Almost every day you hear about the rise of e-commerce, but according to U.S. Census data 94 percent of all retail sales in the U.S. still take place in a physical store. The one million or so brick-and-mortar retail locations across the country that generate almost $4 trillion in annual sales aren’t going away anytime soon.
The misconception that e-commerce is killing brick-and-mortar through online sales is a bit misguided. Over 50% of online sales are actually going to brick-and-mortar brands. And many of the pure online retailers are now seeking a presence in brick-and-mortar spaces. For example, Amazon now owns 460 Whole Foods locations across the U.S. where it now can sell its Echo devices to grocery shoppers.
A survey by Retail Dive asked more than 1,400 consumers what makes them choose to shop in a physical store. Not surprisingly, the biggest reason cited by those surveyed was the ability to see, feel and try out the items they were looking to purchase. For women, it is the most important driving factor for in-store shopping, especially for fashion items. Interestingly, this is also a significant driver for people over 65 and members of the millennial generation. Another driver for shopping at a physical location is immediate gratification. For men, in particular, the ability to take an item home that day inspires them to venture out to make a purchase.
There are many cases of traditional brick-and-mortar stores and malls disappearing, but the root cause of this may be more related to the fact that they simply aren’t modernizing their business models and hence aren’t connecting with consumers in the ways consumers want to be connected to. So in essence, like any point in time in the history of capitalism, times change as well as consumer tastes and those retailers who do not adapt will perish. Those brick-and-mortar stores that combine digital touch points and apps with their physical presence will have a much greater chance of success moving forward.
It would seem that e-commerce expenses are considerably lower than brick and mortar retail, which is one reason so many have started online businesses. However, it’s not always reality. E-commerce-only retailers can build a brand identity and begin to realize revenue very quickly and low cost. But after an initial period of growth, infrastructure costs make it difficult to stay profitable. There are expensive shipping and return expenses, the massive costs of new customer acquisition, lost customers to a close competitor, and growing expenditures for increased web hosting. In the last few years, we’ve seen a large number of e-commerce retailers turn to brick-and-mortar platforms because it’s cheaper, even though there are expenses such as rent, inventory warehousing, employee labor, property taxes, and more.
There are also other advantages for a pure online retailer to expand into brick-and-mortar presence. After the initial buildout and period of growth, it can become very expensive for a pure online retailer to remain profitable due to the costs of shipping/returns, new customer online acquisition costs, and the increased costs of web hosting. The cost of acquiring new customers via brick-and-mortar can be more affordable even considering expenses such as rent, inventory warehousing, employee labor, property taxes, and more.
Additional advantages of adding a brick-and-mortar presence are the ability to provide immediate customer service, achieve higher conversion rates of customer spending than online, and receiving a higher ranking on Google searches as they priortize brands that have a physical location.
Industry experts agree that having a brick-and-mortar presence often strengthens the trust between brand and consumer. It gives the sense to the consumer that the business is going to be in it for the long haul.