Some Companies are Opening Shop Without Stock—Good Idea, or Risky Trend?

Blog, Ecommerce, Fulfillment, News, Showroom Model, Supply Chain Management

October 31, 2016

It might seem obvious: If you have a traditional brick-and-mortar store, or a chain of stores, those stores will have to carry enough inventory to supply shoppers until their next shipment arrives. But that “truism” no longer holds, thanks to the rise of omni-channel shopping.

Some stores have now adopted what might be called a “showroom” model. The idea is to carry just enough stock on the premises to provide samples of goods (and, for items like clothes, to allow customers to try on various sizes and styles). But that’s it. Ordering is done through an online system, and the purchased goods are then shipped directly to the customer’s address.

Why go through these extra steps, especially in a world where customers have that “I want it now” mentality? The hope is that it is a cost-saving measure. If a retailer stores and sells goods in the same place, it must:

  • Lease more space, often in an expensive location.
  • Assign staff to unpack deliveries, usually during off-hours.
  • Hire more employees, because significant employee time will be spent restocking shelves (and not paying attention to customers).
  • Reship items when one location runs out of stock, or has too much stock.
  • Find creative ways to discount or otherwise move items that do not sell, which cuts profit margins further.

In short, retailers are discovering the cost savings that can be had storing items in a single central location, rather than in multiple locations. Given that an increasing number of customers are comfortable with ordering and delivery, thanks to a few decades of online sales, retailers are finding that inventory-less showrooms are the more cost-effective way to go.

This model is not entirely new, of course. Furniture and appliance retailers, for example, have long had floor models in a showroom with subsequent order and delivery (or pick-up) handled through a distribution center. For large, heavy items, this model was a necessity. Now, with better integration of online and in-store sales systems, inventory management systems, and mobile technology, retailers of many other kinds of goods are trying out the model.

So far, stores specializing in clothing and accessories are the most eager to try the idea out, including brands like Bonobos, Paul Evans, and Macy’s. The fit here is natural: Consumers want to shop for clothing and accessories online and get the best deals, but they still relish the experience of browsing and trying on items in a physical store. But it won’t be long before other kinds of retailers figure out how to capitalize on the trend.

Indeed, technology experts are placing their bets that this will be the future of store sales—for example, IBM’s recent Retail 2025 report predicts that more than half of all retail sales will be direct-to-consumer, with a sizeable chunk of these sales being from showroom-like stores.

But what does this mean for retailers now?

Retailers with physical stores who want to move to a showroom model will undoubtedly face a number of challenges. They will need to overhaul company technology and systems to pull this off, not to mention rethink the actual physical buildings. They will also need to think seriously about warehouse space, item handling, and shipping.

All that said, the idea will make sense to many chains as a cost-saving measure and a way to boost both their online presence and brand visibility.

And what about eCommerce sites? Are they in danger of renewed competition from showroom-like stores? To some degree—although, again, this will be more likely for some goods (clothing) than for others (electronics). Still, some larger eCommerce sites are responding by creating their own showroom sites (where no physical stores existed before). Others are partnering with existing stores, asking them to carry their brands in exchange for handling fulfillment of orders on the back-end. Again, both strategies are encouraging a re-examination of warehousing and shipping practices, not to mention data integration and analytics.

The rise of the showroom model is one example of market forces that are changing the way companies view their warehousing and logistics. For more on this and other trends, contact us. Materialogic has extensive experience in eCommerce fulfillment, as well as industry trends, and our experts would love to help you explore showroom models and other ideas.