Everyone is familiar with the doom-and-gloom headlines focusing on the shuttering of major retail stores across the country. However, the truth is retail is not dying, it is evolving. Just as ATMs did not destroy retail banking, e-commerce is not destroying retail shopping. In fact, many formerly exclusive online retailers are investing heavily in brick-and-mortar stores. This “reverse” trend of starting operations online and expanding into the physical space is a hallmark of New Retail.
Online Retailers That Are Getting Physical
Names that have been synonymous with online shopping are making big clicks-to-bricks plans:
- Bonobos: Currently operating 60 physical locations with plans to open 40 more by 2020.
- Warby Parker: Planning 100 brick-and-mortar locations.
- Casper: Goal of opening 200 stores in the next two years.
- Fabletics: Planning 100 new locations in the next year.
Why are retailers like these and many others expanding into the physical space? There are numerous reasons why they are taking the plunge now.
The Digital Space Can Be Expensive
In many niches, the cost of acquiring new customers online is growing exponentially as competition increases. There are strategies to control online costs but every day new players enter the game. Those new players drive up advertising spend and crowd the space, making it challenging for retailers to stay ahead of the pack and get their products in front of new customers. In some niches, it can actually be more expensive to acquire a new customer online than in a physical store.
In addition, shipping remains a challenge for many digital-first retailers. Consider Casper, for example, an internet-native company that sells mattresses. It’s very difficult to be profitable once distribution costs are factored in. Better, more efficient distribution channels are a key driver to open physical store locations. This allows retailers to ship and carry products at the stores rather than sending items across the country one at a time.
Real Estate Is Getting Cheaper
Just a few years ago, the commercial real estate market was booming and it was cost-prohibitive for many retailers to expand into new locations. However, as more and more big-name stores are shuttering, there is an upside for established, online retailers. They can now acquire prime retail space in high-end shopping centers and malls for a much lower price. Property owners need to fill their space, so not only are starting prices low, but owners are also more willing to negotiate terms with lessees and buyers in a down market.
Showrooming is Ideal For Many Purchases
The clicks-to-bricks model works well for retailers offering big-ticket items or personal items like clothing – products people want to see, touch and test before committing to a purchase. Retailers in these industries can use their physical space as a showroom and an experience center to draw in new customers.
Items in these showrooms are for display only and the locations carry no inventory. Shoppers choose what they want and have the items shipped to them at home. Customers can see products in person, talk to a knowledgeable sales person and receive a premium sales experience that reinforces the idea that they are buying a quality item that is worth the investment.
Physical Locations Improve Customer Experience – And Boost Sales
E-commerce retailers also use physical locations as a means of providing convenience and increasing sales. Fabletics has reported significant revenue increases from its most active customers who live within 30 miles of a branded store. Those customers are more likely to return an online purchase at the store, providing an opportunity to make an additional sale.
Building Bridges Builds Bottom Lines
Retail isn’t dead, it’s evolving. The way customers choose to browse, shop and purchase are not fixed, they are always shifting, and winning retailers are leveraging physical spaces to engage customers and ultimately, lift sales.