Stockless Stores and Hassle-Free Clothes

Bonobos, the “perfect fit” men apparel retailer, has evolved its operating model from e-commerce only to a combination of e-commerce and showrooms.

In 2007, Andy Dunn and Brian Spaly set out to create the largest clothing brand ever built on the web in the US. The business concept was simple: Eliminate the saggy bottom of ill-fitting trousers and sell the perfect pair of pants for men. While the business model was far from revolutionary, especially in a saturated retail space where the technology could be easily replicated, the company levered its operating model to connect with customers. [1] [2]

Bonobos defined its target consumer as “millennial men who were not big fans of shopping”. [1] The company started out without any store presence even though its value proposition was all about offering a “superior fit”. To familiarize its customers with this new technology, Bonobos offered a set of online tools where customers could browse through the pants collection. [2] The hassle-free shopping experience was further reinforced by amazing customer service, where customer service representatives called “ninjas” were available by phone, email and video chat to provide advice on fit and style. Moreover, Bonobos offered free shipping and encouraged its customers to order multiple pants at the same time to try different options and find the perfect fit for them. This initial operating model was a wide success that spread out very quickly, allowing Bonobos to break even in 2008. [3]

Dunn firmly believed in his operating model and went as far as saying that expanding into brick-and-mortar stores would “degrade the quality of the customer service experience of the brand “. [2] However, as the company started expanding its product offering into shirts and sportswear, customers were still only buying pants and not trying out the new products. Bonobos soon realized that people didn’t fully understand the fit of the new items and had to rethink its “online only” strategy. The solution was introducing Guideshops — stockless stores where customers can make 30 to 60-minute appointments and a guide will walk them through the entire assortment and help them find the perfect fit from all the available options. Once the customer is ready to check out, the guide places the order and the customer receives it at home within two to three days. [1]

Under this new operating model, Bonobos has been balancing expanding through the costlier option of opening more stores and levering its online presence. It also started a partnership with Nordstrom where the department store carries Bonobos apparel in stores and online. The combination of these distribution channels provides a set of opportunities and challenges going forward:

Customer Acquisition: Bonobos has drastically reduced its marketing spend from 25% to 4 % of sales. Instead it has focused on building Guideshops and reinforcing its relationship with Nordstrom. This strategy has resulted in flat online traffic, but better customer quality and higher online conversion rates. [2]

Customer Service: Online sales still account for the largest portion of the business, but a greater set of customers come to Bonobos through the Guideshops. Moreover, first time customers shopping through the Guideshops tend to spend more than first time customers shopping online. This is explained by the high level of personalized touch experienced in the Guideshops. [4]

Feedback Loop: The operating model allows Bonobos to sustain its consumer behavior insights in the offline channel. Since the online and offline channels are connected though the creation of customer profiles, once Ninjas enter an order, the company can track shopping behavior for each individual customer and use this data for product development and production.

Inventory Management: The Guideshop model allows Bonobos to offer a wide selection of merchandise, while reducing inventory costs. Under these distribution model brick and mortar stores and the online shop can operate under the same low-cost inventory management principles and enhance product triability for those who need it.

Speed to Consumer: One of the main challenges that Bonobos faces going forward is how fast it can get its products to its customers after placing the order. In an age of instant gratification, two to three days might seem too long and customers might choose other brands. [5] Bonobos needs to keep partnering with logistics companies capable of doing same-day delivery at a low cost. Additionally, the company could keep a limited selection of best-sellers in Guideshops for any customer last minute shopping runs.

The Evolution of Retail: The concept of mixing e-commerce and showrooms is getting more traction and companies such as Warby Parker and Birch Box have started implementing it. The question for Bonobos is how it will differentiate itself as its operating model becomes more mainstream and competitors start replicating it. Will its product offering and customer service be enough to keep loyal customers around?

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Citations:

  1. https://bonobos.com/
  2. http://www.businessinsider.com/how-bonobos-is-maturing-into-a-major-brand-2015-8
  3. http://www.nytimes.com/2009/11/27/technology/start-ups/27pants.html
  4. http://www.forbes.com/sites/barbarathau/2015/07/08/bonobos/#13f4b6b57977
  5. http://www.chicagotribune.com/business/ct-bonobos-dunn-0426-biz-20160425-story.html

 

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2 thoughts on “Stockless Stores and Hassle-Free Clothes

  1. It’s very interesting that in a digital age when most stores are moving from brick and mortar to online only, Bonobos is doing a little bit of the opposite and realizing the value of a physical store for the purpose of trialability. While it seems like the main reason they need physical stores is so that first time customers especially can learn their fit and returning customers can try out new lines, I wonder if there is a way around this. For example first time customers can be sent a few sample products at a discount to try and return for free in order to help them understand their fit. Or perhaps they can make a select number of lines where all items in that line fit the exact same way so shoppers can be confident in a pair of pants without trying them on.

  2. These stores provide both a valuable customer service and marketing opportunity for Bonobos as described here by the WSJ: http://www.wsj.com/articles/warby-parker-bonobos-have-big-plans-for-physical-stores-1475767980. I recently visited a Bonobos store and wonder if their product offering is high quality enough to earn long-term customer retention. The clothes are certainly not inexpensive, but they don’t strike me as high quality enough to be viewed as investment pieces. I’ll be interested to see whether Bonobos will introduce a high end line that might help them to retain young professionals as they progress in their career (and wardrobe sophistication).

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