It wasn’t long ago when the overwhelming expectation among retail experts was for traditional, “brick and mortar” retail to suffer an inevitable demise at the hands of e-commerce giants like Amazon, Wayfair, and Walmart, and the broad scope of smaller, specialty retailers.
And while it’s true that brick and mortar locations are closing at a record rate, and e-commerce sales are on the rise, industry insiders and even many who once predicted the death of brick and mortar now suggest that what’s really unfolding isn’t a death; it’s a transformation designed to promote physical retailers’ success and sustainability in the digital age.
In fact, as evidenced by 2016 data where e-commerce accounted for less than 8% of total US retail sales, there’s a viable case to be made for brick and mortar stores actually holding several core advantages over digital-only brands, which face some serious challenges of their own in the coming years.
So here are three (3) functions successful brick and mortar stores execute exceptionally well. These functions, in large part, are what will help ensure that brick and mortar retailers don’t go the way of the dinosaurs. And in what seems like a healthy dose of irony, they’ll be the same functions digital-only retailers are now trying to develop and optimize, for their success and survival amidst a changing competitive environment may well depend on it.
Consumers Have a Tangible Connection to the Product…and Brand Experience
Online retailers are quick to tout intuitive search and comparison features, convenience, and 24/7 access, but the fact remains that only brick and mortar customers get to touch the merchandise right on the spot, test it out, maybe try it on, and compare face-to-face against other products.
This meaningful, sensory experience is deeply fulfilling for consumers, and by most any measure, this represents the #1 reason for shopping in store as opposed to online.
Consumer data like this resoundingly reflects enjoyment of the in-store shopping experience, including the immediacy and instant gratification, and the firsthand customer service components. Little surprise, then, that primary e-commerce initiatives now include the development and expanded use of Artificial Intelligence (AI)—like messaging and real-time learning bots—as well as personalization efforts designed to harness “big data,” target customer needs on an individual level, and create meaningful interactions like those that happen organically in stores.
Until this wide gap is closed, however, consumers’ lingering affinities for their favorite brick and mortar retailers will do much to sustain the present environment, where consumers as a whole are likely to conduct the bulk of their product research online, but ultimately make 90% or more of purchases in store.
Relatively Low Shipping Costs vs. Digital-Only Brands
E-commerce retailers have rather famously transformed the retail landscape through the introduction of free shipping and returns. Today, about 90% of retailers offer some sort of free shipping program, much to the delight of consumers, the majority of whom fully expect and actually demand it as a condition for purchasing goods online.
For online-only retailers, however, the added cost of “free” shipping has further cut into already-razor-thin margins, and its impact is actually being felt the most at the top of the industry. Amazon, for example, spends over $7 billion annually on shipping costs. And while the world’s richest retailer is willing—and can readily afford—to lose on shipping in an effort to spur its continued growth, it’s easy to see that escalating shipping costs represent a major competitive disadvantage for “average” online retailers, and indeed, the e-commerce industry as a whole.
Brick and mortar retailers, on the other hand, have been able to successfully leverage stores in a couple different ways as part of ongoing efforts to reduce and manage shipping costs. First, many brick and mortar retailers save on delivery costs by shipping direct to stores for convenient customer pickup instead. It’s less expensive to deliver multiple packages to one location, afterall. And secondly, some stores are even doubling as “mini warehouses” or fulfillment centers, which helps limit product travel distance, and in turn, reduce shipping cost.
Much Lower Cost of New Customer Acquisition
Forbes and others have written about serious scalability issues among pure-play, e-commerce retailers, calling out what they’ve deemed certain “diseconomies of scale.” The exorbitant shipping costs we discussed a moment ago are one such example, however, a notoriously high cost of new customer acquisition is another that’s perhaps equally concerning.
To illustrate, would you be surprised to hear that it now costs $100 or more for even the most prominent e-commerce retailers to acquire just one new customer? That’s an exceptionally high cost basis, particularly considering that e-commerce is still just a tiny fraction—less than 10%—of total retail sales.
Said another way, e-commerce retailers are spending a lot for a sub-par return, largely because these new customers don’t spend much themselves. It’s a lot like “throwing good money after bad,” but unfavorable as it is, it’s indeed the current model for many e-commerce retailers, who are working to diversify their pure-play, digital marketing strategies to include more “traditional” tactics like TV and even direct mail.
Given how saturated the modern-day consumer is by digital messaging, it turns out those traditional marketing tactics are more intimate and impactful once again. But perhaps more importantly, they are also proven, lower-cost ways to attract new customers…just ask brick and mortar retailers, whose strategies have relied upon them for years.
In actuality, it seems clear that the purported “death of brick and mortar retail” at the hands of e-commerce was seriously overblown, and there’s not likely to be just a lone survivor from the two. Instead, the retail environment is being transformed, and “omnichannel retail,” whose aim is to create a seamless user experience at all “touch points,” whether in store or online, is the real wave of the future.
Thank you, Tracy Knight for your insights!