Are we ready for Webfronts yet?
Is the time right for the emergence of the Webfront showroom? A place that links the high-street to online retail but does not necessarily depend on traditional retail margins to be profitable. A space that allows you to discover products and services, follow demonstrations and then try them out for yourself. You then are able to order products or sign up to subscriptions directly in the showroom or postpone this decision to a later moment at home or on the road.We recently wrote in “The Last Click” article how business models for the high street have to change in response to online commerce and will give rise to new retail formats.
Ian Yolles of NAU discusses in the BusinessWeek article Retail2.0
“Of course, for many shoppers, online research of prices or customer reviews is the first step towards a store purchase. Others survey products in a store to decide which they want and then find the best deal online. In others words, for many consumers the Web and the mall are both parts of a larger shopping experience. “Nobody has really done anything to connect the dots and take discontinuity out of customer behavior [online and offline],”
Webfronts, coined and trademarked by NAU, are places which only showcase products and services whilst purchases are completed online and products then are shipped directly to the customer within a couple of days. These places have little or no merchandise for on the spot sales, in order to reduce inventory and distribution costs. Instead they offer hands-on demonstrations of services, or allow customers to try items, like garments, for size. Typically self service or managed kiosks are available to place an order online.
Over the past years quite a few instances of these innovative retail formats have emerged. But for various reasons many of them, after having been launched in a PR cloud of pioneering optimism, have failed to become economically viable.
It’s clear that these hybrid retail formats are not suitable for all types of merchandise and transactions especially in the FMCG and perishables sector, but then again, each sector is currently experimenting with internet integration.
We would like to understand why some hopeful integrated retail formats failed and others became successful, and how we can make this formula succeed in future development. There is only little data available but we can at least bring together a selection of examples to compare different emerging models and look at the pros and cons.
At the core of the debate on integrated internet retail innovation is the uneasy diversion from established, well proven, retail formats. These formats are based on common sales practices:
- Setting conditions for impulse purchases, by attracting customers with aggressively priced, loss-leading merchandise.
- Various forms of price perception manipulation based on artificial sales offers and staged price reductions that lead to price erosion of products. As recently reported in | Never-ending sales “have to stop” | BBC | October 2009 |
- Up-selling by applying perceived quality differences within a family line of products to obtain higher margins.
- Creating cross-selling situations that tempt customers to add more items to their shopping basket.
- Negotiate unique and exclusive products with suppliers that allows the retailer to command the price with the highest margin, whilst telling the customer you are offering better service by helping to select the otherwise incomparable product.
Retail is about only two things; sell more items with low margins or few items with large margins. The whole design of retail environments online or offline is based on these few principles.
Customer behaviour proves these business models to be very successful. Though at a time when consumption patterns are changing as we exit the industrial- and enter the information-society, we should consider different sustainable models to manage customer relationships. One form will come from the fact that the nature of connected products is changing value perception of transactions.
Customer expectations are driven by a whole range of psychological factors. We don’t know how much we can manage these motivations and delay for example instant gratification of an impulse purchase and supplement it with something else. It will be at the core of these hybrid retail experiences that service design solution will have to be developed to satisfy customer needs and keep shoppers returning.
The increasing dominance of some (global) brands have lead to the Flagship-Store, which in effect is more about maintaining a brand image and fostering customer relationship rather than promoting instant sales. The question is if department like stores and curated boutique sized shops can offer profitable services based on business models which link smaller scale producers to their customers without necessarily providing direct sales?
Here is a selection of different approaches to the Webfront retail format, some more explicit and others almost transparently interwoven into the existing context.
Starbucks was already a very successful vendor of music compilations cds, when it hooked up with Apple iTunes, offering wireless access to the location’s playlist from within the iTunes Application on for example an iPhone. A customer can see the current song playing and download it for the usual price. In addition a free song of the day is given away with a purchase coupon. Each Starbucks location becomes in fact a Webfront for the iTunes Online Store. It demonstrates that music stores don’t need to look like “traditional” music stores.
Shazam turns any location that plays music into a Webfront. The customer uses his/her phone to transmit a sample of the music playing in the space, to a server and receives details about the song, album and artist, including a link to purchase the song from iTunes. Dj Clubs, Bars, Shopping-malls, Cars all become locations that can act as instant Websfronts.
The store in this case is often formed by the social context in which music is consumed. The crucial question is if Shazam would be willing to share in the revenue as the location and time of exposure is known to the application.
