While the established offline retailers are concentrating on building out their online businesses, we have recently seen the original pure-play e-tailers such as Amazon, Alibaba and JD.com venturing offline and opening bricks-and-mortar stores. So why are they doing this? In the second part of our series looking at offline retail, we explore the move from clicks-to-bricks.
No-one can argue that e-commerce has revolutionised retail, making it easier to shop. The consumer is no longer governed by store hours, instead being able to do their shopping at a time and place convenient to them. E-Commerce only accounts however for about 10% of retail spending worldwide, so looking to leverage off the strength of bricks-and-mortar retail, a number of retailers that started online are establishing a presence offline. We believe there are three key reasons for this movement.
A bricks-and-mortar store provides excellent visibility and is a great way to build brand awareness. Regardless of whether the final purchase is made online or in-store, retailers with a physical presence have the ability to make the all important connection with the consumer and provide them with an experience - something which is difficult to replicate online.
However, why would an online retailer allocate additional costs to open a physical store when consumers can buy directly online? A common misconception is the thought that the operating costs of an online retail business are considerably cheaper than those for an offline version. It can be argued that in-store sales are actually more profitable due to no shipping fees together with far fewer returns. While stores especially in prime areas have high rentals, they also benefit from walk in traffic. This is not the case for online stores with the retailer having to pay to gain visibility and attract traffic to their site.
While brands are often building an audience across the social media sphere, the major platforms have become increasingly crowded with brands offering little differentiation. What is the best way to stand out from the crowd and educate the consumer about the brand? Through establishing an offline presence, the consumer is able to become immersed in the brand in a tangible way and gain a better understanding of what they have to offer.
The second reason as mentioned in the first article in our series, is that retail remains tactile, especially for fashion. The majority of consumers still have limited confidence when buying apparel online, especially if unfamiliar with the style and fit of the brand. Consumers shopping online will often purchase multiple sizes of each item knowing they can return those that don’t fit. Some eCommerce operators are having the courier wait while the consumer tries their purchase on. Both of these approaches squeeze the margins. In addition, when they are trying on items away from a store, they will not be able to sample and potentially purchase further items. To combat this we have seen brands such as Bonobos and Rent-the-Runway open ‘Guide Shops’. While they don’t have any inventory for sale in-store, the consumer can test items for both style and fit before they are delivered to their home or office.
The third reason is the theme of convenience. With the traditional bricks-and-mortar retailers going online, they are providing the customer with convenience allowing them to buy when they want. They also provide the consumer with a choice - how they wish to receive their purchase - either in store with click-and-collect or with it delivered to home / work.
Pure-play e-retailers have come to realise that it is difficult to compete when all they can offer is delivery - something they don’t want to do for free as it squeezes margin. In addition, consumers often want to have their purchase immediately. By offering click-and-collect, you have a great chance of getting shoppers in-store. This provides the perfect opportunity to introduce them to new collections / products and leads to a greater chance of impulse purchases - an area where online retailers struggle to compete.
While shipping labels and free returns make it somewhat easier and help incentivise shoppers, many still regard the process as a hassle. While some online retailers are partnering with convenience stores where the customer can either collect or return their purchase, the issue is that you have middlemen involved in the process meaning the consumer is not always dealing directly with the brand.
We predict that over the next few years, visibility, convenience and the tactile nature of consumer behaviour will remain at the core. As a result, we will see further traditional e-tailers go offline as the channels become one. As they are starting with a blank canvas, they will push the boundaries of what can be achieved with a physical store. Technology will be at the forefront of the store of the future and if not careful, the traditional bricks-and-mortar retailers will be playing catch up. The consumer is in for an exciting future.
08.11.2017