Brick and Mortar “Showrooms”? How Stores Can Survive in the Digital Age
Popular stores such as Macy’s, Old Navy, Gap, Kohl’s, and American Apparel have closed hundreds of stores in the past few years. Given the rapid rate of store closures, the future of physical retail is in question. How can brick and mortar stores compete with online retailers like Amazon?
As it turns out, deciding to close up shop is not the answer. Research in the INFORMS journal Information Systems Research shows that brick and mortar stores play a critical role in the decisions consumers make and even have an effect on online sales. Data shows the opening of a new store can increase online sales from that area by 29 percent. Redesigning and marketing these physical stores as well as exposing and promoting their strengths will help them stand out, while also potentially cutting costs at the same time.
Retailers should also recognize that today’s customers are omnichannel. In other words, they fulfill their needs in different stages of their purchase process by using the physical and digital channels interdependently. For example, customers may search products and place orders online and then pick up purchases at the store. Or they may research and evaluate products in the store and then purchase it online. Either way, retailers can utilize stores with their digital channels to provide a seamless shopping experience to customers over different stages of the purchase process.
It remains clear that it is difficult to beat Amazon and other e-commerce companies on the price and size of product assortment, so retailers should play on their strengths—availability of physical stores. Online retailers fall short in allowing customers to touch, feel, and physically evaluate the majority of products sold by department stores with a large physical footprint, such as Macy’s and J. C. Penny.
Retailers who can successfully understand and implement strategies for the different stages of a customer’s purchase process will be able to compete with Amazon and other e-commerce companies effectively.
Our research shows that customers who go to retail stores become more engaged with the retailer’s brand, and if customers cannot find the desired size and color of apparel that they evaluated in the store, they purchase it through the online channel. This illustrates both the need for physical stores and the notion that changing the concept of brick and mortar stores can help them be successful in a digital world.
Retailers would be better served if they think of their brick and mortar stores as showrooms for not only items housed in the store but also what is available online. Retailers can keep the size of the store small by carefully rationalizing what products and how much inventory to keep in the store. Retailers should keep those products in the store that customers like to inspect physically before buying—such as apparel, shoes, perfumes, and high-value items like jewelry.
Heavy emphasis should also be placed on the immersive shopping experience; meaning how associates in the store can engage customers with the brand by exposing them to the entire assortment of products the retailer has on all channels, with a device handy to illustrate it.
A prime example is Warby Parker’s inventory showrooms, which only keep a limited quantity of each type of eyeglasses. Customers can evaluate and purchase products in these stores, but they receive their orders from the online channel. Similarly, customers make an appointment to get fitted and choose items at Bonobos Guideshops, which are then shipped to them in their preferred color and size. This way, Bonobos retains the human engagement aspect of stores but also blends it in with the online selection and fulfillment.
Retailers should also consider experimenting with tiered pricing. After evaluating and deciding on the products in the store, customers may pay a higher price for the convenience of taking the item home immediately, or the customer can pay a lower price for waiting to have it shipped to their home. Such a strategy would allow retailers to maintain lower inventory in the stores and thus keep costs down.
Additionally, retailers can allow store returns of customers’ online purchases. Our research shows that customers buy more products from a retailer’s online channel if they can return them in a physical store. Using the stores as a return center has an additional benefit of providing customers the opportunity to seek replacement while returning the product.
The long and short of it is, online retailers need brick and mortar stores and vice versa. While they won’t all stick around, those that adjust to the digital age will have a lasting footprint.
Contributed by Anuj Kumar, an associate professor and Matherly Professor of Information Systems at the Warrington College of Business at the University of Florida. He is an INFORMS member and has been awarded the ISS Sandra A. Slaughter INFORMS Early Career Award in 2018. Kumar’s coauthor, Amit Mehra, who is also an INFORMS member, is an associate professor at Naveen Jindal School of Management at the University of Texas at Dallas. He is a former associate editor at Information Systems Research and is a recipient of the 2013 Best Paper Award at INFORMS Conference on Information Systems and Technology.