In a 2012 interview that aired on CBS This Morning, Amazon CEO Jeff Bezos was asked by journalist Charlie Rose whether the e-commerce giant would eventually open bricks-and-mortar stores. “We would love to, but only if we can have a truly differentiated idea,” he said. “We want to do something that is uniquely Amazon. We haven’t found it yet, but if we can find that idea … we would love to open physical stores.”
Nearly three years later, Bezos apparently found that unique idea in Amazon@Purdue. Opened on February 3, Amazon’s first staffed store is located on the campus of Purdue University in West Lafayette, Ind., a town with a population of about 30,000, skewing male and boasting a median age of 23. An open-layout store accented with the cheery color of Amazon’s flagship orange, it is a place where students can pick up orders for anything from computers to macaroni and cheese, as well as receive and drop off rented textbooks and other school gear. More stores are coming: Amazon is opening a second one this spring at the Purdue Memorial Union building on campus. Also on tap are campus stores at the University of California, Davis, and the University of Massachusetts at Amherst.
Amazon joins other e-commerce companies that began as Internet-only ventures but have been opening physical stores as well. They include eyeglasses merchant Warby Parker and Bonobos, a men’s fashion retailer, which have added dozens of offline stores in recent years. While going online to offline might seem like a step back into old-fashioned retail, these e-tailers are not opening stores that look like your parents’ Sears Roebuck. They are reinventing the customer experience with smaller, more intimate spaces, focusing on delivering a special experience in addition to displaying products.
Warby Parker’s retail stores capture a sense of fun with pneumatic tubes that shoot glasses from the stocking area to the sales floor. The stores also features shelves of books for browsing, sometimes accompanied by rolling ladders, in an ode to the company’s book clubs. Meanwhile, Bonobos’ so-called “guideshops” let the fashion-forward gentleman choose and try on apparel. Afterward, the products are ordered and shipped to the customer; they are not sold at the shops. However, Bonobos also is selling its clothes through higher-end retailer Nordstrom, in a partnership with the traditional bricks-and-mortar store.
It makes sense for online retailers to add offline stores for the right types of goods. “There are many categories where the ‘touch and feel’ of products and sales associates’ assistance is important in the purchase process,” says Barbara Kahn, Wharton marketing professor and director of the Jay H. Baker Retailing Center. For example, consumers usually like to try on clothing and eyeglasses in stores and examine groceries before buying. When products need further explanation, it is best done in person. “For these categories, offline experiences will continue to be valuable,” Kahn notes. “There is plenty of evidence that bricks-and-mortar stores are not going away.”
“There is plenty of evidence that bricks-and-mortar stores are not going away.” –Barbara Kahn
Peter Fader, a Wharton marketing professor and co-director of the Wharton Customer Analytics Initiative, goes so far as to say that online merchants need offline stores to succeed in the long run. “Any company that doesn’t have a bricks-and-mortar presence, or at least have it in the planning stages, is making a big mistake Twitter ,” he says. “It’s vitally important for retailers to be everywhere a customer wants them to be.” There is a belief that e-commerce sites can do well with a limited number of intensely loyal customers. “But that idea is not supported by the data,” Fader notes. “The key to success for almost any retailer is to have a big base.”
While starting out online is reasonable because start-up costs are low, there should be a plan to eventually open up retail stores, Fader says. “Not only do you bring in more customers, but those customers you have, old and new, will buy more from you,” he explains. “They almost automatically end up buying from you more because they see you in more places. You’re more visible.” For e-tailers like Warby Parker and Bonobos, their bricks-and-mortar stores also offer new experiences to the consumer without losing the authenticity of the brand. “You’ve got to go out there and experiment,” Fader adds.
But will the stores cannibalize sales on the website? There is evidence that adding a physical store to an e-commerce site can boost sales overall, according to “How to Win in an Omni-channel World,” a paper co-authored by Wharton marketing professor David Bell that appeared in the MIT Sloan Management Review in 2014. Last fall, Warby Parker Co-CEO Dave Gilboa told The Wall Street Journal that the company’s first eight offline stores generated an average $3,000 in sales per square foot annually, which is higher than most retailers.
Finding the Right Balance
Before the advent of the Internet, the paper said, consumers traditionally had two main means of buying products — going to the department store or ordering via catalog. Today, shoppers operate in an omni-channel retail universe where they go online to find products, check their mobile phones to compare prices, look at social media recommendations, shop at physical stores to feel the merchandise, and watch TV commercials or view newspaper ads before they make a purchase. For retailers wanting to be everywhere that customers shop, finding the right balance between an offline and an online presence can be a daunting task.
One general rule of thumb is that if a product has a high number of “non-digital attributes” — it needs to be touched, seen and experienced before most consumers would buy it — then an offline store is needed, according to Bell’s study. “Physical stores provide multiple benefits. On a basic level, it gives hesitant consumers a chance to touch the merchandise. Some people may be worried about buying online without seeing the product first, and having stores lets people interact with the product,” says Jonah Berger, a Wharton marketing professor and author of Contagious: Why Things Catch On.
