Online Brands Show Their Stuff Offline
Skip to content
Economics Strategy Aug 4, 2014

Online Brands Show Their Stuff Offline

Building brick-and-mortar showrooms can have big payoffs for online retailers.

Yevgenia Nayberg​

Based on the research of

David Bell

Santiago Gallino

Antonio Moreno-Garcia

These days, customers are used to the convenience of buying what they need online. Many traditional brick-and-mortar retailers have responded by expanding their online presence and even offering new services, like buy-online-pick-up-in-store, to keep pace with shopper preference. But some retailers are moving in the opposite direction: They begin online and expand into the offline world, interacting with customers through stores or showrooms.

Antonio Moreno, an assistant professor of managerial economics and decision sciences at the Kellogg School of Management, was interested in these retailers’ crossed paths: “Why are online companies moving offline at the same time offline companies are moving online?”

When he looked into one online retailer’s experience, Moreno and his coauthors found evidence that opening showrooms where customers can engage with a product before ordering it boosted demand and revenue. Showrooms also encouraged shoppers to align themselves with the channel that served them better—be it showroom or online—thus optimizing the customer experience and reducing costs for the company.

Inventory vs. Information

With colleagues David Bell, a professor of marketing at the University of Pennsylvania, and Santiago Gallino, an assistant professor of operations management at Dartmouth, Moreno studied prescription eyewear retailer Warby Parker. Launched online in 2010, the company has been successfully selling its own designs via its unique home try-on program, where customers request up to five pairs of frames to be sent to their home for free in order to choose their favorite before purchasing.

Online brands like Warby Parker have an advantage over traditional brick-and-mortar stores because they can centrally manage their inventory rather than keeping various locations stocked with product. “Online, it doesn’t matter where the demand is coming from. If you have inventory in your distribution center, you’re going to be able to serve it,” Moreno says. But brick-and-mortar stores can offer customers firsthand information about products, which is particularly important for products where fit, feel, or other information that’s hard to convey online play a role in purchase decisions. Put simply, he says, “It lets customers see a product before they buy.”

So some online companies, including Warby Parker, are introducing display-only showrooms that tap into the informational advantages of brick-and-mortar stores while maintaining the operational advantage of centralized fulfillment. At Warby Parker showrooms, customers can try on glasses, order them, and have them shipped to their home, complete with prescription lenses.

How important have Warby Parker’s showrooms been for the company? The retailer had been experimenting with showrooms around the country since its founding, and provided Moreno and his coauthors with data on its sales and returns from when it started, in February 2010 through March 2013.

Using this data, as well as locational information about the showrooms, they compared buying behavior in zip codes within 30 miles of a showroom to zip codes further away. By looking at the change in buying behavior in the influence area of a newly introduced showroom relative to zip codes further away (rather than simply comparing the same zip codes before and after a showroom opened) the researchers could weed out the effects of factors like new eyewear collections or seasonal shopping.

But the places where Warby Parker opened showrooms weren’t randomly distributed: Their focus on certain types of locations, like urban areas, means that comparing those zip codes to others might yield inaccurate results. So Moreno and his coauthors collected demographic information, as well as information about the market outlook for fashion and eyewear, by zip code. “We tried to compare zip codes that looked very similar according to those numbers: Say, there’s a zip code in Seattle that’s similar to one in Boston, but people in Seattle can’t go to a showroom and people in Boston can,” he says. Accordingly, zip codes similar to those where a Warby Parker showroom had opened weighed more heavily than places that were very different.

The Best of Both Worlds

When Warby Parker opened a showroom, it had a significant positive effect on sales, the researchers found: Total sales in nearby areas increased by about 10 percent. But only some of those were sales that started in the showroom. Web sales also went up, likely because the showrooms increased brand awareness. “The showroom is like advertising for the company,” Moreno says. Sales through home try-on, on the other hand, decreased. This suggested that when a showroom opened, customers were moving between channels to use one they preferred—including customers who might previously have used the home try-on option visiting the showroom instead.

Home try-on orders decreased even more than home try-on sales, meaning the conversion rate—the percentage of orders that became successful sales—increased.

Antonio Moreno, an assistant professor of managerial economics and decision sciences at the Kellogg School of Management, was interested in these retailers’ crossed paths: “Why are online companies moving offline at the same time offline companies are moving online?”

When he looked into one online retailer’s experience, Moreno and his coauthors found evidence that opening showrooms where customers can engage with a product before ordering it boosted demand and revenue. Showrooms also encouraged shoppers to align themselves with the channel that served them better—be it showroom or online—thus optimizing the customer experience and reducing costs for the company.

Inventory vs. Information

With colleagues David Bell, a professor of marketing at the University of Pennsylvania, andSantiago Gallino, an assistant professor of operations management at Dartmouth, Moreno studied prescription eyewear retailer Warby Parker. Launched online in 2010, the company has been successfully selling its own designs via its unique home try-on program, where customers request up to five pairs of frames to be sent to their home for free in order to choose their favorite before purchasing.

Online brands like Warby Parker have an advantage over traditional brick-and-mortar stores because they can centrally manage their inventory rather than keeping various locations stocked with product. “Online, it doesn’t matter where the demand is coming from. If you have inventory in your distribution center, you’re going to be able to serve it,” Moreno says. But brick-and-mortar stores can offer customers firsthand information about products, which is particularly important for products where fit, feel, or other information that’s hard to convey online play a role in purchase decisions. Put simply, he says, “It lets customers see a product before they buy.”

