Inroad into Omni-Channel Retailing: Physical Showroom Deployment of an Online Retailer

Abstract The advent of mobile E-commerce and omni-channel consumers has powered the pure-play online retailer's expansion towards omni-channel operations. In conjunction with the online selling channel, our research explores the retailer's deployment of physical showrooms which mitigates consumer fit uncertainty. Beyond asking whether the deployment of physical showrooms can improve the retailer's profit and which assortment strategy is more profitable for the retailer, our analysis also addresses the questions of how the showroom deployment strategy impacts the product prices and the information service provision. The main findings are threefold. First, the effect of physical showroom deployment on retailer's performance is determined by the showroom feasibility. A high level of showroom feasibility (i.e., relatively low setup cost and high proportion of local consumers) is more likely to increase the profit of the retailer who establishes physical showrooms, and vice versa. Second, the profitability of different assortment strategies is closely related to consumers’ showrooming behaviors (i.e., intra-product showrooming and inter-product showrooming). Whether or not the partial assortment strategy is more profitable than the full assortment strategy is determined by the intensity of consumer inter-product showrooming (or the weight of consumers’ valuation on the common attribute of different products). Third, our findings reveal that the expected return cost of pure-online shopping is critical to the retailer's omni-channel pricing and information service decisions. Our research provides implications for online retailers on how to benefit from offline information delivery and consumer showrooming behavior.