Shop Online, Pick Up in Store?

Shopping online makes it easy for customers to find exactly what they want without scouring store shelves for elusive gadgets, dishware, or toys.

The downside is that customers have to wait several days, and often pay, for delivery. Alternatively, customers who head to an old-fashioned, brick-and-mortar store to make a purchase are provided same-day satisfaction—unless of course the desired product is not in stock.

But just a couple years ago, retailers began to offer a third option—called Buy Online, Pick Up in Store (or BOPS for short)—which gives customers the best of both worlds. Customers find the item they want online, where they also check its availability at a nearby brick-and-mortar. If the product is in stock, they can purchase it online and find it ready for pick-up at the local store, generally within one to three hours.

Antonio Moreno, an assistant professor of managerial economics and decision sciences at the Kellogg School of Management, wondered how this new option impacts customers. "Changes in this space affect the experience of the customer," Moreno says, "but no one had really studied how these online and brick-and-mortar channels interact.” By extension, the researchers were also interested in how BOPS would affect a company’s operations (as customers who utilize BOPS receive inventory from local stores instead of a central warehouse) and even its bottom line.

The BOPS Effect

Moreno and his colleague Santiago Gallino, an assistant professor at Dartmouth College, teamed up with a major retailer with more than 80 stores in the U.S. and Canada. The company, which specializes in housewares, home accessories, and furniture, was a pioneer in implementing the BOPS option, offering it throughout in the U.S. beginning in October 2011.

The researchers examined a full year’s worth of data from the company—including transactions, total sales, and number of shoppers—to observe how BOPS changed purchasing habits both online and in-store. To tease out the effect of BOPS in particular, they relied on the fact that not all shoppers were close enough to get to a store, and that the chain's four Canadian stores did not offer the BOPS service. The researchers then compared the online purchasing behavior of these customers, who were unable to take advantage of BOPS, to that of customers who could take advantage of the service.

Conventional wisdom said that offering customers the BOPS options would increase online sales; after all, a BOPS purchase counts as online revenue since shoppers pay through the website. But when the researchers examined the data, they found that online sales were actually going down in areas near a store, compared to areas far from a store, after BOPS was implemented. Odder still, online sales were decreasing even as traffic was increasing on the retailer's website. And when Moreno and Gallino turned their attention to brick-and-mortar stores, they found increases in sales and visitors at American stores, which offered the service, compared to Canadian stores, which did not.

A Mysterious Pattern Explained

What was going on? Why would implementing BOPS drive visitors—but not sales—to the website, while also increasing visits and sales at local stores? "We started thinking about what in the operations literature could possibly explain this behavior of people going more to the stores after this option was available," Moreno says, "and that was when we came up with the idea of reliability of inventory information." That is, customers might often be using BOPS not as a way to buy goods, but as a dependable way to check brick-and-mortar inventory. (In retail, this method is known as Research Online, Purchase Offline or ROPO.) Many customers may be disinclined to purchase an espresso maker or duvet cover online, where they cannot inspect the product. However, if they are given the option of purchasing the product online for pick up in a local store two hours later, they know it has to be in stock and can plan accordingly.

Indeed, the researchers found additional evidence that online visitors might be purchasing products offline in cart-abandonment data: after BOPS’ implementation, visitors who lived close to a store were more likely than those who did not to “abandon” or fail to purchase items in online shopping carts.

"The most surprising thing to me was that online sales went down when the customers were given more options," Moreno says. "If you’re a customer and were planning to buy online, now you have even more reasons to [do so], because now you could buy online and pick up in the store," saving on shipping and vastly decreasing wait time. "We thought it would make the online channel more attractive, but what happened was that it led to this shift towards brick-and-mortar stores, which is a good thing for the company," supporting that branch of the retail business in an age of online-only competition.

Managers Take Note!

The BOPS option also increased sales overall, the researchers found. While online sales decreased slightly, in-store sales increased more than online sales decreased. This shows the benefit such programs can have for retailers.

It also, Moreno says, highlights how companies may need to change their traditional thinking about keeping online and in-store sales—and compensation—separate. The company the researchers worked with had an online team that received bonuses and commissions based on online sales. Likewise, the company’s brick-and-mortar team received compensation based on in-store sales. "But when you have an integrated retailer,” Moreno explains, “it makes more sense to offer different incentives that will compensate the online team if that sale originated online but was actually closed in the store."

Kellogg Insight