Movers and SHAKERS
Should Online Retailers Open Neighborhood Shops?
(Note: companies that could be impacted by the content of this article are listed at the base of the story [desktop version]. This article uses third-party references to provide a bullish, bearish, and balanced point of view; sources are listed after the Balanced section.)
E-commerce shopping has experienced a steady increase in customer count and online sales each year since before the turn of the millennium. All U.S. Retail sales now add to $5.4 trillion in economic activity. Currently, 11.2% of these sales are from online purchases. Despite digital retailers being able to attract more sales each year, there is a growing trend from “clicks to bricks.” Stores that have historically existed only as cyber shops are now appearing on Main Street, complete with signage, stock clerks, and in most cases, cashiers. Internet retail is still a disruptive technology, does it make sense for successful online stores to also develop a presence as a more traditional retail outlet?
Cost. Traditional stores typically have much higher initial outlays and ongoing fixed and variable costs. The cost per item per sale is usually higher, this effectively lowers net profit on each sale. Even during any off-season, costs such as rent, merchandising, utilities, parking, etc., continue. With lower profit margins, the risk of failure is greater.
Store Hours. Online stores are open 24/7 every day of the year. The “register” can “ring” even when all the employees are sleeping. This isn’t the case with brick and mortar stores that must be open in order to make a point-of-sale transaction.
Location. Despite having an array of data to base location decisions, the retailer has little control over what happens around them once they commit to a location. For instance, a new competitor may move in down the road and cut into their sales. Surrounding retail that helped attract customers to the store may close or move away. Neighborhoods change, demographics shift, and even natural disasters can put you out of business for weeks.
Enhanced Sales. The trend indicates that overall growth in sales will continue year after year for online retailers. Brick and mortar stores have created online presences to capture some of the erosion. The future seems to belong to online retailers. Shopping online is no longer a novelty for most. Americans who are now 20 years-old have always known online shopping; for these young adults it is not a novelty. For many customers that regularly purchase goods through their computer or smartphone, even products such as food that were once thought to be the domain of bricks and mortar, are delivered fast and fresh. The convenience is unquestionable.
Online retailers can capture a larger chunk of the trillions spent each year in person if they compete head-on with traditional stores. They should even experience an increase in online sales by having a physical location. They are armed with data and not as constrained by as many limiting notions. Retailers may even open a seasonal (pop-up shop) if this makes sense relative to their business. A good example of smart pop-up shops is costume stores. They exist online all year and then open retail outlets leading up to Halloween.
Hybrid businesses can be smart. One doesn’t have to be one or the other. The decision to compete for customers can be defined by what increases profit, not what increases profit margin per item.
https://www.forbes.com/sites/forbestechcouncil/2019/10/24/clicks-to-bricks-a-data-driven-strategy/#67736e8a6e86 Joe Varacalli, Forbes, October 24, 2019