One of the more intriguing ideas beginning to trend in retail is the showroom. Like automotive, mattress and furniture showrooms, the concept stores offer shoppers the ability to test, try and touch the merchandise, then opt for home delivery instead of carry-out. It’s an appealing idea for stores looking for a way to reduce square footage and large inventory commitments, certainly. But not all stores can make the idea work — and not all customers are ready to change the way they shop.
What is a showroom?
According to analysts, showrooms may be the logical next evolutionary step for retailing, in part because many consumers are already using stores as showrooms.
“Showrooms are another step to better cater to consumer needs,” Andres Mendoza-Pena, a partner in the retail practice of global strategy and management consulting firm A.T. Kearney. He describes a retail showroom as a place designed to allow customers to try and test products in their journey to transact, and allow them to get to know the product better, with the understanding that the final purchase transaction will take place online. “Consumers prefer to engage with brands online for research and transactions,” he said. “But even when they transact online, two-thirds of the time they have used a store prior to or after the purchase.”
Customers often start their shopping journeys online, go to a store to try something, then return home to place the order online, he said. “But there are also purchases you might buy online, but then exchange or return in a store. So customers might transact online and then use the physical store for other parts of their journey.”
Customers’ existing expectations with regards to traditional shopping experiences has to morph. A showroom stocks minimal inventory for sale. Customers often take nothing home. So a showroom has to offer a compelling and high-touch experience, because otherwise it would it would be pretty unsatisfactory.
The Benefits of Showrooms
The thought of showrooming makes most retailers shudder, but rather than fight consumer behaviour physical retail should embrace the phenomenon and it will pay off. While it’s obvious why a showroom is well-suited to a retailer dealing with high-end furniture, cars or other large high-ticket items, understanding how the concept translates to all of retail requires more imagination. Some types of retail categories are better suited to the idea than others, like bicycles and mattresses that the consumer wants to try before they buy. Here are the benefits:
Improved Awareness & Sales
“The brands that benefit the most from the showroom concept are online-only brands. The online-only players, because it’s a way for them to increase awareness of their brand and increase the trust of the customer base. Our research shows that online-only players that have a retail presence see an increase in sales of 5 to 8 times. That’s a lot.” Mendoza-Pena said. But there has to be some sort of cross-channel sales attribution to the retail store and the current model is broken holding showrooming back.
Better Cost Structure & Enhanced Relationships
Both retailers and brands can obtain a better cost structure. For retailers their required square footage for their store goes down as does the need to warehouse a lot of product. As a result of the reduced risk, margins will also not be as high and manufacturers can make more money on these sales with showroom dealers. All of a sudden, there is less competing and more partnering to see how brands and retailers can create value together.
Consumers are Already Showrooming
According to UPS Pulse of the Online Shopper, 76% of millennials and 60% of consumers have placed an online order in-store. They most often use mobile devices to look-up product reviews to make sure they are making the right choice before buying to augment their in-store experience. Rather than shun this natural progression of the buying process, why not embrace it? Let the person on the showroom floor be the expert and guide the different reviews as to what is legitimate or not.
Partnership Approach Required
The traditional model of retailers buying product from a manufacturer upfront and taking the risk hoping it will sell only to have consumers come in and browse and buy an alternate color/size, etc. online will eventually kill retail. However, more forward thinking brands will understand the value of being visible, touched, and felt by consumers and either pay the retailer for showroom space or compensate for sales activity generated as a result of the store.
A collaborative cross-channel approach towards compensating retailers for generating online sales needs to be considered and the business model of retail is bound to change in select categories. Online sales attribution for showrooming a brick and mortar store needs to be considered as stores are essentially free ads for manufacturers that retailers pay for in the form of inventory. The gig is soon to be up and the brands that recognize this sooner and collaborate with retailers now will dictate the future of retail and get more floor space by acknowledging the current model is broken and fixing it to make everyone happy.
Rather than competing online, if brands and retailers were to collaborate and share customers, sales, and data across channel it has tremendous value to both parties. Consumers also benefit as they can get the best of online and offline shopping. Some brands may consider opening their own stores as well but cannot offer the selection/comparison consumers are seeking that drives more traffic and trial beyond the fact it is an expensive investment from initial setup to ongoing management.
Retail Needs to Evolve
As customers have changed the way they shop, retail is less about transactions and more about education or awareness. Both brands and retailers will have to evolve to accommodate and survive. Showrooms are going to be a critical element for brands to engage with consumers and expand their reach beyond what they can obtain digitally. The question is, how rapidly will traditional retailers and manufacturers be able to adapt to this emerging concept? Retail is not a fast-moving industry, but eventually they will have no choice. For more information on where we see retail going, see Retail 3.0: the Retail Renaissance.
