Chinese gymnast Li Ning wowed the world with one of the highest double pikes in Olympic history to clinch a third gold medal at the 1984 Los Angeles Games. Now a sporting goods retailer, he is counting on another tactic to win over shoppers.
Li is enticing customers to his namesake Li Ning Co stores, where they can look at and try on the latest range of Xiaoqiang basketball shoes, and Furious Rider and Rouge Rabbit runners－but not take them home. Instead, buyers are directed to the Internet to make purchases online.
The Web-only strategy, which has generated 22 million yuan ($3.5 million) in sales during the first month, may help it reverse three straight years of losses.
Companies from home appliance maker Haier Electronics Group Co to clothing purveyor Grana have also introduced the showroom model. Li sees it improving inventory management, a complex exercise in China, where there are about 140 cities with more than 1 million people.
“In the past, we’d sell flagship products in physical stores,” Li, who founded his retail business in 1990, two years after retiring from gymnastics, said. “Even when we sell them online now, we have thousands of shops to promote the products, with only one warehouse behind us.”
Distributing goods to online customers from a single warehouse cuts storage and handling costs, resulting in savings that can be passed to customers.
It can also improve stock management, something the company has been working on to boost profitability.
“The showroom approach might be a good way to boost sales in China in the face of rising rental and labor costs, ongoing logistics issues, and the boom in Internet retailing,” Sun Fangting, a senior analyst with market researcher Euromonitor International, said.
The tactic may be especially helpful in penetrating smaller cities and urban areas. Online retail sales reached $165 billion in China last year, accounting for almost a fifth of the global total, according to Euromonitor.
Haier Electronics plans to progressively strip inventory from 3,000 of its 38,000 stores across China, with 125 of these targeted to have display-only merchandise by the end of the year, the company said.
The changes mean future shops will feature interactive, computer-simulated household models that enable customers to visualize how products will look and fit in their homes.
In reformatted stores, sales staff assist customers to make purchases online and facilitate their interaction with designers. Goods such as refrigerators and washing machines can also be paid with cash, and delivered the same way as online-purchased products.
Reformatted stores have recorded a 7 percent to 8 percent increase in sales, Chairman and CEO Zhou Yunjie said.
In comparison, revenue from shops yet to be converted to online-only has declined as much as 20 percent, weighed down by an industry-wide slowdown in home appliance sales.
Zhou said he expects the transformation of physical stores to lower inventory and staff costs by about 30 percent.
“Integrating conventional shops with Haier’s online retail business will provide a better customer experience,” Zhou said. “Customers need to feel and see the products.”
Showrooms make that integration possible.
“The future is not a lot of stores,” Bruce Rockowitz, CEO of Global Brands Group Holding Ltd, said. “It’s going to be a future of showrooms in key places, and stores that showcase the brands and build the image.”
Grana, a Hong Kong-based online clothing retailer, opened a permanent showroom in the special administrative region last month, enabling customers to try clothes on before buying them.
The company, which ships its brand of garments to eight countries, plans to open showrooms in Singapore, Australia and the United States next year.
“It’s really mixing the best of online and offline into one showroom concept,” CEO Luke Grana said. “Coming in, they can have fresh lemonade and we can talk to them. We can suggest styles and they can get their fits right. It’s what you can’t get from just pure online shopping.”
The showroom approach may also suit other areas of retail, including home-wares, furniture and personal beauty care.
“The whole nature of stores as we know it will change,” Tim Parker, chairman of Samsonite International SA, said. “(The showroom strategy) adds more value to businesses that have to keep very large inventories in the stores.”
