Showrooming & Competing Effects in Retailing

Showrooming and competing effects in shoe retailing

The podcast is produced by the Singapore Management University: the SMU.
The podcast is an interview of Assistant Professor Lin Mei. She is answering questions about: Showrooming and competing effects in shoe retailing

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SgSMU – Assistant Professor Lin Mei
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With the advent of e-commerce, show-rooming has become more *prevalent*. Show-rooming refers to the *practice* of examining merchandise in a traditional *brick* and *mortar* retail store or other offline *settings*, and then buying it *online*, sometimes at a lower price. Does the entry of an *offline* store generate more purchases for a *competing* online *retailer* due to the show-rooming *effect*? Or will the *online* retailer loose demand to the *newly* opened offline store, as some consumers find the new store more *preferable*, a phenomenon know as the *competing* effect?

Assistant Professor Lin Mei from the School of *Information* Systems conducts research in areas such as Platform Business Strategies, *Platform* Pricing, and Electronic *Commerce*. In this podcast, Professor Lin shares her *research* on the show-rooming and competing effects in the *shoe* retailing industry, and the possible benefits to shoe retailers of understanding consumer *behavior*.

Professor, can you share with us the *purpose* of this research ?

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Podcast First Question

Minutes: 1:22

Of course. We wanted to understand the show-rooming *behavior* better, and analyze how online and offline *markets* interact. As you have mentioned, show-rooming is when a consumer looks at and tries *out* a product in a *physical* store and then goes online to buy it. And often times, the online retailer is the *competitor* of the physical store.

So we would like to know, first of all, whether this behavior is *real*. If it is, with more physical stores opening in an area, there will be more show-rooming *opportunities* for consumers, and we should observe that people in the *area* buy *more* things online.

Not surprisingly, we are not the only people interested in this phenomenon. But previous studies that have *documented* show-rooming only look at this effect within the same *retailer*. This means a company has both offline stores and an online shopping *site*. Based on these studies, having more physical stores does help to *increase* online sales. This is very *useful* for understanding show-rooming, but it does not tell us about competitive *dynamics* between retailers, which is what we are more interested *in* in our research.

There is also an online study that looks at how *book-store* openings affect book sales on amazon, which is very similar to our question, because amazon is a *competitor* online.

But the authors of that study found the competing effect -opening of physical book-stores, reduced online book sales, which is the opposite of the fact show-rooming would create.

We have *gathered* related data in the *footwear* industry in the United-States. Shoes are very different *compared* to books. How shoes look and *feel* on your feet is really important. So it is much more difficult to shop *for* shoes online than to buy books online.

So our research is different than a study on books by focusing on the types of products for which the product *attributes* cannot be easily *evaluated* digitally.

This makes show-rooming much more *relevant*.

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Minutes 3:15

What were your key findings?

Minutes: 3:17

We found out (that) *both* show-rooming and competing effects *exist*.

Introducing a certain type of physical *stores* makes consumers in a certain area buy more online, but opening another type of *physical* stores does the opposite. So the type of stores *matters* when it comes to show-rooming.

In particular, when *brand* stores, like Clarks, which only sell their own brand of shoes, come *into* an area, the *nearby* consumers buy more of that brand of shoes online. So to say, when a Clarks store *opens*, people who live *around* the store suddenly buy more Clark shoes online. This is clearly show-rooming.

More *interestingly*, online purchases of other shoe brands also go *up*. So outside *from* Clarks, people also buy more of Steve Madden, Nine West, and so on. This *suggests* that brand stores can still *raise* consumption with a nice *decor* and marketing *campaigns*.

However, the store only *carries* one brand, which may not meet consumers’ *preferences*, so they may eventually go online to buy.

The type of stores that has an opposite *effect*, is what we call *mixed* stores, which carry *different* brands, different *styles*, and are often very price *competitive*.

One of this kind of stores in our *data* is DSW -Designer Shoe Warehouse. The concept is sort of *similar* to Bata here in Singapore. When this type of store opens *offline*, the consumers in the area actually cut-*back* their online purchases *overall*. The reason *may* be that the mix stores tend to *meet* customers’ demands very well, both in terms of product *assortment* and price.

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Podcast Third Question

Minutes 4:46

What *insights* could footwear companies *draw* from this research? What are some of the findings they could potentially *incorporate* into their company strategy ?

Minutes: 4:55

The *findings* can be useful for both offline and online *retailers*, as long as they are *footwear* manufacturers like Clarks. These days, offline retailers are very worried about show-rooming. Because supposedly, people come *into* their stores, but then buy it from their competitor online *afterwards*. Our findings are showing how product *assortment* and price can *make* a difference. By understanding this, offline stores can *stay* more competitive against the *threat* of show-rooming.

As for online retailers, they should be able to better *target* their *local* competition based on this research. Traditionally, online retailers *offer* the same product and prices to all *customers*. Now, understanding that the offline commerce *environment* can have these impacts shown in our *study*, the online retailers can use *location* specific marketing and *promotion* strategies.

The insights may be more interesting for shoe *manufacturers* who probably *supply* products to both types physical *stores* and to online *retailers*.

The *findings*, these are the dynamics between these distribution *channels*, so the manufacturers can better *plan* and *manage* their *revenue* streams from different *retail* channels.

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Podcast Fourth Question

Minutes: 6:00

Does this research *yield* any benefit for consumers ?

Minutes: 6:04

The benefit for the *consumers* can be a way to reflect *on* their *shopping* *behaviors* intellectually. We do not *often* think objectively about *how* we buy things. For show-*roomers*, the study shows that the *impact* of the *shopping* behavior on an online business can be very *great*, and (the study also shows) how the behavior can depend *on* the physical store. Show-rooming *consumers* may or may not already be *aware* of these *underlying* mechanisms.

For others, who are show-roomers, the findings may be *more* surprising. I do not *know* if the study will *change* their behaviors, but they will *become* more informed of the *connections* between online and offline markets.

Thank you Professor.

Thank you.