October 2012. One year and two months ago. I had an idea! Being fresh out of college and fresh in a new job on an accelerated development track within a large luxury goods company, excitement for innovation was top of my mind. But everyone told me it was too crazy to work. “Too many things would have to change,” some said.
I appreciated their insight but I kept thinking about it on my own. Entrepreneurship is about coming up with something that other people think is crazy. "If they don't think you are crazy, then you're not thinking big enough," a friend once told me. So I refused to forget about it. I continued to wonder: with so many options for making purchases, and the ability to have things shipped to our homes, why must we continue leaving stores with so many bags? Is it in the best interest of (struggling) retailers to hold so much inventory so that we can have the option, if we so choose, to purchase in store rather than online?
Today, variations of this idea are all over the internet. Just Google “retail shopping” or “showrooming.” Through all the Forbes, New York Times, and Wall Street Journal articles, there has only been one article and one person who has come close to saying what I have in mind. Ashely Lutz, innovation writer for SAP blog, wrote in the beginning of 2013 that "Inventory could conceivably not even exist in the “store” environment at all, but be shipped directly to your home from a distribution center." YES!!! Thank you, Ashely! Can we please have a coffee chat soon?
Ashely does not go into explaining why this would be such a fantastic idea, though. So here is my explanation.
I appreciated their insight but I kept thinking about it on my own. Entrepreneurship is about coming up with something that other people think is crazy. "If they don't think you are crazy, then you're not thinking big enough," a friend once told me. So I refused to forget about it. I continued to wonder: with so many options for making purchases, and the ability to have things shipped to our homes, why must we continue leaving stores with so many bags? Is it in the best interest of (struggling) retailers to hold so much inventory so that we can have the option, if we so choose, to purchase in store rather than online?
Today, variations of this idea are all over the internet. Just Google “retail shopping” or “showrooming.” Through all the Forbes, New York Times, and Wall Street Journal articles, there has only been one article and one person who has come close to saying what I have in mind. Ashely Lutz, innovation writer for SAP blog, wrote in the beginning of 2013 that "Inventory could conceivably not even exist in the “store” environment at all, but be shipped directly to your home from a distribution center." YES!!! Thank you, Ashely! Can we please have a coffee chat soon?
Ashely does not go into explaining why this would be such a fantastic idea, though. So here is my explanation.
From the retailer's perspective
Multi-channel selling and the evolution of technology are leading to uncertainty regarding the long term viability of the traditional retail model. This leads to an opportunity for brick and mortars to redefine the purpose of the store so that it becomes a "brand and product showroom that drives revenue across all channels." To specialize in delivering the life experience interaction that is unique to only the retail channel means that stores can stay relevant by acting as the embodiment of the brand. After all, there is only one place where customers can interact with all five senses!
Following the current model, offering the ability to interact with a product with all five senses comes with major costs: (1) rent / real estate cost; (2) transportation cost; (3) cost of delayed or lost inventory; (4) cost of under or over supply (5) opportunity cost of employees having to restock inventory rather than interact with customers; etc. The unfortunate realization is that, while many retailers think they are counteracting showrooming and online by offering services like online order / in-store pickup, truth is they are not doing anything to mitigate a single one of these high costs! To improve margins, especially if sales are not increasing since the NRF expected that the average person would complete nearly 40% of their holiday shopping online, then naturally the next step is to decrease costs!
Yes, one could possibly argue that stores like Nordstrom are trying to mitigate the cost of under or over supply by melding together its online and in-store inventory, but truth is the impact of this improvement aims primarily to increase sales (8% average increase in same-store sales) rather than decrease costs. Turning stores (that require high rent) into warehouses for online is one way to go; but the best way is the create warehouses (in areas with cheap real estate) that serve as distribution centers for all retail and online purchases.
I believe that many companies are incorrectly identifying their competitors and protecting themselves against outside forces when the truth is that technology in the 21st century has brought the competitor inside. No, not like a spy! Rather, each selling channel that a company uses can cannibalize sales from another one of its own channels when overlapping outputs are offered. This, once again, is where I recommend that in order to stop fighting to keep up sales, the best course of action is channel specialization for purposes of finally delivering an experience again, while decreasing cost and increasing revenue.
From the consumer's perspective
Truth is, the brick and mortar should not and will not ever disappear because humans are social creatures and we have five senses for a reason. We just need to find out why we are starting to prefer the individual online shopping to the personal in-store experience. My opinion about why this is happening is because retail does not deliver that much of a pleasant experience any more!
