At one time during the Covid-19 pandemic, experts were speculating that ecommerce would permanently overtake in-person shopping as the primary retail experience. As things have returned to normal however, we see a resurgence of the in-store experience, and retailers have been quick to make this a part of their omnichannel marketing strategy.
To get a better sense of how to best create a halo effect and avoid in-store purchases cannibalizing from online ones, researchers Ayşe Çetinel, A. Gürhan Kök and Robert P. Rooderkerk conducted a multi-legged study. First, they assessed three omnichannel store openings of an online-first reseller. This was all in the consumer electronics category. The subjects were two large, experience-centric stores and one small city-center format. The advantage was the large mix of categories that vary in buyer benefits sought during store visits (e.g., advice or physical inspection of products).
Our study makes several contributions to extant literature by providing a richer understanding of when and why experience-centric stores add value to online-first retailers under an omnichannel business model.
The retailer had previously put an omnichannel strategy in place by selling through a mobile app, on their website, and through 11 retail locations within neighboring Western European countries. The researchers scraped the online category pages for all categories available in-store. In doing so, they extracted key product attributes and specifications most frequently reviewed by customers shopping online. The researchers then took this data and retailer input and ranked the categories on each of several store benefits, such as sensory experience. The ranking was low, average or high.
From there, 26 focal categories were chosen. This gave variation across features like price, return rate, product complexity, category size and more, keeping in mind the retailer’s classifications of accessory versus destination categories. Using an event-style, differences-in-differences model to capture store- and temporal-level heterogeneity, the researchers derived category-level insights on when and why experience-centric stores provide value to omnichannel retailers to determine the effect of opening a physical store on total net revenue. Contrary to prior research, physical retail expansion did not increase—and in the case of one large store, cannibalized—online sales. While revenue from the small store failed to offset lost online sales, the large experience-centric stores increased total net revenue in the range of 21% – 23% after opening, rising further long term. A subsequent online consumer survey measured perceived utility of stores by category for three stages in the customer journey: information search, fulfillment, and product returns.
The resulting utility-based framework is very effective in explaining the value for destination categories (versus accessories) that experience-centric stores bring to both retailers and consumers. Net revenue uplift is explained by existing customers buying more, followed by the ability of stores to better attract new customers (the “billboard effect”). Stores offer consumers benefits throughout their journey from search (sensory experiences and advice) to fulfillment (acquiring the product at purchase) to returns. Including accessories (e.g., earbuds or tablet cases) in the analyses reduces revenue uplift substantially, suggesting that the utility framework is less relevant for accessories.
Read the full working paper: The Value of Experience-Centric Stores in Omnichannel Retail: A Multi-Method Approach at the Category Level.