Nau was an apparel company with an environmentally aware, sustainable mission, based around a disruptive business format. It aimed at fundamentally reinventing its relationship with customers. One of their many innovations was the design of their retail space, which they don’t call a “store”, but rather a Webfront. It combined the efficiencies of the Web with the intimacy of the boutique. At a Nau Webfront, one sample of every piece in the collection and every available size hangs ready for visiting customers to try on. The company encourages shoppers to use the Webfront just as a testing platform for the clothes. The central mechanism is a self-serve kiosk that transfers the online shopping experience to an on-site touch screen kiosk and encourages customers to have their purchases sent home, with the incentive of a 10% discount and free shipping. By running retail this way, Nau dramatically decreases the regular inventory required at its multiple physical locations, thereby reducing the impacts of freight and lengthy supply chains.”
about the customer experience:
Unfortunately the company had to close a year after opening after failing to raise the next level of funding, and is currently re-launching as a web only store.
Analysts consider the failure after just one year of operation due to trying to reinvent too many retail practices simultaneously, whilst not being able to create enough storefronts and develop parallel sales channels to become profitable. We would be interested to learn more about how customer behaviour had changed in reaction to this new off-hybrid format. Apparently about half the customers, many more than the 10% predicted, choose to have purchases sent home. Although undoubtedly at the heart of the customer experience, the apparently pricey to develop website struggled to become usable soon enough.
Various technologies are being brought together to facilitate these new environments. A summary of these can be found in this The New York Times article | Thinking of Going Blond? consult the Kiosk First | March 2009 |
Intel shopping kiosk prototype with Frog Design video of the prototype
The question is not if we can make the technology work, but how far existing retail infrastructures need to be adapted, if the cost of implementation offers sufficient ROI and most importantly if it can be made acceptable to customers.
Oki-Ni has been operating a similar retail format before NAU, featuring temporary gallery type shopfronts in different locations.
Their concept is based on offering exclusive products sourced from global renowned brands to unique collaborations with a range of niche brands, combined with the accessibility of on-line retail. The physical gallery is a place where consumers can view and try clothes. These outlets don’t sell any of the products, which must be ordered directly from the internet for delivery within a few days. Interestingly these pop-up galleries are seen as temporary marketing tools “We always see the galleries as a springboard to the internet. They are a marketing push in each territory where people become aware of the brand but then are happy to go online. Once we’ve become established in a territory, the galleries are not as important and then our focus as a retailer is online,” says Paddy Meehan.
eBay Drop Off stores
Initially hyped as a new successful business opportunity with low start-up costs and growing returns. The format is based on branded high-street locations which accept and manage items to be auctioned on eBay and share in any profits made from a deal. After few initial success stories, many franchises failed. It turned out that location overhead, services costs which included labour to research products, create suitable images to present an item online, and writing descriptions were too high in relation to the deal margins on most low cost auction items. At the same time some more expensive items like cars were prohibited unless the franchise would obtain specific trade licenses.
Evans Cycles makes use of in-store sales kiosks to aggressively expand business across London.
So called “Info Hub” kiosks are prominently placed on the shop floor and allow online browsing as a shared activity between staff and customer, ordering anything from their online catalogue and then have it send for pick-up at the store or delivery at home. Employing instore online sales kiosks allowed Evans to rapidly open new locations, even settling for smaller, less suitable shop properties, in close proximity to their competitors, whilst overcoming limitations of having not enough space to stock the complete range, and instead only displaying items suitable for the target audience at each location.
Apple Flagship stores
Brand Flagship stores are in fact nothing but Webfronts. We always wondered how far for example the Apple Stores are designed to be Webfront locations. The Apple high-street stores are intertwined with the Online Apple Stores. They have been the game changers in the consumer electronics sector, allowing people to touch and tryout products before buying. It is claimed that Apple Stores have some of the highest retail turnover per square meter in the industry. But surely (even if we can’t prove it) the salaries of the numerous staff must be paid by more than just in-store profit margins.
“Retail Analyst: Apple Store Regent Street most profitable for size in London “To make £60 million a year from a shop of Apple’s size is absolutely phenomenal””
The figures in this analysis seem way over the top, but then again it’s within the range of the possible; over £150k average a day and £15k an hour. Lets assume they process consistently 100 paying customers an hour that would create an average spending amount of £150. Sure enough this calculation is to simplistic. It would be interesting to learn how sales are divided between core Apple hardware, third party products, software and accessories?
But what surprises me that although many have studied the Apple Stores since their first opening in 2001, no-one has been able to successfully emulate the formula. Even in London, the Nokia flagship store, across from the Apple Store on Regent Street, both, not quite incidentally, designed by the same company, Eight Inc. seems to completely miss the point. This showroom really can’t be more than an advertising space, in an environment when most handset sales are tied in with the service providers.
