While much of the retail industry has been focused on ecommerce over the past decade, we’ve recently begun to see a shift back towards brick-and-mortar. With more and more digitally native brands opening up physical locations, it’s important for retailers of all kinds to understand the unique value of each shopping experience. The great migration back to brick-and-mortar retail underscores some of the essential inadequacies of ecommerce, the enduring value of the in-store experience—and highlights where retailers should be focusing their efforts for the future.
Like most stories on retail trends, let’s first look to Amazon. The ecommerce giant recently announced that it will be closing down dozens of its “Amazon Pop-Up Stores” across the country. At first glance, this news seems to imply a move away from its expansion into physical retail—but, in reality, the opposite is true. Unlike the “temporary concept shop” model that the name suggests, Amazon Pop-Up Stores are actually just stand-alone kiosks, usually located in malls and airports, that exclusively sell Amazon devices. According to an official statement, Amazon has decided to discontinue the kiosk program in favor of “expanding Amazon Books and Amazon 4-Star, where we provide a more comprehensive customer experience and broader selection.” This reflects a shifting of values for the company, which has long traded on the speed, convenience and affordability of online purchasing. While Amazon is still mostly unparalleled in that sphere, it is clear that those attributes do not neatly translate into brick-and-mortar spaces—where the majority of sales still take place. Instead, physical retail actually benefits from all the things that online shopping promised to eliminate: human interaction, wider product assortments and a seemingly less efficient buying experience.
Of course, Amazon isn’t the only online player re-investing in brick-and-mortar. In the mattress category alone, we’ve seen a number of digital brands team up with legacy retailers and open up stores of their own. As this trend seems to be barreling full-speed ahead, the venture capital firm Fifth Wall is trying to stay ahead of the game. The firm has already raised $64.5 million with the goal of promoting collaboration between real estate owners and digital brands. “Eighty-five percent of commerce is still happening offline,” explained Dan Wenhold, principal at Fifth Wall. “The majority of customers still shop offline. Brands have to go offline.” The firm is currently working with Macerich, the third-largest mall owner in the United States, on renting retail spaces to its online start-up brands—in addition to consulting on further collaboration opportunities. As the money starts flowing into this strategy, we can expect more and more brick-and-mortar stores to begin popping up. In fact, according to estimates from Jones Lang LaSalle, an investment management company specializing in real estate, the market will see nearly 850 stores opened by ecommerce retailers over the next five years.
This shift is no doubt in part because of the changing costs of both brick-and-mortar and online retail. The digital direct-to-consumer boom was driven, in part, because it was simply more affordable to operate a strictly ecommerce brand. But that has changed as the market has evolved. The recent wave of store closures and bankruptcies from legacy brands has left many vacancies in physical retail locations like shopping malls—which, in turn, has lowered rents. At the same time, the online landscape has become more and more competitive. According to Zak Normandin, founder and CEO of digital native brand Iris Nova (the parent company of Dirty Lemon and The Drug Store), his company used to spend between $20,000 and $30,000 a day on Facebook and Instagram for customer acquisition purposes. And as the marketplace of online brands became even more crowded, the cost of social advertising has continued to rise—while the consumer engagement has dwindled.
"Consumers have become so desensitized to advertising in the digital space," Normandin recently explained during a panel at Shoptalk, a retail and ecommerce industry event. "We're inundated by ads, whether it's influencers promoting products, the actual ads that are served to you on Facebook or Instagram — your attention is pulled in so many different directions and I think consumers don't want to be advertised to anymore.”
That sentiment was echoed by Doug Stephens, author of Reengineering Retail: The Future of Selling in a Post-Digital World. He recently spoke to Retail Dive about how the nature of social marketing and online product suggestions is actually increasing the value of the brick-and-mortar experience. "The increasingly programmatic and often latent nature of the products that are being algorithmically served up to us online is actually raising the value of truly serendipitous discovery and surprise in the offline world,” Stephens explained. "The data-driven nature of many online recommendations actually winds us into tighter and tighter circles based on what we've already purchased, as opposed to expanding the realm of possibilities. For these reasons, the sheer joy of discovering a remarkable little retail shop with remarkable products is something that is becoming more prized in my opinion.”
The move towards brick-and-mortar retail may also be helpful in weeding out the seemingly endless number of online-only companies. Normandin theorized that many of these brands have been able to make a name for themselves, not because of a knock-out value proposition, but because of their eye-catching marketing strategies. As online advertising’s return on investment decreases, retail brands will need to truly differentiate themselves and their products in order to maintain success.
So while ecommerce has often been lauded for being more convenient than in-store shopping, the reality is that online purchasing is not necessarily more satisfactory than buying at a brick-and-mortar store. According to Bob Phibbs, CEO of the consulting firm The Retail Doctor, online returns are “six to seven times higher than in store.” Even if online platforms purport to make it easier for consumers to research products, the process can still be frustrating. A well-designed search function should help consumers navigate the inventory of an ecommerce site—but due to imprecise search terms or confusing product tagging, shoppers are oftentimes left with either too many or too few results.
Conversely, brick-and-mortar retail spaces can more seamlessly facilitate browsing—and directly connect consumers with knowledgeable sales staff than can help them find what they’re looking for. As Stephens sees it, ”retailers with the capacity to curate unique assortments of products or to sell their assortments through a uniquely crafted experience will maintain a solid competitive position relative to online competitors.”
This article originally appeared in Sleep Retailer eNews on March 7, 2019.
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