Schumpeterian Innovation and “Showrooming”

Lynne Kiesling

Another entry in the annals of creative destruction …

If you’re a bricks-and-mortar retailer, showrooming has the potential to be a real threat to your revenues — you incur the costs of operating a store, but some of your foot traffic is there only to see items in meatspace before ordering them online, presumably at a lower price or without sales tax.

This is not new, but what is new is the Schumpeterian innovation in business models that showrooming has generated. According to this report (HT: Instapundit), retailers are taking the incentive to undercut showrooming as a way to differentiate their services and to integrate their physical and online presences even more deeply:

Wal-Mart, Macy’s, Best Buy, Sears, the Container Store and other retailers are stepping up efforts to add Web return centers, pickup locations, free shipping outlets, payment booths and even drive-thru customer service centers for online sales to their brick-and-mortar buildings.

The most interesting aspect of this evolution is the option to order online for in-store pickup and pay with cash, which Walmart is using. Walmart thought this would attract customers without credit cards, but they didn’t foresee its appeal to another set of customers: those who have privacy concerns about transmitting financial information online.

It’s a great example of Schumpeterian innovation that allows producer and consumer experimentation.

Another benefit discussed in the article is same-day delivery and easy returns. But staying one step ahead of Amazon on this front will be difficult, as Amazon may be investing in increasing the density of its warehouse network to allow it to offer same-day shipping. That raises an interesting question about vertical integration: at what point does it become economical for Amazon to own a shipping fleet, rather than relying on USPS, UPS, FedEx, and contract shippers?

However this evolution plays out, it already has generated massive consumer surplus, and is likely to do so even more, because our eyeballs and our dollars are so contestable.

2 thoughts on “Schumpeterian Innovation and “Showrooming”

  1. Interesting post Dr. Kiesling. I came across the post via one of my Google Alerts. It appears as though we have a few common interests. I’m in the early stages of starting my own blog and will be primarily covering innovation but will also touch on complexity, networks etc..I look forward to reading more of your stuff.

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