Take this example of my recent holiday experience in a department store: while finishing up some Christmas shopping, my mother asked me to meet her near the cosmetics counters (clearly a sign for "this present will be for you and I don't want you to see it"). When there, I made my way to one of the beauty brand's display units. After 30 seconds a consultant came by: "may I help you?" she asked. "No, thank you, I'm just looking." Yes, I know that response is like the kiss of death, but she nodded... and then decided to stand four steps to the right of the units. After a few minutes of playing with products I felt the desire to say "Ma'am, you know I have great peripheral vision, and I can see you stealing glances?" Instead of saying that, I smiled and turned around (empty handed) to look up those products on my phone until my mom was finished getting that gift for "someone."
Can you blame me for walking away? Sephora has taught me that it is okay to "play" with the products, and the truth is that all that I am after is an experience. Unfortunately, I felt pressured by the consultant to buy something rather than enjoy the experience first, and so I turned away.
Guys, this applies to you, too. You may object to shopping on a daily basis, but if you could leave a store without that big bag in hand (but with your much needed slacks or shoes being mailed to your home), don't you think you would like shopping a bit more?!
The absence of experiential shopping mixed with a feeling of pressure to buy may also be one of several factors that leads the average consumer to purchase more items per transaction when shopping online versus shopping in store. Maybe there's an element of wanting to make the shipping worth it, maybe we are not psychologically biased by the shock of seeing all those products at the cash register, or maybe it's the "little kid effect" of doing more (purchasing more) when your parents don't tell you what to do (pressure you to purchase products). Either way, there is an opportunity to be developed upon.
First, I believe consumers will be willing to forgo the instant gratification of leaving with a product for the convenience of having it sent to their home later that day or the following day. (Please note, there is a startup called Deliv in Silicon Valley that is executing this for mall retailers, but the fact is that through this deal retailers still fail to reap the benefits of the synergies that online can truly offer!) Second, consumers are far more knowledgeable thanks to showrooming, so they will feel far more satisfied if they can talk with knowledgeable consultants that specialize in delivering accurate information and a luxurious customer interaction. Third, consumers desire product uniformity, but through the current model the products that stores can display are limited by what inventory they can hold. The new model will allow a retailer to display the same products in all of its stores, thereby delivering to the customer the uniformity desired.
What if brick-and-mortars became inventory-less theaters?
I strongly believe that retailers are and should be heading in this direction. So now, let's say it does happen! On a high level, this means that: (1) Companies will be able to open up their own free standing stores for a lower investment cost since retail spaces will no longer need a back storage area. (2) Sales per square foot would increase since 100% of the space would be dedicated to making sales. (3) Speed to market would be improved since the last step of the distribution process would be eliminated, meaning that stores will only have to wait for tester units and products to be delivered, rather than having to wait for a full shipment of inventory. As mentioned before, this also means that product uniformity across channels will be made possible. (4) Store employees would be able to specialize in delivering a memorable and personalized experience which would not only make customers happier, but would empower employees to feel that their job is an integral part of the store's differentiation and company's success. (5) Warehouses would be established and developed in areas of land that are less developed and therefore less expensive, but still conveniently accessible by delivery services. Yes, this would require that companies initially invest heavily in developing Amazon-like fulfillment methods, but the benefits associated with finally taking advantage of the synergies that omni-channel can provide, and delivering to customers what they crave, far outweigh the costs. It is the way of the future. Hey, Jeff Bezos, maybe this is the idea you have been looking for.
What's your perspective?
Multi-channel selling and the evolution of technology are leading to uncertainty regarding the long term viability of the traditional retail model. This leads to an opportunity for brick and mortars to redefine the purpose of the store so that it becomes a "brand and product showroom that drives revenue across all channels." To specialize in delivering the life experience interaction that is unique to only the retail channel means that stores can stay relevant by acting as the embodiment of the brand. After all, there is only one place where customers can interact with all five senses!
Following the current model, offering the ability to interact with a product with all five senses comes with major costs: (1) rent / real estate cost; (2) transportation cost; (3) cost of delayed or lost inventory; (4) cost of under or over supply (5) opportunity cost of employees having to restock inventory rather than interact with customers; etc. The unfortunate realization is that, while many retailers think they are counteracting showrooming and online by offering services like online order / in-store pickup, truth is they are not doing anything to mitigate a single one of these high costs! To improve margins, especially if sales are not increasing since the NRF expected that the average person would complete nearly 40% of their holiday shopping online, then naturally the next step is to decrease costs!
