Replica of Rushworh's music store in Liverpool, where the Beatles bought their first Gibson guitars (Source: Wikipedia Commons)
Ideas for Leaders #434

When Showrooms Help Online Companies

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Key Concept

Nearly every bricks-and-mortar company will have an online presence today. But a few intrepid companies are going in the opposite direction: online companies are starting to open offline showrooms — and research shows the result is a boost in sales… and happy customers.

Idea Summary

As more and more people prefer to shop online, an online presence is almost a requirement for just about any kind of bricks-and-mortar company from any kind of industry. Some online companies, however, are discovering the surprising benefits of traveling in the other direction: opening up bricks-and-mortar showrooms, allowing customers to feel and try on their products before purchasing them. Why are online companies going against the tide, opening stores on the street when retailers are streaming toward the Internet? In fact, the companies crossing paths are not at cross-purposes. The goal is the same: to give customers the opportunity to use the channel (online or offline) that best fits their needs. Customers seem to appreciate the flexibility. Online companies who have made the decision to open showrooms are finding the investment more than justified as sales and revenues increase.

Opening an offline presence helps online companies benefit from the informational advantages of bricks-and-mortar stores while maintaining the operational advantages of their online platform. Offline, showrooms give customers information that is hard to convey through an online channel. At eyewear retailer Warby Parker, a relatively new online company that has opened showrooms, customers try on glasses, order them, and have them shipped to their homes. At the same time, according to a team of academic researchers who focused on Warby Parker to study the online-to-offline phenomenon, the company is able to take advantage of the central inventory advantage that comes with being an online company.

Warby Parker was a good case study because it has been establishing showrooms around the country since the company’s launch in 2010. The researchers had access to data on sales and returns from February 2010 to March 2013. By comparing sales in zip codes close to the showrooms compared to sales in zip codes more than 30 miles away (and controlling for disparities such as urban vs rural zip codes), the research showed that:

  • Total sales in the areas near showrooms increased by 10%.
  • The increase in sales included sales in the showrooms and sales online, indicating that the showrooms also acted as advertisements, increasing awareness of the brand.
  • Sales through home try-ons decreased. (Warby Parker offered a unique home try-on program through which up to five pairs of frames were sent to customer homes for free, allowing customers to choose their favourite before buying.) However, conversion rates of home try-ons increased.

The results show that customers appreciate the opportunity to use different channels for their purchases. Customers who were more comfortable with trying on a variety of products or samples before purchasing went to the showroom (explaining the decrease in home try-on sales). Customers who were comfortable purchasing online continued to purchase online. Finally, customers who just needed a few samples passed on going to the showrooms and instead continued to use the home try-on version. 

Business Application

The more channels you can offer customers, the more opportunities for them to receive the information they need for their purchase decision. The result is not only higher sales, but also lower costs, as costly returns and repeated try-ons are significantly decreased with showrooms.

At the same time, showrooms are not appropriate for all online retailers. For example, the products sold through a multibrand retailer such as Amazon are available in countless stores and shops. A customer uncertain about the size of television or laptop they want to buy can go to Best Buy, shop around, then order online at a discounted Amazon price.

However, if you’re a company that makes and markets its own brand or your company sells products that customers want to see and touch before buying — clothes or guitars for example — a showroom is the best way to offer trial before purchase. Bookstores, in contrast, sell their books through online channels to customers around the country without a nearby bricks-and-mortar presence since book buyers rarely feel the need hold the book before buying.

Finally, products that must be custom-ordered (and thus cannot be purchased immediately in a retail outlet) are also effective for a showroom strategy. Eyeglasses is one example of such a product.

Depending on the product, customers may want to see and feel an online retailer’s offering before they buy. If the product can’t be in other stores, then an investment in strategically located showrooms can be warranted. 

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Authors

Institutions

Source

Idea conceived

  • December 2013

Idea posted

  • August 2014

DOI number

10.13007/434

Subject

Real Time Analytics