Source: Esther Swilley, 785-532-6135, esthers@k-state.edu
News release prepared by: Greg Tammen, 785-532-2535, gtammen@k-state.edu

Monday, Feb. 28, 2011

SURVIVAL OF THE FITTEST: MARKETING EXPERT ANTICIPATES MORE DIVERSE PRODUCTS ONLINE BUT SPARSE SHELVES IN BRICK-AND-MORTAR STORES

MANHATTAN -- With Borders Group Inc. closing the book on 30 percent of its retail stores, many are wondering who's next to fold. But according to a marketing professor at Kansas State University, the better question may be what's next?

"For retailers it always boils down to doing something better than your competitors," said Esther Swilley, who researches technology and marketing. She attributed Borders' resistance to adopting e-books and delaying response to the electronic market as a large reason for the company filing Chapter 11 bankruptcy.

"It's business. You can't be nice; you've got to be ready to fight. And as we saw with Borders, they weren't ready, and they got pounced," she said.

But this story isn’t a new one for niche retailers, especially when technology and a tight economy are concerned. The dot-com era was round one of changing the face of retail. This is round two, Swilley said.

And that's where futures start to get hazy, she said.

The closure of some 200 Borders stores threatens more than just literacy. It could impact those surviving mom-and-pop retailers who rely on Borders to draw consumers to shopping plazas and then to their front doors.

But projected sharp, across-the-board price increases over the next five to eight months doesn't just mean worries for brick-and-mortar retailers. Online retailers have reason for concern, too, Swilley said. Inflated commodity prices mean fewer customers, regardless of the venue. With limited dollars up for grabs, the biggest changes to the shopping arena will likely be retailer-driven rather than consumer-driven.

"We may start seeing an online sales tax across the board within the next year or two," Swilley said. "Retailers may try to lessen that old tax-free mindset with lower shipping costs, but regardless of where you buy, you're going to start paying a sales tax online because state governments are hurting financially."

Expect more retailers to diversify but not when huge risks are at stake, Swilley said. For example, online movie rental service Netflix Inc. has slowly been phasing out mailing movies in favor of bulking up its instant streaming film catalog. The ongoing war with Redbox and Blockbuster Inc. could have Netflix deciding to become an information distributor, getting into the e-book market, Swilley said.

More retailers will begin to expand the shopping space in physical stores by removing display aisles and widening the distance between them, lessening movable inventory and decreasing the likelihood of being stuck with slow-moving products. Also expect more brick-and-mortar retailers to charge for shipping from its websites, she said.

To get consumers offline and through the door, Swilley suggests brick-and-mortar retailers offer more coupons, have limited in-store only specials, hold release parties and even host guest authors and speakers. If physical stores are able to offer unique incentives -- like guests -- that online stores can't, it may allow those physical retailers to stay in the fight.

"Everybody's just trying to hold on to what they've got," Swilley said. "The goal right now is not to lose ground, even if there's no ground to be gained for a while. Everybody just wants to hold steady, and that's not going to be easy."