When Bricks Click: Why Retailers are Embracing Online and Offline
The New York Times has a story out about online retailing phenom Warby Parker. The article explores the changing habits of e-commerce companies (why they’re cutting out middlemen) and celebrates innovation in online channels. And it starts to make a larger point: alongside all the enthusiasm for innovative online retailing, there’s much to be said for having some elements of brick and mortar stores. Even Warby Parker might benefit.
One hears the terms “multichannel” and “omnichannel” a lot these days. The basic idea behind an omnichannel strategy is for the firm to be present everywhere and anywhere that a consumer might feel the need for its product or service. As Haley Joel Osment’s character, Cole Sear, puts it in the movie Sixth Sense in response to Dr. Malcolm’s Crowe’s question about how often he saw ghosts: “All the time. They’re everywhere.” Or Bill Paxton’s Private Hudson in the equaling chilling movie Aliens characterizing the slimy beasts: “They’re everywhere man! They’re all around us man!” So too by being “omni”-present, firms can ensure that their products are available in brick and mortar stores (if consumers feel the urge to see, touch and feel the product and require it at short notice) and also online (if consumers want to access the product from the comfort of his or her home).
Based on the doom and gloom surrounding them, it had appeared over the past several years that businesses dependent largely on brick and mortar stores were in trouble. It is not easy to forget the demise of the beloved bookstore Borders, the travails of music chains like Coconuts, Tower Records, Sam Goody, etc., and the tribulations of Hollywood and Blockbuster video. Retailers like Best Buy and even Target are not immune from “showrooming” – where the brick and mortar store acts as an unwitting showroom for an online retailer like Amazon; a consumer satisfies herself about the adequacy of the latest LCD TV from Sony or Samsung at a Best Buy store and promptly places an order for it on Amazon, sometimes even when she is still physically in the store. The George Pappas (Steve Zahn’s character in You’ve Got Mail) view of the Internet as “just another way to be rejected by women” has over the past several years given way to that of an important marketing channel that can effectively meet the needs of consumers in a large number of product and service categories.
Given the move to the online channel, one might wonder about the enthusiasm for a multi- or omni-channel strategy even among those retailers that have originated online with no brick and mortar presence. Where then is the desire for a “hybrid” strategy coming from? There are several reasons why erstwhile pure-play online retailers such as Warby Parker (for eyeglasses), Kiddicare (a UK retailer for baby car seats, strollers, beds, etc.), BaubleBar and Bonobos (online fashion purveyors) have or are in the process of setting up brick and mortar operations. Even companies like Etsy and Ebay are embracing the concept of pop-up stores in various cities – temporary stores in high traffic areas or even in mobile form in buses.
First and foremost, a number of customers still like to hold, touch, feel, and see product before committing to make a purchase. One can think of a world consisting of experienced shoppers in a category that know the attributes of the various products and have a good idea as to what they are looking for. Think of second- or third-time parents that have already shopped offline for their first child and know what type of car seat they prefer, how to install it in the car, etc. For such consumers, ordering online is a cinch. On the other hand, first time parents might be far less certain about their preferences for different elements of car seat design. Further, they are likely to be less familiar with how to install a car seat once they purchase it. If there are many of the latter type of customer in the population, it would make sense for a company wanting to show growth to consider catering to such a customer’s needs with offline stores.
A related factor to the above is in the context of durable goods or technology products. In such product categories, later adopters – say, of personal computers, who are far less savvy about technology — may prefer to make their purchases at brick and mortar stores. The example of Dell is appropriate in this regard. When the bulk of sales in the PC category was coming from businesses, especially businesses that were familiar with PCs and were in the process of replacing their existing machines, companies like Dell with their low-cost business models thrived at the expense of companies like HP that were heavily dependent on channel partners, very often bricks and mortar intermediaries. These “experienced” customers knew what they wanted in terms of configuration, and at the same time they demanded value and low prices. Thus purchasing from Dell made sense. As the PC market evolved and shifted towards the consumer market where, at that time, several households were still purchasing their first or second PC, the “direct” model made less sense as these consumers were more risk-averse and demanded the comfort of seeing and feeling what they were purchasing. The resurgence of HP and Apple, while attributable to other factors as well, was at least partially attributable to the evolution of the PC product lifecycle.
A third factor is the nature of customization required for the product or service. A Taylor Swift album is the same regardless of whether it is purchased online or off. However, products like eyeglasses and shoes tend to be different. Here the satisfaction with the product depends critically on its fit – either to the wearer’s face or to his feet. And while Zappos allows you to return items for free, and Warby Parker also allows for several styles to be tried in-home for free, consumers in these product categories are likely to go through several dozen alternatives before settling on the one that they would like to purchase.
Another reason for an offline presence is to build the brand and its credibility. An online-only bank might be very stable and sound, but seeing its physical presence is often reassuring for consumers who might be worried about how genuine the operation might be. Besides brand credibility, a physical presence also promotes instant gratification that online shopping does not yet provide – although judging by recent moves by the likes of Google and Amazon, these retailers are constantly striving towards providing precisely such gratification for customers. Further, an offline presence also enables returns and exchanges of items purchased online; such trips to the store, can in turn, lead to additional opportunities to purchase and consequently more sales and revenues.
Offline retailers are constantly aiming to boost store traffic and browsing behavior in their stores. The logic is simple – the more customers browse, the greater the possibility that they encounter something they like, thereby enhancing the probability of a sale. Online stores are not as conducive to the discovery of new items because the traditional notion of browsing is much more difficult to implement. Indeed, research in the context of online grocery shopping has shown that new products introduced in online stores take a longer time to be “adopted” by customers than in their offline counterparts (see Andrea Pozzi). To expand a consumer’s share of wallet at the store, an online-only operation may look to an offline presence to boost its chances of landing a sale.
Having on offline presence with the ability to observe consumers at the point of purchase can also provide useful feedback to the company. This in turn can help the company re-jigger its products, price points, delivery, etc. Witness the meteoric rise of Lululemon (notwithstanding its recent “transparency” problem). The CEO Christine Day spends hours watching customers’ shopping behavior. This is then used as an input, along with any complaints customers might have, to modifying the product offerings and the store layout and assortment. By placing the clothes-folding tables on the sales floor near the fitting rooms rather than in a back room, the company facilitates employees eavesdropping on customer complaints. The company also encourages and gathers information in store on customer pain points. This information is then fed back to headquarters to try and improve performance.
Ultimately, there are several factors that can motivate an online seller to look for an offline presence. Critically, to the extent that these factors can be aligned with the goal of providing a superior customer experience in a profitable manner, there could be a compelling motivation to consider the hybrid online-offline channel strategy.
Recent, low real estate costs have served to facilitate such a move. Further, several companies are convinced that there could be synergies with the multi-channel approach as a greater presence will get people to buy more. Writing off brick and mortar stores could be a trifle premature. When asked by Raoul Silva, the character played by Javier Bardem as to the nature of his hobby, Daniel Craig – James Bond in Skyfall deadpans – “Resurrection.” This sentiment might well be shared by the new brick and mortar stores being set up by online retailers.