Yes, one could possibly argue that stores like Nordstrom are trying to mitigate the cost of under or over supply by melding together its online and in-store inventory, but truth is the impact of this improvement aims primarily to increase sales (8% average increase in same-store sales) rather than decrease costs. Turning stores (that require high rent) into warehouses for online is one way to go; but the best way is the create warehouses (in areas with cheap real estate) that serve as distribution centers for all retail and online purchases.
I believe that many companies are incorrectly identifying their competitors and protecting themselves against outside forces when the truth is that technology in the 21st century has brought the competitor inside. No, not like a spy! Rather, each selling channel that a company uses can cannibalize sales from another one of its own channels when overlapping outputs are offered. This, once again, is where I recommend that in order to stop fighting to keep up sales, the best course of action is channel specialization for purposes of finally delivering an experience again, while decreasing cost and increasing revenue.
From the consumer's perspective
Truth is, the brick and mortar should not and will not ever disappear because humans are social creatures and we have five senses for a reason. We just need to find out why we are starting to prefer the individual online shopping to the personal in-store experience. My opinion about why this is happening is because retail does not deliver that much of a pleasant experience any more!
Take this example of my recent holiday experience in a department store: while finishing up some Christmas shopping, my mother asked me to meet her near the cosmetics counters (clearly a sign for "this present will be for you and I don't want you to see it"). When there, I made my way to one of the beauty brand's display units. After 30 seconds a consultant came by: "may I help you?" she asked. "No, thank you, I'm just looking." Yes, I know that response is like the kiss of death, but she nodded... and then decided to stand four steps to the right of the units. After a few minutes of playing with products I felt the desire to say "Ma'am, you know I have great peripheral vision, and I can see you stealing glances?" Instead of saying that, I smiled and turned around (empty handed) to look up those products on my phone until my mom was finished getting that gift for "someone."
Can you blame me for walking away? Sephora has taught me that it is okay to "play" with the products, and the truth is that all that I am after is an experience. Unfortunately, I felt pressured by the consultant to buy something rather than enjoy the experience first, and so I turned away.
Guys, this applies to you, too. You may object to shopping on a daily basis, but if you could leave a store without that big bag in hand (but with your much needed slacks or shoes being mailed to your home), don't you think you would like shopping a bit more?!
The absence of experiential shopping mixed with a feeling of pressure to buy may also be one of several factors that leads the average consumer to purchase more items per transaction when shopping online versus shopping in store. Maybe there's an element of wanting to make the shipping worth it, maybe we are not psychologically biased by the shock of seeing all those products at the cash register, or maybe it's the "little kid effect" of doing more (purchasing more) when your parents don't tell you what to do (pressure you to purchase products). Either way, there is an opportunity to be developed upon.
First, I believe consumers will be willing to forgo the instant gratification of leaving with a product for the convenience of having it sent to their home later that day or the following day. (Please note, there is a startup called Deliv in Silicon Valley that is executing this for mall retailers, but the fact is that through this deal retailers still fail to reap the benefits of the synergies that online can truly offer!) Second, consumers are far more knowledgeable thanks to showrooming, so they will feel far more satisfied if they can talk with knowledgeable consultants that specialize in delivering accurate information and a luxurious customer interaction. Third, consumers desire product uniformity, but through the current model the products that stores can display are limited by what inventory they can hold. The new model will allow a retailer to display the same products in all of its stores, thereby delivering to the customer the uniformity desired.
What if brick-and-mortars became inventory-less theaters?
I strongly believe that retailers are and should be heading in this direction. So now, let's say it does happen! On a high level, this means that: (1) Companies will be able to open up their own free standing stores for a lower investment cost since retail spaces will no longer need a back storage area. (2) Sales per square foot would increase since 100% of the space would be dedicated to making sales. (3) Speed to market would be improved since the last step of the distribution process would be eliminated, meaning that stores will only have to wait for tester units and products to be delivered, rather than having to wait for a full shipment of inventory. As mentioned before, this also means that product uniformity across channels will be made possible. (4) Store employees would be able to specialize in delivering a memorable and personalized experience which would not only make customers happier, but would empower employees to feel that their job is an integral part of the store's differentiation and company's success. (5) Warehouses would be established and developed in areas of land that are less developed and therefore less expensive, but still conveniently accessible by delivery services. Yes, this would require that companies initially invest heavily in developing Amazon-like fulfillment methods, but the benefits associated with finally taking advantage of the synergies that omni-channel can provide, and delivering to customers what they crave, far outweigh the costs. It is the way of the future. Hey, Jeff Bezos, maybe this is the idea you have been looking for.
What's your perspective?