Opening an offline store also “deepens brand engagement,” Berger adds. “It’s hard to get a sense of what a brand stands for from just a website, but a physical store allows potential consumers to experience the brand at a deeper level. Finally, it provides a simple trigger that reminds people to shop there. If you’re looking for clothes and you pass by the Gap or Old Navy, you’ll think about stopping in. But if nothing reminds you to think of Amazon or Bonobos, you might forget to purchase from them. So just like advertising, stores make the brand top of mind.”
“A physical store allows potential consumers to experience the brand at a deeper level.” –Jonah Berger
Bell’s paper noted that instead of the offline channel cannibalizing online sales, the two actually worked in concert to enhance overall business. In his paper, the authors compared two cities with Warby Parker customers, one with a showroom and one without a physical location, and culled data from a trading area with a 30-mile radius. They found out that total sales rose by 9% in the city with the showroom. Meanwhile, online sales, instead of declining, also rose. Residents in the area ordered 3.5% more on the Warby Parker website, the paper said.
“We find that if you have two locations identically matched, the one with a physical showroom will see higher online sales as well,” Bell says. He explains that the offline showroom gives the brand “legitimacy. There’s a real store, so it must be a real brand.” There is also another perk to having a store: The number of online product returns fell. That’s good news because returns are becoming a major area of concern for e-tailers, comprising up to a third of net sales, according to the paper.
As e-tailers are adding offline channels, bricks-and-mortar retailers are sharpening their approach to online consumers. In addition to websites, some traditional retailers such as Gap, Toys R Us, Home Depot and Crate and Barrel are rolling out a hybrid service that lets customers order online and pick up their goods in the store. Bell says such an approach has its benefits: Consumers can easily get product information and place their orders online, and they also get instant gratification because they can pick up the product instead of waiting for it to be delivered.
Bell’s paper studied the experience of Crate and Barrel, a furniture and home goods store, after it offered the BOPS (Buy Online, Pick-up in Store) service. The researchers found that overall sales rose as store traffic increased. “It drove people to the store. While you’re in the store, you buy a bunch of other stuff,” Bell notes.
Advice for Traditional Retailers
Bricks-and mortar retailers also have been responding to omni-channel shoppers’ needs by building their own digital experiences to coordinate with offline offerings, Kahn says. Those offerings include mobile apps that send coupons to shoppers, alert them to promotions and generally engage with them digitally. The result is that consumers get better service and a more efficient shopping experience. “Consumers want the omni-channel experience — and frequently, the mobile phone is the connector between the offline and online worlds,” she notes. “Coordination between the offline and online experience is going to be the norm.”
“What [retailers] have to think about is how do they integrate the whole brand, and provide the exact online and offline experience that customers want.” –David Bell
But Fader believes offline retailers can do more. “So many big brands outsource their online presence,” he says. Shoppers may not know it, but behind the scenes at several bricks-and-mortar retailers, another company is doing the merchandising and fulfilling orders. That is acceptable when a retailer is just starting out, Fader notes. But in the long run, the retailer is ceding control to someone else. He points out that Borders bookstores had outsourced its online channel to Amazon, which contributed to its ultimate demise. “Eventually, you want to be the master of your own fate,” Fader says.
It would help if offline retailers considered online channels to be a critical part of their core strategy instead of a separate operation. “Maybe what they have to think about is how do they integrate the whole brand and provide the exact online and offline experience that customers want,” Bell says. His paper urged retailers to look at how they can make the buying process easy in every phase, from providing product information all the way to delivery. The researchers also advised retailers to focus on the customers’ perspective when building an omni-channel presence in order to more ably deliver what shoppers want, in the way they want it.
The stakes are higher now in retail because consumers have new expectations about convenience and service. According to a 2014 Forrester Consulting report, 71% of consumers expect to be able to browse an offline store’s inventory online, while 50% expect to make the purchase online and pick it up in the store. However, only a third of retailers surveyed have put in place the basics to provide these services. There are consequences to inaction: 39% of consumers are unlikely to visit the store if they cannot view the store’s products online.
The reverse is also true. A retailer or brand that masters the omni-channel strategy increases customer satisfaction, loyalty and boosts brand perception, the report said. But the danger is that many retailers have reached a “false state” of comfort just because they have invested in some omni-channel efforts, according to Forrester. Instead, retailers should continually fine-tune and update their endeavors as technology and consumer expectations continue to change. Some offline retailers could not keep up with the omni-channel shopper and have stopped trying. “We’ve already seen it,” Kahn says, citing Borders, Circuit City and Radio Shack, three offline retailers that have gone bust or filed bankruptcy.
One online to offline transition that did not work was Gateway Computers, Bell says. The company started opening stores in the 1990s but closed them in 2004, around the time that Apple stores were taking off. “They realized there was no strong experiential component to their brand, there was no sizzle to sell in the physical store,” Bell says. For products that are primarily digital in nature, such as a piece of software, the need for tactile interaction is a lot lower, he adds.
While retailers will see failures and successes as they move from one channel to another, the bottom line is that they must be online and in physical stores. “Customers are in both environments, so retailers have to be there, too,” Bell says. “It just comes down to what is the appropriate mix.”