Hybrid vs. Online-Exclusive: The Key to Successful Ship-to-Store Services

For brick-and-mortar (BM) retailers, adaptation and innovation have been words to live by over the last several decades. It’s not hard to see why. Yes, Amazon’s ever-growing reach has been a major factor. But shifting consumer expectations has played an equal—if not more influential—role. As consumers, we expect unlimited choice, we demand the friction-free experience of one-click online shopping, and many of us are hooked on the quick (if not instant) gratification that comes with free next- or same-day shipping.

In response, many BM retailers have adapted an omnichannel retailing approach, one that blends traditional BM retail with e-commerce. Done correctly, omnichannel strategies can be powerful competitive tools. But as new research from Carlson School Assistant Professor Necati Ertekin points out, they can also present retailers with a host of implementation challenges.

Ertekin’s research focused on an omnichannel merchandising strategy known as ship-to-store (STS). The concept works like this: Consumers buy an item on a retailer’s website and have it shipped for free to the closest BM store, where they can pick it up at their convenience (and immediately return it if they don’t like it). From the retailer’s perspective, it’s an opportunity to generate additional business if customers make an additional purchase during the in-store pickup. Plus it allows consumers to foot the bill for last-mile delivery—i.e., getting the items from the store to their homes.

While all that sounds like a win-win, STS doesn’t always work as intended. “There are many STS success stories, but you can find several failed attempts due to poor implementation,” Ertekin notes, adding that the channel merchandising of products also has a direct impact on success rates. “Among the products that can be ordered with STS, retailers make some products available as online-only and market others as hybrid that you can buy in-store or online,” he says. “The idea with the research was to provide an understanding of what types of products retailers should offer as online-exclusive vs. hybrid, along with how those channel merchandising decisions can improve STS performance.”

He dug into that question by studying 14 months of sales data from an omnichannel jewelry retailer with more than 1,000 physical stores and multiple online outlets operating under different brand names across North America. The sales figures showed that STS services do generate extra business through in-store cross-selling. And they revealed that STS can help retailers attract new customers, primarily people looking to capitalize on free shipping and easy returns. But the data also highlighted a downside of STS, leading to sales losses. Case in point: Say an existing customer, who would normally have a product shipped to home when STS service is not an option, puts in an STS order for that product, but then, on the way to pick up the STS order, finds a better deal at a nearby competitor store. Chances are he or she will quickly abandon the original STS order for the cheaper, immediately available alternative at the competitor. The research reveals that the pros and cons of STS are less pronounced for hybrid products as customers use STS services for those products only when they are not available in-store.

The upshot: Retailers shouldn’t take a one-size-fits-all approach to STS. “STS doesn’t influence sales in the same manner for all products. It has varying effects on online- exclusive vs. hybrid products,” Ertekin says. “Applying the right channel merchandising strategy—deciding whether to offer a product as online-exclusive or hybrid—can help retailers improve their STS retailers.

“For a successful STS implementation, retailers should market products that are high-priced, difficult to substitute, and which have low in-store availability as hybrid,” he adds, noting that such an approach can help prevent customers from shopping for similar items at competitor stores. “On the opposite side, retailers should market products that are somewhat generic (or easy to substitute), low-priced, and which have high in-store availability as online-exclusive.”

“Online-Exclusive or Hybrid? Channel Merchandising Strategies for Ship-to-Store Implementation”
Ertekin, N., Gumus, M., Nikoofal, M., Management Science, (September 2021 )