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Do In-Store Sales Just Move Online? It’s Never That Simple

Written by Frank Hayes
May 16th, 2012

Is online-versus-in-store a zero-sum game? Retailers with E-Commerce experience know the answer, but financial analysts have a different view. In a report this month on online retailing, Citi hits the points you’d expect: Showrooming is bad; “omnichannel” is good. But one of the report’s “questions that remain” will likely raise your blood pressure: If, say, 12 percent of your sales are now online, “does that mean that bricks and mortar retailers need 12 percent fewer stores?”

It’s a question that makes perfect sense to stock watchers—but it completely misunderstands how merged-channel retail works.

The report, which was assembled by a team headed up by veteran Citi retail analyst Deborah Weinswig, isn’t naïve about what happens when business moves to online from in-store: The cost of each sale is lower (except in cases such as unlimited free returns). To the investor mind, the right thing to do is obvious: Move all sales online and close those expensive stores.

But an interesting detail from the report cuts the legs out from under that mindset: After JCPenney killed its paper catalog business early in 2011, online sales dropped. Why? The catalog business “was a major traffic driver for jcp.com,” according to Weinswig.

Think that through. The paper catalog—which everyone agreed was dead meat, unsalvageable, useless—was actually delivering customers. It was just delivering them to the E-Commerce site, not the mail-order operation. In effect, it was the type of showrooming you want: customers using one channel to shop and a different channel to buy, but all from your channels.

Back to sites-versus-stores. Another useful bit of evidence from the Citi report is that retailers who jump hard into in-store/online integration get better same-store sales. Nordstrom, for example, got a 200-basis-point improvement in same-store sales the year after the chain went live with its single view of inventory for the site and the stores. That’s not sales moving online. That’s more sales in-store due to integration with online. (Online sales went up, too, of course.)

What’s increasingly clear is that this is no zero-sum game. (That’s what we always thought; it’s just nice to get some hard evidence of it.) Customers use catalogs to cut through the clutter online. They use online and mobile to compare product features and prices, and then buy in-store. They browse in-store, and then buy online, sometimes while standing in the store. They buy online, and then pick up in-store, where they buy impulse items they wouldn’t have thought of online.

Disentangling this process is impossible, but more than that, it’s not what you want.


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