Was Service Merchandise ahead of its time?

Discussion
Apr 06, 2015

"It’s here, or will be soon — the store of the future," begins a new article from WayfinD, WD Partners’ quarterly e-magazine. "Stores will be showrooms and customers can pick and choose the items they want, and associates retrieve the purchased items from the warehouse at the back of the store for shoppers to take home and enjoy."

The article was talking about the defunct Service Merchandise chain, which peaked at more than 400 catalog showrooms selling fine jewelry and a wide array of general merchandise.

While featuring some full-service and self-service areas, the showrooms provided catalog books on tables where shoppers ordered products from a stock room. Customers made their selections known by completing a form on a clipboard, then moved to the "Merchandise Pickup Area" near the exit where a conveyor belt would deliver the order. The showroom approach reduced theft and was also seen as saving shoppers the time and effort of walking the store.

Service Merchandise eventually filed for bankruptcy and liquidated in 2002 after being unable to compete on price and selection against big box stores and internet sellers. It still operates as an e-commerce site.

The concept comes up as e-tailers such as Warby Parker open their first physical stores, often called "showrooms", supporting both physical and online retail. Some such as Bonobo’s only support online sales, while Amazon has some serving as pick-up spots for online orders.

Watching the moves by Warby Parker, Amazon and others, Marcus Wohlsen wrote last year for Wired that Amazon might want to replicate the basic Service Merchandise formula he loved as a kid in the 70’s and 80s’ "to engage the entire human animal" while avoiding in-store inventory. Wrote Mr. Wohlsen, "Amazon could instead focus strictly on the sensory pleasures of shopping while allowing its finely tuned delivery infrastructure to take care of actually getting people their stuff."

The WayfinD article refers to the opening this year by Argos, the U.K.’s general merchandise retailer, of "digital stores" inside Sainsbury’s, the supermarket. Customers are offered a choice of over 20,000 non-grocery products, which they can either buy instantly in-store via tablets, or reserve online for collection within hours, the same or the following day. An extended range of around 40,000 Argos products can also be ordered in-store for home delivery.

"In retail, timing is everything," WayfinD wrote. "With the Internet, BOPIS and shipping from store to home being the call of the day, good old Service Merchandise is starting to look like a great idea that was ahead of its time."

Do aspects of the Service Merchandise model represent retail’s omnichannel future? What tweaks would have to be made?

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16 Comments on "Was Service Merchandise ahead of its time?"

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Ken Lonyai
BrainTrust

With all of the showrooming concerns of the last few years, I’ve often thought of Service Merchandise. Although it may have been viewed as a novelty in its day, it was ahead of its time in many ways. By switching paper catalogs and golf pencils to personal mobile devices and ordering terminals, the basic model does create a “showroom” with more items per square foot than inventory-carrying stores can match. If BOPIS or same-day delivery is figured into the mix, a similar model might find traction today.

Anne Howe
BrainTrust

Swap out the clipboards and pencils with and iPad and make sure the inventory includes high-end items and Service Merchandise can be reborn. Personally, I’d change the the name to something less functional. Where is Jeff Bezos on this?

Chris Petersen, PhD.
BrainTrust

Yep, Service Merchandise was ahead of its time in terms of displaying demo items on the floor, with back stock behind the walls. The consumers received their actual purchases via “ticket” at the cash register checkout.

A huge number of tweaks would be required to make the former Service Merchandise viable today, it would require an omnichannel overhaul:

  • The paper catalog would have to be replaced by state-of-the-art website.
  • Consumers would be required to look at store inventory availability online.
  • Consumers would expect state-of-the-art BOPIS capability.
  • Consumers would expect to buy-in store and ship home.
  • Cash registers would be ripped out and replaced with a consumer purchase app on mobile devices.

The list of requirements for upgrading to make the old Service Merchandise viable today is a very long one. But it is in fact what will be required for any retail store to thrive in the omnichannel retail world of the near future.

Tom Redd
Guest
Service Merchandise’s original, at the peak of operation, was great. As shopping technology grew and the core shopper changed, Service Merchandise did not. Smart Zimmerman sold out and went to start the 99 cent chain. Smart Merchandise fit the timing of retail. All this noise about the store of the future is worse than Amazon’s noise on using robots in warehouse/distribution centers and their other PR-related innovation promotions. The store of the real future is here. Warby is a good example, but it will be tuned. Amazon’s PR team will re-spin all of this (as they have in the past) for more promo. Someday they will determine that PR is great but it is not the way to gain and keep more shoppers. I miss Service Merchandise and those days of retail and those years of life. The internet and personal technology growth has ruined the FUN of some of the old shopping days. High tech on the shopper side has implanted into many shoppers’ heads this voice that says “I should check that price online and buy this later.” I learned how to kill that voice and just enjoy shopping. Kill the voice in your head and really enjoy… Read more »
Ed Dunn
Guest
2 years 6 months ago

We did extensive research on Service Merchandise a few years ago on the showroom retail model and we discovered that there is already a retailer out there that has been successful at this approach: Footlocker.

Herb Sorensen
BrainTrust

It’s an Apple Store, just with a different range of merchandise, and which varies the on-the-floor level of service appropriate to different categories.

