Standalone brick-and-mortar structures with expansive parking lots — most of which were packed with cars during business hours — Service Merchandise stores were where people went, catalog in hand, to look at product displays and check off their selections on order forms – or in a computer terminal. A few minutes later, their goods appeared on a conveyor straight out of the onsite stockroom.
Let’s explore Service Merchandise’s roots, dig into its retail strategy, and see how its strategies for customer experience can apply in today’s omnichannel retail environment.
Customer Experience Innovator
Headquartered in Brentwood, TN, Service Merchandise was built on an innovative business. The company broke new ground in a handful of retail landscapes. In fact, many of its competitive moves were well ahead of their time, leading us to believe that Service Merchandise may have actually mastered “omnichannel retail” decades before the term was even coined. model. Initially a variety store opened in 1934, it went from being a chain of dime stores to a catalog business. Operating from warehouses in Tennessee, that business eventually morphed into the showroom concept that made Service Merchandise famous.
- 1980 – Allowed customers to place orders via specially equipped TV sets.
- 1981 – Developed a computer program that used demographics and a specific location’s characteristics to predict the market.
- 1982 – Installed a cash register that allowed customers to check on product availability and order merchandise right on the sales floor.
Three years later, it implemented a computerized inventory replenishment system that helped it reduce inventory carrying costs while also reducing its out-of-stocks. In 1986 it opened an automated, 752,000-square-foot warehouse in New York.
Convenient Fulfillment Options
For retailers, having the right inventory at the right place and at the right time has become table stakes. Service Merchandise served multiple channels efficiently from its brick-and-mortar locations. It had walk-in business, for example, and it also had a successful catalog component. Really, the latter is no different than today’s online environment, where “order online-pickup in store” is the newest dynamic that retailers are trying to harness.
“The catalog was not for people to order from,” says Raymond Zimmerman, CEO of Service Merchandise. “It was an advertising tool – people could pick what they want and come into the store. If that customer drove three blocks to come into our store, they expected to get it. We had to be in stock every day, on every item.”
Service Merchandise also leveraged brick and mortar locations to meet retail customers where they were. Inspired by UK-based retailer Argos’ fulfillment model that allowed freight deliveries to a secured inventory room without store access, Service Merchandise tested a warehouse-only model.
In Metro Atlanta, a handful of 13,000 square-foot suburban stores opened with the catalog as the main attraction along with a few display items. Customers could access Service Merchandise inventory in the warehouse and have it shipped to the catalog store for next-day pick-up.
Everything was in stock, but very little was on display.
“All the online guys are opening brick-and-stores or they are creating places where you can pick up merchandise in the existing stores,” Zimmerman says. “That’s where we were going – to have all those 10-15,000-square foot stores, so we could open hundreds of them close to the customer. … In the ‘80s and ‘90s, we were where everybody is trying to get to now. It was the implementation that was our failure.”
The retailer developed inventory management systems that, if one location was out of stock, store staff could identify the five closest stores with the item on site. The customer could pick it up there or have it shipped to their home by UPS.
“We took that system and expanded it so that you could go to a store in Columbus, Ohio, pay for something and send it down the conveyor belt in the Tuscaloosa, Alabama store,” Zimmernan says. “At the time, customers couldn’t go online and order and then pick up in the store.”
Customers Want to Experience their Purchases
Service Merchandise knew that its customers really wanted to experience a product before buying it. They like to go into the stores to look at and touch products. Stores didn’t really need to have all of their inventory visible and stacked to the ceiling when those customers walked in the door.
But they did need to make sure items promoted in the catalog were available in local store inventory.
“The hottest item that wasn’t in the catalog was less important than the worst item in that catalog,” Zimmerman says. “The customer that comes in has pre-shopped and they knew what they want.”
So the question becomes, is there really a need for high levels of inventory on the retail floor, if all customers want to do is experience the product versus walk out the door with it?
Ultimately, customer experience was enhanced by the Service Merchandise strategy of separating the sales floor from order fulfillment in the warehouse.
Many retailers trying to fulfill multiple channels from physical stores often threaten their in-store success. Likely earmarked for in-store or curbside pick-up, those orders consume labor and get in the way of a pleasant shipping experience for customers. The sales floor isn’t very welcoming when aisles are congested with big carts and harried fulfillment individuals trying to quickly fill carts.
Omnichannel Fulfillment Jeopardizes Performance
We’re in an era where higher fulfillment costs continue to erode retail margins. It’s time for stores to think harder about how to fulfill orders across all channels while also factoring in parcel transportation costs and how to package in a way that minimizes dimensional charges.
Knowing the struggles that retailers face as they navigate the complexities of omnichannel fulfillment, reflecting on how Service Merchandise approached the customer experience could give companies a clear advantage in the marketplace.
To help retailers understand how to protect customer experience while balancing the cost of service, we created “Prime Before Its Time: The Service Merchandise Experience.”
Download the guide to learn how the retail innovations of yesterday can help you deliver a prime performance today.