In the world of retail, things can only be thought of in terms of evolution: survival of the fittest. We cannot think of brick and mortar stores as “behind” or “inferior” (thus, a “devolution”) to e-commerce retail. It’s hard to see how Amazon’s move into the physical retail space can be seen as a step backward: 2017 US Census data showed that 90% of consumer spending still happens in physical retail. Surprisingly (or maybe not, as they never seem to do what’s expected anyway) Millennials in particular have reported preferring brick and mortar retail by 70%.
That said, just because Amazon is doing a thing doesn’t mean surviving as a brick and mortar is for everyone. Despite consumer stats mentioned above, there are a few important factors contributing to the survival or demise of a retailer that has less to do about whether the retailer started on or offline, and much more to do with how they are responding to the changing landscape of corporate structures and consumer habits.
First, a look at the businesses themselves. It’s true that having an online presence became a real and pressing need for legacy retailers (those brands or department stores that originated in brick and mortar) in the last few years to compete with the surge of e-native retailers. However, contrary to the stats above, being a native brick and mortar and simply adding a webstore to the business model is not a ticket to success. Suddenly, a legacy retailer has not just added an online storefront, they also must factor in shipping and distribution on a completely different scale. Many mid-level retailers who attempted to add e-commerce to their existing model folded in the face of competitive e-tailer prices and dealing with losses through shipping and returns. In Canada there have been many significant legacy casualties in recent years, particularly for mid-level brands or specialty department stores: American Apparel, Toys “R” Us, Payless, Radio Shack and Sears Canada to name a few.
On the other hand, brick and mortar locations have a higher customer conversion rate and higher profit margin in regards to returns for customers who enter stores compared to customers who click on items in a webstore; but small-to-mid level e-commerce retailers who decide to enter the real world are having to deal with the same ever-climbing real estate and marketing considerations as everyone else. It’s those legacy chains who absorbed digital natives (Wal Mart, Bed Bath & Beyond, and Hudson’s Bay Co. for example) thereby absorbing an e-commerce platform into their corporation, that seem to still be on steady footing.
The other major factor is consumer buying habits. Increasingly, consumers are putting their disposable income towards experiences, not traditional retail goods like clothes. 50% of Millennial shoppers prefer to spend their money on dining or live events, for example. The flipside is that consumers increasingly demand transparency and fairness in retail pricing. It may have seemed, in the early days of e-commerce, that the best deals could be found online, but this did not necessarily correlate with satisfaction in the product. In this way, tech-based retailers like Amazon have the upper hand: they can apply algorithm pricing to goods sold in-store, which consumers perceive to be more fair. Amazon is doing this for Whole Foods, who was becoming endangered by bargain chains like Wal Mart offering similar organic products at a lower cost.
The take away for me is that e-commerce or brick-and-mortar stores do not have an inherent or conclusive advantage over the other. They are two separate experiences that each have their unique pros and cons. Online stores, for example, will always be first for research and comparison shopping as it is fast and easy to compare many similar products from various retailers at once. However, statistics continue to show that consumers value the social interaction, instant gratification (“then and there” purchasing), and tactile product testing the get from real-life stores. The future for retailers who want to compete, then, are business models that use on- and offline experiences that complement each other in the wake of changing consumer demands.