-core business called “currency trading” which historically most businesses aren’t all that good at. It’s not their fault it’s just not their core business.
The second issue is that the technology to deploy and implement price change on the store floor isn’t implemented in Australian stores that I know of. You can’t simply swap out millions of RFID Barcode prices attached to garments, CD’s and Ben10 watches.
So the online stores have a distinct advantage over the offline stores born out of their capacity to adjust prices quickly as FX rates change. The online stores will continue to out-compete Kmart and the likes in volatile FX markets by facilitating this retail price arbitrage now made possible by e-commerce.
What does this mean for your business and what it is that you sell?
If time permits, I’ll shop personally. But if not, online shopping is better-it’s not only hassle-free it’s also less expensive like what you said (price only differs slightly). and besides who would want to encounter rush hours?
Comment by Ratgeber Gesundheit — January 21, 2009 @ 1:04 pm
I do most of my shopping online. By the way, great site.
Comment by Jessica — January 21, 2009 @ 1:47 pm
thank you
Comment by izmir evden eve — February 6, 2009 @ 11:26 pm
Good comparison between online shopping and offline shopping. I will accept more interesting things about this
Comment by Seo Company — March 18, 2009 @ 10:53 pm
One point I feel I need to correct and that is about how fast large retail stores can implement a price change.
While the RFID tag can be used to hold price information, in retail stores it is only used to indicate people removing the item from the store without paying (ie stealing). The price is still held in a central database, activated by the barcode scanner. The unfortunate thing is that these “databases” are usually store dependent and not linked to head office. So when HO changes the price on a item, the change is emailed / sent to the store manager who delegates the responsibility to their assistant (or someone else) to change the store database. It is this that takes time. it would be good if all databases were linked to HO and then just one person in HO could change the price for all stores. However this has the disadvantage relative to the store manager’s “on the ground” knowledge. The store manager needs to be able to adjust their own prices relative to local conditions. My qualifications for saying this that I once was an accountant for a large national retail outlet.
Comment by John — April 7, 2009 @ 1:14 pm
Thanks John, now corrected. I always get them mixed up. You would think that with API’s and Importing of price lists they could do this quickly from head office.
Comment by Marc — April 8, 2009 @ 7:43 pm
I have some experience with a large retailer that manages price points for online and brick and mortar stores. In theory a company can apply the same pricing control for in-store products as they do for online merchandise, but there is always some analog element that needs to be updated as well - a sign, sticker, etc. In the end, a store with a thousand products can’t keep up with the pricing changes necessary to match an online store without the cost of change negating the potential profit gain.
Comment by greenLt — April 22, 2009 @ 7:06 am
I do most of my shopping online. By the way, great site.
Comment by haberler — June 9, 2009 @ 11:25 pm
I enjoy shopping online, however, I have yet to run into the problem you had with the watches. I like being able to compare prices more conveniently and being able to all sorts of products. I think a majority of shoppers will be moving online for more exclusive products and especially software products.
Comment by Data Quality — June 19, 2009 @ 4:40 pm