Online retail giant Zappos.com has just launched a 20,000-foot physical retail store in its home of downtown Las Vegas. The experimental space is run in partnership with retail logistics startup OrderWithMe, which just raised $28 million for an ambitious project to change the nature of mom-and-pop retail.

The concept enables a more cooperative relationship between big online retailers and smaller physical retailers. Online retailers will exploit physical retailers as shipping nodes, strategically placing product in their back rooms so that they can get product to consumers with same-day shipping. Mom-and-pop shops will exploit big online retailers’ vast storage capacity to help customers get the sizes and styles they want, without having to stock it all themselves.

“The convergence of online and offline seems to be an unstoppable force that I believe will ultimately change the face of retail,” Zappos CEO Tony Hsieh explained to us in an email. “We are currently in a really interesting time for retail where on one hand many online stores are looking to have more of a brick-and-mortar presence for branding purposes (which is a big part of why we are launching a 20,000-square-foot Zappos pop-up shop in downtown Las Vegas for the holidays) and on the other hand many brick-and-mortar stores are looking to enhance their experience with more access to inventory in the cloud.”

The big strategy is possible thanks to a new shopping kiosk to be placed in physical retailers around the country.

Selling with ShopWithMe

zapos

OrderWithMe’s original service aimed to provide smaller retail outlets the buying power of big box chains. Through smart algorithms, mom-and-pop retailers could band together and buy products in bulk for discount; OrderWithMe would handle negotiating the best deals and efficiently ship all the orders to each store. For manufacturers, there wasn’t much difference between selling to a big chain like Costco or a federation of smaller stores combined through OrderWithMe: Both were one big order with a similar discount.

Unfortunately for small retailers, they were still hit by the massive decline in foot traffic sales and the corresponding surge in “showrooming” — customers who visit stores to try on or handle products and then buy online. The problem got so bad that one store owner in Australia purportedly started charging $5 for anyone “just looking” at her wares.

In a more positive approach to fix declining foot traffic sales, OrderWithMe has physically placed the Internet experience inside of retail stores with a new touch-screen kiosk. If a style, color, or size isn’t in stock, customers can simply scan a barcode on the ShopWithMe kiosk and have the product shipped to them, ideally the same day.

Customer experience beats logistics

Instead of hassling with with supply logistics, OrderWithMe CEO Jonathan Jenkins imagines that physical retailers can put more energy into curating a better experience. Mom-and-pop shops know local tastes and can develop a personal relationship with their neighbors much better than can a digital giant like Amazon or Zappos.

“Retailers can use their on-hand product to effectively sell beyond their current inventory by connecting them to a network of ShopWithMe retailers and suppliers that drop ship on their behalf,” Jenkins said. “Independent retailers are known for their customer service and their ability to curate product offerings. I believe the future of physical retail will focus on these strengths. Businesses will leverage their brick-and-mortar locations by making them destinations for consumer discovery and personalized, expert advice on products.”

What do big box retailers get out of it?

Small businesses have something that big box retailers and manufacturers need: reach.

“These independent retailers and suppliers create nodes, which, when linked together by the ShopWithMe platform, act like a network of small distribution centers around the country. This converts the retailer’s existing square footage and inventory into a fulfillment center for orders,” explained Jenkins.

As VentureBeat has covered before, same-day shipping is a logistical nightmare for Amazon, eBay, Google, and other big companies. They have to figure out how to predict sales and, in some cases, buy warehouses around the country.

Small retailers shops naturally open up near consumers, so they’re the ideal node for shipping fulfillment.  It’s just a matter of strategically placing stock in them to solve the same-day shipping puzzle.

Zappos and beyond

The Zappos partnership is a bit of a hybrid, as Hsieh said the company may actually build more physical retailers around the country.

“A lot of people only know that Zappos sells shoes, and aren’t aware of our large selection of clothing. We’ll be showcasing different lifestyles throughout the pop-up shop, and in fact most of the pop-up shop will be dedicated to clothing instead of shoes,” Hsieh wrote.

When someone visits a physical retailer, they see a whole slew of products they never intended to shop for. The same isn’t true for Zappos.com, where customers can pinpoint search for the item they want and then leave the website without ever knowing that the company sells a lot of different products.

If the Zappos pop-up is a success, the company may begin to expand around the country, just like its owner, Amazon.com, will be doing in New York City in the near future. Additionally, pop-up shops may provide Zappos with all kinds of shopping behavior data that they could never learn from the website alone.

The Vegas pop-up shop is an experiment for both Zappos and OrderWithMe. It makes sense that both big online retailers and smaller mom-and-pop shops would want to co-opt each other’s strengths. It just takes some smart technology to help them do it.

As Jenkins concluded, “With ShopWithMe I am not trying to change a retailer — but to change all of retail.”

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