A decade ago, many traditional retailers worried that "showrooming" would kill their business. That practice -- where a customer would visit a physical store to inspect an item before ordering it from an online competitor -- was costing these companies lots of business. But now, many major chains are opening their own showrooms to allow consumers to test drive their products before making a purchase.
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On this episode of Industry Focus: Consumer Goods, the cast looks at this growing trend that has turned online retailers into established brick-and-mortar store operators, while traditional chains experiment with showrooms designed to drive direct-to-consumer sales.
A full transcript follows the video.
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This video was recorded on Dec. 21, 2017.
Vincent Shen: I'm summing this one up as "showrooming goes full circle". If you think back to 10 years ago, if you were following retail stocks at the time then you probably remember that a lot of big box stores like Best Buy, and also department stores, complained about showrooming. That was when customers would go to their local brick-and-mortar store, they'd test out the products they were interested in, and then they would go online and buy it at the cheapest price. So the traditional retailers fought this by reducing their own prices to be more competitive. They also did things like price matching.
But we're looking at 2018 now, and the showroom idea has really come full circle, because companies that have a physical footprint are happy to showcase their products in stores, let customers try things out, but then, when they go online to buy, hopefully they're buying it from that store's online portal. There have been lots of examples of retailers changing the look and feel of their physical stores, shifting the focus from having enough inventory to showcase their products in the best possible light. How have you seen, Dan, some of these efforts manifest themselves?
Dan Kline: It's been a mixed bag. A lot of retailers, we talked a little bit about J.C. Penney. JCPenney talks about omnichannel, and the idea that I could go into a store and try on a shirt, figure out it's not the right size and I can seamlessly order the correct size from their website. The problem is, execution on this requires customer service, and that's an area where, as much as I like J.C. Penney, sometimes they're lacking. There's no employee in the store to easily facilitate this order, and their website is not super mobile-friendly. So there are problems with it.
But if you look at what Nordstrom is doing with a stand-alone showroom store, you want it to be almost like a high-end car buying experience. You go in and say, "I'm looking for slides. I'm going to the beach and I need a pair of flip flops, or slides," or whatever you want to call them, "to wear." And they can show you some examples, and either virtually, or some real inventory, you can try them on, and then you can get whatever it is you're buying, hopefully it's more than that, it's also a bathing suit, it's also a floppy hat, a towel, whatever the package is. You've seen it all in a showroom, and then exactly what you want gets sent to your house. You don't have to carry it with you, you don't have to worry about it, but you know what you got. It's a very high-end experience that has to be customer service driven.
Shen: The examples that I found that really jumped out to me, the first one, this is not a public company, it's Warby Parker, which I think is pretty recognizable. We did an interview with one of the founders last year. They sell glasses. It launched as an online start-up, but they opened up their first retail location a few years later in 2013. They now have 65 locations in the U.S. and Canada to showcase their products. You walk in, you try on as many different frames as you like, and that's part of the appeal for them. A similar example is Bonobos. They also started online only first. They started opening small locations in 2012, where customers could go in and try it suits or shirts. I visited a location for Bonobos in D.C. not too long ago and once you know the size, the fit, and the color that you want, it's all showcased and available for you to try on in the store, you place your purchase, but then the order actually gets delivered to your home. You're not walking home with anything in a bag.
Kline: I think this model is the future. You talked about two things. I wear glasses, as everyone can see, and fit is exact. The old Warby Parker -- they send you three different tester pairs, I forget the exact number, but they send you some test pairs and you try them on. That's an unwieldy model, because I don't like mailing things back. It's a pain, I have to figure out how to do it, there's just no way to make that easy. But if I can walk into a store, and they have generic gray glasses in all the different sizes and all the different styles, and I can pick out and find ones that are comfortable and then get a deal on my prescription -- because glasses, I go to a LensCrafter for my glasses and it's $500 to $600 with reasonable frames. So if I've already tried them on -- and the same is true of a suit. You and I both know that you might be a certain pants size at one store and a certain pants size at another store, there's no consistency to it. So if I can walk into a Bonobos, try on everything, and then feel comfortable that what I'm going to order is going to fit me, I will do that time and time again. You've noticed, I wear the same two shirts. I have 30 of each of them because I don't want to have to think about this or stress about it. I would absolutely go try on things once to be able to then order stuff for the next year.
Daniel B. Kline has no position in any of the stocks mentioned. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.