David Bell; Santiago Gallino, Operations, Information and Decisions, The Wharton School; and Antonio Moreno, Harvard Business School
Management Science, Vol. 64, No. 4, April 2018
Abstract: Omni-chanel environments where customers shop online and offline at the same retailer are ubiquitous, and are deployed by online-first and traditional retailers alike. We focus on the relatively understudied domain of online-first retailers, and the engagement of a key omni-channel tactic; specifically, introduction of showrooms (physical locations where customers can view and try products) in combination with online fulfillment that uses centralized inventory management. We ask whether, and if so, how, showrooms benefit the two most basic retail objectives: demand generation, and operational efficiency. Using quasi-experimental data on showroom openings by WarbyParker.com, the leading and iconic online-first eyewear retailer, we find that showrooms: (1) increase demand overall and in the online channel as well, (2) generate operational spillovers to the other channels by attracting customers who, on average, have a higher cost-to-serve, (3) improve overall operational efficiency by increasing conversion in a sampling channel and by decreasing returns, and (4) amplify these demand and operational benefits in dealing with customers who have the most acute need for the firm’s products. Moreover, the effects we document strengthen with time as showrooms contribute not only to brand awareness but also to what we term channel awareness as well. We conclude by elaborating the underlying customer dynamics driving our findings and by offering implications for how online-first retailers might deploy omni-channel tactics.