So some online companies, including Warby Parker, are introducing display-only showrooms that tap into the informational advantages of brick-and-mortar stores while maintaining the operational advantage of centralized fulfillment. At Warby Parker showrooms, customers can try on glasses, order them, and have them shipped to their home, complete with prescription lenses.

How important have Warby Parker’s showrooms been for the company? The retailer had been experimenting with showrooms around the country since its founding, and provided Moreno and his coauthors with data on its sales and returns from when it started, in February 2010 through March 2013.

Using this data, as well as locational information about the showrooms, they compared buying behavior in zip codes within 30 miles of a showroom to zip codes further away. By looking at the change in buying behavior in the influence area of a newly introduced showroom relative to zip codes further away (rather than simply comparing the same zip codes before and after a showroom opened) the researchers could weed out the effects of factors like new eyewear collections or seasonal shopping.

But the places where Warby Parker opened showrooms weren’t randomly distributed: Their focus on certain types of locations, like urban areas, means that comparing those zip codes to others might yield inaccurate results. So Moreno and his coauthors collected demographic information, as well as information about the market outlook for fashion and eyewear, by zip code. “We tried to compare zip codes that looked very similar according to those numbers: Say, there’s a zip code in Seattle that’s similar to one in Boston, but people in Seattle can’t go to a showroom and people in Boston can,” he says. Accordingly, zip codes similar to those where a Warby Parker showroom had opened weighed more heavily than places that were very different.

The Best of Both Worlds

When Warby Parker opened a showroom, it had a significant positive effect on sales, the researchers found: Total sales in nearby areas increased by about 10 percent. But only some of those were sales that started in the showroom. Web sales also went up, likely because the showrooms increased brand awareness. “The showroom is like advertising for the company,” Moreno says. Sales through home try-on, on the other hand, decreased. This suggested that when a showroom opened, customers were moving between channels to use one they preferred—including customers who might previously have used the home try-on option visiting the showroom instead.

About the Writer
Valerie Ross is a science and technology writer based in New York, New York.
About the Research

Bell, David, Santiago Gallino, and Antonio Moreno. Working Paper. “Inventory Showrooms and Customer Migration in Omni-channel Retail: The Effect of Product Information.” December, 2013.

Read the original

Most Popular This Week
  1. Sitting Near a High-Performer Can Make You Better at Your Job
    “Spillover” from certain coworkers can boost our productivity—or jeopardize our employment.
    The spillover effect in offices impacts workers in close physical proximity.
  2. Will AI Kill Human Creativity?
    What Fake Drake tells us about what’s ahead.
    Rockstars await a job interview.
  3. Podcast: How to Discuss Poor Performance with Your Employee
    Giving negative feedback is not easy, but such critiques can be meaningful for both parties if you use the right roadmap. Get advice on this episode of The Insightful Leader.
  4. 2 Factors Will Determine How Much AI Transforms Our Economy
    They’ll also dictate how workers stand to fare.
    robot waiter serves couple in restaurant
  5. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  6. The Psychological Factor That Helps Shape Our Moral Decision-Making
    We all have a preferred motivation style. When that aligns with how we’re approaching a specific goal, it can impact how ethical we are in sticky situations.
    a person puts donuts into a bag next to a sign that reads "limit one"
  7. Will AI Eventually Replace Doctors?
    Maybe not entirely. But the doctor–patient relationship is likely to change dramatically.
    doctors offices in small nodules
  8. What’s at Stake in the Debt-Ceiling Standoff?
    Defaulting would be an unmitigated disaster, quickly felt by ordinary Americans.
    two groups of politicians negotiate while dangling upside down from the ceiling of a room
  9. How to Manage a Disengaged Employee—and Get Them Excited about Work Again
    Don’t give up on checked-out team members. Try these strategies instead.
    CEO cheering on team with pom-poms
  10. 5 Tips for Growing as a Leader without Burning Yourself Out
    A leadership coach and former CEO on how to take a holistic approach to your career.
    father picking up kids from school
  11. One Key to a Happy Marriage? A Joint Bank Account.
    Merging finances helps newlyweds align their financial goals and avoid scorekeeping.
    married couple standing at bank teller's window
  12. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
  13. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  14. What Went Wrong at AIG?
    Unpacking the insurance giant's collapse during the 2008 financial crisis.
    What went wrong during the AIG financial crisis?
  15. Daughters’ Math Scores Suffer When They Grow Up in a Family That’s Biased Towards Sons
    Parents, your children are taking their cues about gender roles from you.
    Parents' belief in traditional gender roles can affect daughters' math performance.
  16. Take 5: Research-Backed Tips for Scheduling Your Day
    Kellogg faculty offer ideas for working smarter and not harder.
    A to-do list with easy and hard tasks
  17. Leave My Brand Alone
    What happens when the brands we favor come under attack?
  18. The Second-Mover Advantage
    A primer on how late-entering companies can compete with pioneers.
  19. Take 5: Yikes! When Unintended Consequences Strike
    Good intentions don’t always mean good results. Here’s why humility, and a lot of monitoring, are so important when making big changes.
    People pass an e-cigarette billboard
More in Economics