Omnichannel Journeys Online to offline information Module 7 Video 3 Omnichannel Journeys Online to offline information

Intro We are going to discuss omnichannel journeys by which retailers that were traditionally anchored as pure-play retailers start to provide access to offline information. We are going to start by presenting the examples of two companies that have taken this journey. We are then going to abstract from the examples and discuss the situations that may push a retailer to do this.

Bonobos Bonobos is a company that designs and sells male apparel. The company was started in 2007 as a pure-play online retailer that promised "better-fitting pants". More recently, they have been expanding into brick and mortar locations and they have been opening stores in many medium and large cities in the US. The stores Bonobos is opening are not conventional stores. They are actually showrooms where the customers can see, touch and try on the products, so they provide what we have called offline information. However, none of the inventory in the store is for sale at the store. If a customer decides to buy, he can place an order from the store and that order will be delivered to his home exactly in the same way as if the order had been placed online. That order will be shipped from Bonobos' distribution center. The delivery time will be one to five business days depending on where the customer lives. So Bonobos is offering exactly the combination in the upper right quadrant, the combination of offline information with online fulfillment. What does Bonobos gain from this expansion into showrooms? It is hard to promise better fitting pants if you don’t provide customers with the opportunity of trying those pants. At the same time, by expanding into showrooms and not conventional stores, Bonobos can keep the aggregation benefits of centralized inventory management, which reduces inventory costs substantially. Bonobos does not have to hold a lot of expensive inventory in their showrooms. It is enough for them to carry samples of the product in different sizes and colors, but not necessarily in all the size-color combinations. Because the mission of the stores is not to carry inventory that customers can pick up, Bonobos stores can be quite small compared to conventional apparel retailers, which saves them facility costs.

Warby Parker Warby Parker is an eyewear brand that was started in 2010 as an online-first retailer. Glasses are a product category where fit is very important, so many people are reluctant to buy online. To overcome this challenge, Warby Parker started offering physical access to their products. One of the ways they did it was by investing in physical showrooms where they would display the Warby Parker assortment so that customers could try the glasses. Orders continued to be fulfilled from distribution centers, so this only changed the information dimension. We partnered with Warby Project in a research project to study the effects showrooms had on demand and operational efficiency. On the demand side, we found that sales increased very substantially in the areas where showrooms were open. On one hand, they increased brand awareness and, on the other hand, they were effective at generating sales to people that were reluctant to buy without trying. On the operational efficiency side, we found that returns went down in the areas were the showrooms where open, since more people could try before they bought.

How does this compare to the other information vs fulfillment combinations? When would a retailer want to do this? We have seen two success stories of what we call the showroom model, the combination between online fulfillment and offline information. When is the showroom model an appealing strategy? Let's see how it compares with the adjacent combinations in the matrix. Compared with the traditional brick and mortar setting, the delivery time will be longer, so it is not adequate for cases where the customer needs the product immediately. Showrooms will have higher shipping costs, but lower inventory and facility costs. The advantage in inventory costs will increase as variety expands, so the showroom model is very appealing if the company wants to offer a large amount of variety. For example, when we consider all the size, collar, and pattern combinations, it turns out that a simple shirt expands into more than ten thousand different product combinations. In a traditional store model, carrying that amount of variety would increase the inventory costs tremendously, because each of the stores would have to carry inventories. In the showroom model, inventories are centralized and therefore less sensitive to variety.

Which companies are more likely to expand in the information direction? Compared with the pure-play model, the showroom model will be appealing when the product has nondigital attributes such as fit. If the product only has digital attributes, a showroom will not add much value in terms of providing information. There is another important consideration to make, which is the exclusivity of the product. If you are selling an exclusive product with nondigital attributes, it makes sense to invest in showrooms, because nobody else is going to do it for you. This is the case of both Bonobos and Warby Parker, which are examples of the so-called digitally-native vertical brands. However, if the retailer is selling products from other brands, the need of investing on the information dimension is mitigated. For example, there is no much need for Zappos to invest on showrooms, because retailers like Nordstrom can serve that purpose for them. A customer can take advantage of the offline information provided by Nordstrom and end up placing an order with Zappos.