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Services are the secret to big-box retailers’ recent successes
Sep 25, 2018
Warren Shoulberg

Remember back in Economics 101 when we all learned the economy is made up of both goods and services? The answer for home retailers looking to increase sales may lie beyond the products they sell, and top brands are relearning this lesson with impressive results. Big-box players in the home space—from IKEA to RH—have begun offering the kinds of services that virtually disappeared from the marketplace when stores pared down their merchandising efforts. Now, many of these companies view these design services as a way to drive traffic and increase the size of the average ticket—and there’s evidence to suggest that it’s working.

Of course, the idea of stores offering services is nothing new. Shop-at-home decorating services were a foundation of early department stores—and that was back when those stores were more heavily staffed with salespeople to engage with customers. Two services seem to be in the forefront of the movement: interior design and assembly or installation. Most retailers are charging for these services, though one suspects the price does not cover the actual cost, and is mainly designed to weed out bystanders and ultimately drive larger total sales.

To trace the more recent evolution of this retail service trend, you have to look at the consumer electronics chain Best Buy. In 1994, a local service in the retailer’s hometown of Minneapolis called the Geek Squad began offering at-home computer and electronics help, with agents who often traveled by bicycle to the homes of harried customers. Best Buy liked the concept so much that it bought Geek Squad in 2002, and two years later it rolled out the Geek Squad’s services nationwide. Today it offers all kinds of assistance, from repairs to hookups to remote computer help-desk functions. Best Buy has often cited the Geek Squad as one of the foundations of the company’s recent return to profitability. It’s even taken the service to the next level, announcing earlier this year that it was introducing a Total Tech Support membership program for $200 a year where members could receive technical help with virtually any product in their home, regardless of where it was bought.

A membership model has worked for RH since the company debuted the $100-a-year program in 2016, which includes a 25 percent discount on orders and free interior design services. “Our members drive 95 percent of our overall business,” said RH president Gary Friedman at the opening of the company’s new Manhattan flagship in early September. Even more telling? Friedman said that about 65 percent of the company’s retail business is driven by its members who use the interior design services. Its new flagship features five glassed-in workspaces for client presentations located on the selling floors, a new configuration that clearly differentiates between RH’s designers and the store’s traditional salespeople—and further emphasizes their value. “It’s one thing to say you have interior designers, but quite another to put an entire design firm into the store,” said Friedman.

On the company’s last earnings call, RH’s chief financial and administrative officer Karen Boone talked about how the membership program continues to produce above-average results. “As interior design services have taken off, average order value increased,” she said. “We couldn’t be more pleased with how it’s performing and what it’s done for our business.”

Among home furnishings retailers, the Williams-Sonoma group of nameplates has been one of the more aggressive to get into the service business. The West Elm unit uses the Design Crew umbrella to cover its suite of options, including design, installation and registry. Design consultations are free, and are also offered digitally for those not near retail locations. Installation services begin at $129 and range from basic painting, plumbing and electrical work to hanging curtains and pictures. Registry services run along more traditional lines, similar to what department stores have done for years in the bridal area. Sister brand Pottery Barn offers the same group of services but adds a fourth: party planning.

Offering these design services differentiates retailers from online-only players, allows the brands to engage with customers for larger orders, and facilitates the sale of add-ons. “Williams-Sonoma has no doubt done the math,” retail consultant Carol Spieckerman told the San Francisco Chronicle when the company debuted its design services, a program she said could more than pay for itself with the resulting increased sales across its multiple brand names.

“We think it’s a big game changer,” Williams-Sonoma CEO Laura Alber told the Chronicle when the company debuted its service in August 2017. In the interview, she compared the company to pure-play online sellers. “One of our chief competitive advantages is our stores,” she said. “We have real people who know what they are doing. With complex home projects, you want to get it right.”

On the strictly installation side of the service equation, there’s even more buy-in. Walmart, which is already working with a third-party company called Handy in many of its stores, has just extended its services to purchases made online. Customers can now add television mounting ($79) or shelf hanging ($64) to their digital shopping baskets. Home Depot believes in this concept so deeply that it has invested in a service company called Homee, which offers a laundry list of home services, from basic handyman jobs to more complex electrical and HVAC projects. Even IKEA, the poster-child for do-it-yourself home furnishings, jumped on the services bandwagon: Last year, the company purchased TaskRabbit, one of the better-known players in the space, to offer home assembly and installation; prices range from $27 to several hundred dollars, depending on the product.

Though in-store interior design remains largely the realm of brick-and-mortar outposts, e-tailers like Overstock, which hooked up with a third-party service called Porch to offer furniture assembly and installation for purchases made on its site, are getting into the services game too. Other retailers offering home merchandise are moving along similar lines.

The service trend goes beyond just design, installation and home repair. Many retailers during the back-to-school season allowed shoppers to buy at one location and pick up at another, catering to college students attending out-of-town schools and in need of dorm furnishings. And, of course, there’s this electronics retailer named Apple that has made its Genius Bar a cornerstone of its entire merchandising and product strategy.

All of this attention to offering services is giving retailers another way to connect with their customers—and another way to make money. Porch CEO Matt Ehrlichman said the choice is obvious: “The bottom line is that competition is fierce for retailers these days and it’s imperative that everyone is thinking innovatively about how to stay ahead. It is clear that customers want services along with the products they purchase so that they can have their task completed without hassle and headache.”

IKEA photo courtesy of Mroach.

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There are few—if any—retailers in the home category that haven’t been under the microscope of journalist Warren Shoulberg. From the heyday of department stores to today’s direct-to-consumer players, he’s covered it. For more than 45 years, he has worked as a retail reporter for trade media like Home Furnishings News (formerly Home Furnishings Daily), Home Textiles Today and now as a retail columnist for Business of Home.

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