And YES, this IS the way to take a 40,000 square foot store with 50,000 SKUs on the shelves to a 10,000 foot store with maybe a million SKUs—all represented electronically, with maybe only 5,000 on the display shelf. The rest delivered from a warehouse, possibly beginning with the rest of the old store as “dark store” warehousing, but rationalizing capital with robots and central warehousing in the long term. Maybe delivery in minutes (drones) or at home a little later—it will be an evolving and exciting future here for retail.

The 5,000 items on immediate display will focus on the BIG head, with the million-item long tail serviced through the warehouse, and it will be a unitary operation, not two distinct businesses stuck together with chewing gum and duct tape (like the present evolutionary models).

Gajendra Ratnavel
BrainTrust

The idea of having showrooms only without stock and ordering online has always been seen as the “future.” To do it right, there are a lot of logistical problems to solve for the retailer. I think this would work better if the retailer leased space to the brands and allowed the brands to build their own retail showroom experiences. As an alternative, provide a service, possibly sub-contracted to a third party to create this showroom experience for the brand.

Gene Detroyer
BrainTrust

There will always be certain products that people will always want to see, touch and feel before they buy. That is what will drive the most efficient use of brick and mortar. It is the opposite of BOPUS. You will go to the store (showroom, if you will) see, touch, feel, operate, play, etc… You will tell the retailer what you want want (color, size, model, price) and it will be at your home the next day.

The retailer will be able to expand their offerings and cut down on their inventory at the same time. Maybe more important, when the customer leaves the store, the retailer will have made a sale. The brick and mortar ROI will skyrocket.

Ed Rosenbaum
BrainTrust

Let’s take a brief look at the positives of showrooming:

  • No overhead for the real estate space leased a well as the overhead of lights and air conditioning. (Give me this alone.)
  • Drastically reduced labor including taxes and benefits.

I think I will stop here because the savings on these alone mean utterly thrilled stockholders.

Sure there are negatives. Most of them are the affect the loss of jobs will have on the economy. That is bad enough. Stockholders do not concern themselves with this because they are invisible to them. But this is a serious problem.

Craig Sundstrom
Guest

I’m confused as to what’s being asked here: a(n inventory-less) showroom is NOT a revival of Service Merchandise, since the whole point of SM—or at least one of the main points—was that the merchandise was “instantly” available. So whatever the advantages of online retailers opening them up may/not be, it isn’t some kind of revival.

OTOH, if we’re talking about a true revival, where e-displays and other upgrades replace simple paper catalogs, then we’ll have to ask why SM—and its many brethren like Consumers Distributing, Best, etc.—went under (assuming, of course, it wasn’t simply the reason most businesses fail…because they weren’t very good at what they did); perhaps it was the inability to actually to see/touch what they were buying, or the lack of interaction with sales staff. In that case, I have no reason to expect different results.

Carol Spieckerman
BrainTrust

Service Merchandise is one of the best examples of “always right, sometimes early” in retail’s history. That said, a literal re-creation of its often-sluggish service model wouldn’t past muster these days. Argos is paving the way to retail’s future on many fronts, with its hookup with Sainsbury’s representing a compelling and mutually-beneficial upgrade to “shop-in-shops.”

Lee Peterson
BrainTrust

This IS the store of the future, there’s no doubt. The tweak is buy online pick up in-store and also to make the store much more interactive. Otherwise, they just had bad timing (3 decades too early). Stores will become Social Playgrounds, and I don’t mean Social Media. Physical stores should be places to talk to smart people about products and see themselves and others interacting with product, not just places to buy.

See the new Argos test stores in the UK.

Kai Clarke
BrainTrust

No. This is the reason SM went out of business. The entire ideal of the internet being available on any device, anywhere, means that you won’t have to go to a physical location to have your shopping and deliveries made for you. This is why consumers prefer to shop online with their computer or phone, and prefer to do this where ever and whenever they want.

Karen S. Herman
BrainTrust

Service Merchandise was on the periphery of omnichannel marketing with physical stores and catalogs, but clearly serves as an example of what not to do for e-commerce retailers scaling online and offline.

The key for these retailers in the physical space is to operate on a lean scale with a limited inventory and a short term lease, ideally in a well targeted location. Combine experiential marketing with good store design and your good to go. Operating in this capacity allows for flexibility and shape-shifting—changes to retail that Service Merchandise never saw coming.

Vahe Katros
Guest

I remember going to Service Merchandise because it was cheaper and our family didn’t have much money. I don’t recall hearing my mother, who was a seamstress in a dry cleaning store say (in her Armenian accent) “Vahe, let’s go to Service Merchandise to take advantage of their omnichannel business model.” SM was where we could do some of our holiday shopping (for our big ticket items) and save money. I suppose the founder of SM, who went on to start a .99 cent store, stuck to the market and customer he knew best.

So I guess the important takeaway for our omnichannel future is to not think of our future as omnichannel. Think of it as an audience with customers who have wants and needs and if those needs can best be served by a business model with pencils and clipboards, don’t call yourself a pencil and clipboard retailer. Call yourself a retailer. And if you are successful, call yourself an amazing entrepreneur who has intellectualized a way to make a living in a very tough business.

Gary Lee
Guest
Gary Lee
2 years 6 months ago

Yes! I’ve rolled this around in my head many times and complete agree with you and many of the comments here. I remember Service Merchandise well, and do feel they were well-ahead of their time and so much of their model is now coming into fruition.

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