Earlier this year, the CEO of General Growth Properties, a major mall operator, set off a stir in the business world when he casually mentioned that Amazon -- which nearly every retailer cites as an innovator whose success they want to replicate -- plans to open 300 to 400 bookstores. While he may have spoken prematurely, Amazon recently announced that it would be opening a second brick-and-mortar store this summer in San Diego after the success of its Seattle location.
Amazon joins e-comm darlings like Warby Parker, Bauble Bar, and Birchbox, all of which experimented with pop-ups before committing to brick-and-mortar outposts in the past few years. ModCloth, the beloved cult fashion site that received cheers for integrating straight and plus sizes together, recently announced that it hired executives from Nike, Yahoo, and Gap to oversee its evolution into physical stores.
Typically, established retailers expand into e-commerce -- so why are so many upstarts famous for online disruption investing in real estate?
Reason one: More consumers shop in stores
Sure, e-commerce grew exponentially the past few years, especially on mobile, but brick-and-mortar still accounts for more than 90 percent of all retail sales -- and limiting sales to one channel can affect a brand's ability to expand. Moody's recently upgraded Amazon's credit rating to stable from negative, but pointed out that its digital-only strategy prevents it from growing revenue in an entire channel and that traditionally brick-and-mortar brands are seeing their digital sales grow faster.
Reason two: "Free" shipping and returns are anything but
In its analysis, Moody's also noted that Amazon's shipping costs are equivalent to 6 percent of total sales -- which are often delivered by a third-party that a retailer can't control. (Raise your hand if you've ever yelled at UPS about a package they delivered elsewhere.) Marketing Land's Katy Keim mused that Amazon's expansion into physical stores would benefit consumers exponentially.
"Just imagine if each store could double as a local distribution center where products could be received and shipped out locally… The possibilities for streamlining the distribution chain -- and, to the cheers of customers, making it possible to get products shipped to their doorsteps even faster than ever before -- would be the huge upside here."
Returns tend to be more expensive for online retailers; some get around this by charging return fees, which can alienate otherwise-loyal clientele. By expanding into physical stores, e-tail can can diminish the number of returns, the extended timeline that returns and exchanges can cause for consumers, and as Steve Barr, U.S. retail and consumer sector leader with PricewaterhouseCoopers suggests, use returns as an "opportunity for a follow-up purchase, something that is not available online."
This leads to the biggest reason that e-tailers move into Main Street: that which is not available online.
Reason three: Improving the customer experience
We've heard the same refrain from our clients and prospects that our account execs meet: creating a seamless, stellar customer experience across all channels is a must-do for any brand to be successful. And it's crucial that customers can experience a brand on the channel of their choosing. Customers don't think about themselves as a YourBrand.com or YourBrand app or YourBrand brick-and-mortar customer. They see themselves as YourBrand customers.
A TimeTrade study from 2015 showed that not only does the average customer journey now involve online research followed by in-person purchases, but 85 percent of consumers would prefer to shop at physical stores, in large part because they "value the personal experience." The visceral nature of a real, live shopping trip is essentially impossible to replicate online.
Is brick-and-mortar expansion the future for online retailers?
It's probably too early to tell, and the retail world will need to wait and see if this trend gains momentum or is simply an outlier based on a few brands. For every success story like Bonobos' Guideshops, which co-founder Andy Dunn credited with saving its line of shirts, there's a Birchbox, which closed its Canadian operations and cut staff by 15 percent to focus on reaching profitability without VC funding this year.
However, it's clear that retail, particularly e-commerce, is a space ripe for innovation and that managing that online-to-offline journey and getting shoppers into stores is as important as its ever been, despite the growing number of channels that brands can use to engage customers.