Showrooming...what is it? and will it impact SCMluxe?

Brick and motor retailing involves not just an exchange of goods and services for a payment but providing the customer an experience of the product being sold. This is especially true in the luxury sector where the customer would like to experience the product, its values and the dream that is being propagated via the brand. Thus we see that luxury showrooms are opulent, carefully designed to provide the customer with this “experience”. This of course does not come cheap – it involves large overheads in designing, maintaining and running the showroom.

Traditional business has found online sales as a means to reduce these overheads. Once a brand is established, the e-commerce engine or web portal reduces the overheads of retailing to an almost negligible amount.  This leads to the ability to offer better prices/discounts online and hence we see the rapid growth in web sales on e-stores as compared to regular brick and motor stores. A recent phenomenon is one in which premium products where the customer would like to experience the product (fashion, watches, jewelry, high end electronics) in the showroom but avail of the better prices (due to lower overheads) offered on online e-stores. This leads to the concept of showrooming…where the customer visits the physical stores to experience and evaluate the product but buys it online. This increases footfalls in stores but with no conversion – the beneficiary being the e-store. 

Making sure window shopping is converted into actual sales?

Retailers have fought back by awarding loyalty points for in-house sales, deploying  innovative offers like mobile applications (see www.shopkick.com) which track and offer savings and points (kicks) which can be reclaimed for goodies in other stores  and in rare cases maintaining price disparity between online and offline sales channels to a minimum.

Luxury retailers have so far not been overtly affected since online sales channels are not actively used and price differences are kept artificially high (in e-stores). We also see that since experience and price is the deciding criteria for the luxury customer, we might not see customers resorting to showrooming. But in these recessionary times when even luxury is seen through the eyes of “value for money” will we see this phenomenon extending to the luxe sector as well? How will retailers react to it and what will be the impact on SCMluxe? Any thoughts or opinions?

Stock Outs and SCMluxe

Stock outs have always been used as a measure of the effectiveness and risk levels of a supply chain. This is mainly due to the retail sector wherein no stocks on the shelf mean a sale  (and revenue) lost forever to a competing product on the shelf. The manufacturing sector also uses stock out metrics to judge the risk levels of a particular inventory plan. For example, critical products like spare parts which B2B customers want on an immediate basis will have a zero stock out policy. This is since spare part non-availability or delay can mean the customer’s production line will have come to a halt. Hence these critical stocks always have very high safety stock levels vis a vis other less critical products. Generic products which can be substituted will follow a more aggressive stocking policy with lower safety stocks. What about the luxury industry? Do they segment products similarly?



IWC Exupery platinum watch. Note the serial number 01/01
limiting production to one piece to be auctioned for charity



As very nicely elaborated by Kapferer and Bastien in thier seminal  book "The Luxury Strategy" the luxury industry believes in limiting supplies to make the brand more desirable. Hence stock outs may not be viewed as entirely a lost sale (as in mass retail) but more as an addition to its brand value. Segmentation is the stock out strategy (or the tolerance towards it) is seen in the luxe industry as well. Limited edition products in absolute luxury categories are the norm. We see limited edition watches, chinaware (where the moulds are ceremoniously broken after production reaches a target volume) all the time to either commemorate a special event or simply to create a uber luxe and highly desirable product.  Similarly prestige brands are typically kept in short supply during introduction to keep interest from flagging and demand being satiated by flooding the market. Apple stores typically have long lines of eager customers camping outside stores on the eve of the launch of the new iPhone or iPad. Online sales are started much later in the sales cycle. Masstige brands on the other hand will start off with  both online and store sales with maximum volumes to ensure the market is fully exploited before competition is able to launch similar products and capture market share.

French aviator Antoine Exupery who gave us
"The Little Prince" and the inspiration for IWC



This segmentation of the stock out policy also has another important angle in SCMluxe – the ability to dispose off over stock. For uber luxe products (Refer post Disposing Overstocks) there is no channel for profitable disposal other than destruction of the product. Hence working on a tolerant zero stock policy by restricting supply also helps cut such losses from overstocking. Prestige and Masstige products on the other hand have channels for disposing excess stock in a more profitable manner and hence can afford to have less tolerant zero stock policies with more safety stocks built into the inventory plan