We wonder if it is about the presentation format, or about the choice of products which are out of synch with requirements in multi-channel customer relationships? Incidentally Microsoft just opened the first store this week copying many successful elements from the Apple formula.
It seems like this formula only works for brands that can offer a complete package; in Apple’s case, everything from hardware to software, to content. It makes us question if these type of stores actually can be developed in a different consumer sectors and with merchandise sourced from different brands without a core brand forming the central organising principle.
Perhaps the food sector can offer some insights?
We are really interested in the relationship between groceries bought the traditional way in Waitrose supermarkets and products ordered online. Or for the same reason how customers both shop online on Tesco Direct and Tesco.co.uk and Sainsbury’s online whilst having visited the comparable local supermarket locations. How much are the items chosen on the Webshop, depending on initial discovery on the physical shelf. On the other hand, how many products in the online shopping basket come from cross selling opportunities, for example by offering ready shopping lists based on recipes, which would have be difficult to realise on a physical shelf? How much is Waitrose a Webfront for Ocado.com? Instead most online discussions are about how much they compete on product ranges and prices.
Just as a curiosity to include in this list is the 35 year old Kijkshop. (literally translated Look-Shop) A unique shopping format from the Netherlands. Initially the stores were located off main shopping locations but easy to reach by car. The shops were mostly designed with dark walls and flooring, with spotlights highlighting merchandise locked inside glass showcases. Each items was provided with extensive printed descriptions. Customers note down the product numbers selected items and pass them to a cashier. Merchandise is then delivered boxed up straight from the warehouse. When the the chain changed ownership a few years ago, a more conventional format, with products openly accessible to the customer, thought to provide incentives for impulse purchases, was tested in one of the locations. After failing to achieve the intended effect, the company has decided to remain with the proven format.
First was the announcement of the change
Similar to Argos in the UK, the Kijkshop has increasing web presence, although it’s arguable how far the relationship with the high-street showrooms goes.
Here the well known magazine “Wired” lends its brand to endorse the selection of gadgets for a pop-up store during the holiday season. It is a yearly pop-up store in New York, “curated” by Wired staff, but as some commentators note, more likely driven by lucrative sponsorship deals. It’s a place where you are actually able to touch products you otherwise only encounter in blogs and magazine articles. A range of advertorial events and charity games are hosted on site during this period. Customers don’t purchase directly but from internet kiosks around the store. Items are then shipped to their homes in time before Xmas. The main aspect of this format is similar to Oki-Ni but to the level that Wired only takes a fee from sponsors to offset the cost for product placement and does not take a percentage of the sales revenue. The inaugural Wired pop-up store sold $9 million worth of merchandise,65 gadgets in all, and attracted 14,000 visitors. As such the Wired store becomes a trusted mediator between companies and customers.
The obvious conclusion to where contemporary business models, in acknowledgement of the relationship between the high street and online retail, are heading is the Japanese Sample Lab franchise. It’s a true try-vertising space where potential consumers, called try-sumers come to test and experience products for free, before buying them elsewhere. The model evolved from the mostly unwanted, in-your-face free samples, offered at inopportune moments in the street or whilst browsing in department stores. The business formula is build on product placement and includes demonstrations in a stylish but neutral environment creating a unique retail experience. Customers become members for a nominal yearly fee. At each visit they can try everything on display and then take 5 items home. Before being able to return to a store try-sumers are requested to fill out a questionnaire, either on the spot or in their own time online or on their phone. Companies who place products will receive information from in-store surveys and at same time will gain wider awareness of their products and services by word-of-mouth, spread in the social network of the Sample Lab members.
It is an alternative to the free-samples, often packed with print magazines, now with a vanishing role in competition with content on the internet. The model is probably best oriented to FMCG products but we are wondering how far this could be stretched to introduce online services and for example specific mobile phone apps. In the case of some consumer electronic products it has already proven to be a suitable place to gain exposure with people that otherwise would not be inclined to visit their a brand flagship stores related to the product. “…By renting lab space, Sony was able to put Playstations into the hands of women, many of them for the first time…There are a lot of people Sony can’t reach with their regular promotional events. Sony marketing thought this would be a way to access customers who normally wouldn’t visit game software shops or electronics stores…”
This is only a small selection of the most prominent cases exploring hybrid business models, combining brick and mortar and online retail. It will require more than just placement of CRM technologies within existing retail environments to achieve customer acceptance, what we call a new Culture of Use, and satisfy underlying consumer needs. The question still is how far places on the high street need to evolve to adjust to these changes and what completely new formats will arise. What mechanisms draw people into shops on the high-street, compared to access to stores on their mobile phone in their hand? How can we create enough stickiness that people want to return to destinations on the high-street?