Jessica Wu, Kathleen T. Li, Christophe Van den Bulte

Abstract

Existing research suggests that physical showrooms, which are zero-inventory stores where customers can try on products, can boost overall sales for online retailers. Yet little attention has been given to how the effect of opening a showroom varies across product types and customer segments. In this paper, we investigate whether opening a showroom has a different effect on product categories with more non-digital (e.g. suits) vs. more digital attributes (e.g. ties) and how the effect varies based on individual customer experience within the product category. Using approximately 4 million transactions from a men’s clothing retailer that opened showrooms in several U.S. cities, we employ a difference-in-differences approach to study the effect of opening showrooms and directly test the mechanism that showroom openings boost sales by resolving the customer uncertainty about non-digital attributes. We hypothesize that (1) showroom openings will have a stronger positive effect on sales for product categories with more non-digital attributes because it is more important to try on those products to learn about the fit, and (2) the positive effect on sales of opening a showroom will be more pronounced among less experienced customers. The findings support both hypotheses, demonstrating that showrooms significantly drive sales for non-digital product categories and have the most substantial impact on customers with limited experience in the product category.

Keywords: Showroom Opening, Retail Sales, Customer Fit and Sizing Learning, Digital vs. Non-Digital Attributes