Boy meets girl. They walk into a store. They like what they see. They buy what they want. They walk out with the purchase. Simple.
Not so simple these days. Boy meets girl. They walk into a store. They sort of like what they see, but wonder: “Do they have one in my size? Does this need to be dry-cleaned? Should I check another store?”
This story first appeared in the May 18, 2016 issue of WWD. Subscribe Today.
The store is a bit disheveled, and one poor associate is in the back restocking or re-ticketing. “Can’t disturb him.” The other associate is barely holding her own at the checkout line. “Maybe we’ll come back some other time.” There is a one-in-three chance that they won’t.
Traditional apparel retailers — retailers who started with physical stores before going online — are in a quandary over maintaining high service and selection in stock while still being cost-competitive. Some pure-play e-commerce retailers — who started as online-only businesses — are leading the experiment in stockless showrooms. I believe that is where the unlock for traditional retail lies.
Let’s be clear: The concept is not new. Stockless showrooms — curated stores where the customer can browse, test and learn about the product — have been around for a while. If you have bought mattresses or furniture, anywhere but Ikea, you know you don’t expect to leave the store with the eight-piece bedroom set. Recently, well-known online-only retailers such as Bonobos, Zalora, Blue Nile and even upstarts like Paul Evans and Jack Erwin have introduced variations on the stockless showroom. She walks in to the store, sees the assortment and tries the product, and asks an attentive staff person some questions. If all goes well, she places an online order at the store, which is shipped out from a central warehouse. The store facilitates the sale, but doesn’t physically fulfill it.
Stockless showroom stores have some tremendous advantages, allowing the retailer to: • Focus on selling and not lose 50 percent of the labor hours — for an average retailer — on non-customer-facing activities like restocking or re-ticketing.
• Offer a better brand experience, curated without the clutter of on-floor inventory and point of sale, with associates who actually have time to assist the sale.
• Reduce “lost sales” resulting from out-of-stock items or returns while managing one view of inventory that reduces working capital and maximizes full-price sales.
• Sustain cost advantage, conservatively 5 to 10 percent of sales, between store labor, product replenishment and allocation overhead, to name a few areas.
“My customer would never go for it.”
• Stores matter, but differently
Three-fourths of customers prefer to see the physical product before purchasing it, but with online apparel purchases doubling every three to five years, they don’t need stores to fulfill the sale.
• Better customer experience
Early experiences suggest customers like the uncluttered feel, the friendlier associates and even not having to lug shopping bags through the mall.
• Share the savings
If even a portion of the retailer’s savings are passed on as lower prices, I am betting more customers will go for it.
I get that this is not a one-size-fits-all solution. There will always be a segment of customers who will want instant gratification or have a gifting need. But when one out of five purchases is already happening online — and growing — there are clearly enough customers who don’t mind getting it later, especially if they get back a slice of the retailer’s savings in the form of a discount. Or, you could promise to deliver within a day or less. Understanding how many of your customers could be swayed will require some work, though.
If it were my business on the line, here is what I would like to do:
• Understand my customer and the archetypes of her preferred path to purchase to discern why she visits the store and how she prefers to transact and receive her purchases.
• Take a geographical area view, say a “catchment,” to understand how many customers are better serviced through online fulfillment. Based on this perspective, how many stores do I need and how much inventory do I need in those stores?
• Resist the urge to keep business as usual simply to justify the hundreds of millions I have invested in distribution and overhead. Instead, take an endgame view of stores, distribution and e-commerce assets to properly allocate investments.
This is a chance for traditional retail to turn the tables on pure-play upstarts. Pure-play retailers have already trained their demographic in a whole new way of shopping. Steal back your customer!
Traditional retailers have this capability. Many of them are able to take an online order from the store and send it to the customer — but so far, they’ve only been using it when the item the customer wants is out of stock. One easy way to test customer behavior would be to offer slight discounts for ordering online even if the product is already in the store. If they bite, you know there is great potential.
Once we have uncluttered the store, just imagine the possibilities. Virtual fitting rooms, in-store social media integration, holographs and robots, cross-brand outfitting, local artist showcases, interactive pods, cafés and spas…all ideas good, bad and in between — but never indifferent — become possible. We’re already seeing signs of change in this direction. I believe we’ll see the trend accelerate in 2016 and beyond, with many forward-looking retailers considering a strategy based on the stockless concept.
Adheer Bahulkar is a partner with global strategy and management consulting firm A.T. Kearney specializing in strategy and operations in the consumer and retail sector.