Why smart online retailers are opening physical stores

Why smart online retailers are opening physical stores

Written by Giada Pezzini | 20 March 2017

According to McKinsey & Company, in 2020 80% of US retail sales will still happen in brick-and-mortar stores. Pure-play digital retailers (retailers selling only through their online store) are venturing into traditional brick-and-mortar retail. From French fashion retailer Spartoo, to socially-conscious eyewear brand Warby Parker, to menswear retailer Bonobos, in the past few months we have seen many of the biggest online names move offline, to open showrooms and flagship stores. The real boost to the trend occurred last November, when Amazon opened its first physical location. Amazon’s bookstore in Seattle, USA, may look like a simple store, but it is much more than that: it is a very meaningful first step into the omni-channel for the world’s largest online retailer.

Online-only retailers: your days are numbered

Don’t be fooled: the move to opening offline stores does not mean that online retail is dying. On the contrary, a synergy between online and offline will be the key to retail success in the near future. Or, in the words of Hudson’s Bay Co. chief executive Jerry Storch, the future is “all channel”. Online retailers opening physical locations, experts agree, will ultimately be more successful than their pure-play competitors.

Seven reasons why

We could write a book detailing the reasons why it’s smart for online retailers to open physical locations (and maybe we will!). For now, here are the top seven:

1. If people see your products in person, they are more likely to buy them

According to TimeTrade’s State of Retail Report, 85% of consumers prefer to shop in physical stores because they like to see, touch and test products in person before buying them. Touching the product with one’s own hands can also help dismiss doubts, and convince a person that that’s the right product.

2. Customers who pick up and exchange items in store buy extra stuff

Click & Collect (buying online and picking up in store) is very popular, both with customers and retailers. People with complex working hours like the convenience of picking up products in store at their pace. Retailers like it because it’s good for business: according a to UPS’s research Pulse of the online shopper, 45% of customers who click and collect end up buying extra products while picking up their order in store. In-store returns are also popular with customers and retailers alike. The UPS research reveals that 3 out of 5 shoppers would rather return in-store than have to send an item back via mail or courier. At the same time, 70% of shoppers returning products in a physical location end up purchasing something else – making in-store returns a win-win for retailers.

3. One-on-one customer service increases sales

It’s hard to offer a personalized customer experience online; that’s, at least, what shoppers seems to agree on. TimeTrade’s State of Retail Report reveals that one third of customers like to receive product advice from sales associates, and a whopping 90% of shoppers are likely to buy after receiving help from knowledgeable staff in-store. Despite the popularity of online shopping, the human touch seems to be still good for business.

4. Creating a brand experience: priceless

There is a lot of competition in retail, and it can be hard to stand out, especially online. By moving offline, online retailers get change to create an immersive brand experience. Forward-thinking retailers are not opening physical locations primarily to sell stuff. Their showrooms and concept stores are first and foremost places where customers can be immersed in the brand culture. These retailers know it: in-store atmosphere is a key differentiator for brands, and if done right it can be a great way to create lasting impressions – and returning customers.

5. Save time and money with better logistics

Smart online retailers are using physical stores as part of their supply chain, to cut costs of inventory management and speed up delivery. Logistic costs are the Achilles’ heel of e-commerce retailers, as they tend to significantly erode margins. By using the shops as warehouses and fulfillment centers, online retailers can improve their distribution across the territory, and make product shipment faster and more effective across more geographical areas.

6. Free market research on your customers’ preferences and habits

In 2015, with 13 years’ experience of selling clothes online, fashion retailer ModCloth opened its first brick-and-mortar store. “We discovered small things, the details our customers love," said Matt Kaness, president and CEO at ModCloth, to USA Today. "They loved linings in dresses and skirts, and they loved pockets.” Although data collected from the e-commerce store can be useful to understand customers, retailers can learn much about their customers just by watching them shop, interacting with the space and products. “From a market research standpoint, [a store] pays for itself. The amount of market research you gain just by observing people, it’s the equivalent of 100 focus groups,” said Sucharita Mulpuru, senior analyst with Forrester Research.

7. Boost traffic to your e-commerce portal, reap the benefits

When retailers open physical stores, the traffic to their e-commerce store increases dramatically, L2’s report Death of Pureplay Retail reveals. As stores are opened, the online traffic grows; and when the brick-and-mortar locations multiply, so do the numbers of people mentioning the brand and searching for it online. According to L2, this online buzz is accompanied by increased financial returns, making the physical store a good investment both in terms of popularity and profitability.   Retail is evolving. Scott Galloway, founder & CEO of L2, believes that single-channel retail is destined to disappear, whether it’s pure e-commerce or pure brick-and-mortar. In the new world, flexibility is the key: retailers who follow their customers and are not afraid to innovate will thrive. Retailers stuck in their “good, old ways” will slowly, but surely, disappear from the scene.

Stop thinking

Stop thinking "I'm doing well enough", embrace the future of retail

Boost revenue, gain a competitive edge, and drive return visits with a successful omni-channel strategy for your retail store. Find out how.

Download Today