Why Some Successful Online Retailers Are Opening Physical Stores

by PMA



Why Some Successful Online Retailers Are Opening Physical Stores


In recent years, several successful online retailers have opened physical ‘bricks and mortar’ stores. The most successful of these retailers has to be the US’s leading e-retailer – Amazon.com. The international e-commerce company has more than 304 million active customer accounts globally, and despite generating more than 107 billion USD in net sales last year (http://www.statista.com/topics/846/amazon/) Amazon.com opened a physical store in late 2015.

Here’s why this was probably one of the best strategic decisions the brand has ever made.

A Physical Shop Can Differentiate A Brand From The Competition

The online retail market is saturated. Similar retailers offer comparable products, delivered identically, all at competitive prices. In order to compete in this flooded market, online retailers must be able to differentiate their brand from competitor’s brands. One way to do this is to offer opportunities to consumers that competitive brands do not, primarily the opportunity to experience the product prior to purchase. In this case a physical store may act as more of a showroom, whereby retailers provide their customers with demonstration products, and the opportunity to interact with them. A showroom store was successfully implemented by online eyewear retailer, Warby Parker, after the owners were inundated with requests by customers asking to touch and feel the frames before purchasing. If the store operates as a showroom then customers are usually encouraged to make their purchases via the retailers website on in store purchasing facilities, such as a computer or tablet. This allows customers to place orders on the spot, with the convenience of access to trained staff at the point of purchase. This is an offering exclusively online retailers are unable to offer to their consumers. Furthermore, online ordering completely eliminates the concept of queuing to pay. This is ideal for customers shopping during busy retail periods such as Christmas. The convenience of delivery to a home or office encourages customers to buy more, because there is no longer the question of whether or not they can lug their purchases back to work or around the city with them for the rest of the day.

Benefits Include Improved Staff Training & Reduced Costs

Online retailers who operate a showroom, rather than a traditional store, can experience huge reductions in expenses, particularly with shipping, storage and staffing costs. Allowing only online purchases requires retailers to carry less stock at each individual store, reducing the costs associated with inventory management. Furthermore, the physical store can be used as a training facility to provide comprehensive, real-life training for the call-centre staff that are hired to attend to the customers who contact the retailer via phone or email. Providing these trainees with a realistic experience of what is required for excellent customer service better equips them to deal with customer complaints or queries through indirect forms of communication. Another benefit of improved training is the associations created between the store and the excellent customer service consumers have experienced. Positive experience with the brand promotes trust among consumers, which can reduce the hesitations consumers may have about purchasing online. Thus the tangible link between a physical shop and the online company can actually increase a brand’s market share.

Online Retailers Can Achieve Quicker Delivery Times

Stores can be used as small warehouses instead of showrooms, whereby retailers stock products on the basis of the trends and purchase patterns in that area. US retailer Warby Parker has run their stores also as small warehouses for the past 3 years, and the owners have noted the considerable savings in shipping expenses they have experienced. Amazon.com offers Amazon Prime, a subscription service that guarantees free two day shipping, and for a number of items same day delivery, with no minimum order size. In this case, if Amazon.com had a number of physical stores that they used as small warehouses, they could reduce delivery times for orders in the region, and potentially decrease shipping costs if items are stocked according to purchase patterns. Thus operation of a store as a warehouse can reduce shipping times, and can lead to cost efficiencies in distribution for online retailers.

A Physical Store Increases The Purchase Options Available To Consumers

A physical store enables retailers to leverage the benefits of an online store whilst also providing the consumers with all the advantages associated with a bricks and mortar store. The options available to consumers regarding how they buy a product, or how and when they receive the purchase, can be greatly increased. A physical store means that consumers now have the option to return in store, which reduces the time taken for them to receive their refund, and eliminates the cost associated with posting a return. The advantage of this for retailers is that in store returns increases store traffic, enabling customers to browse and potentially purchase additional items. Subsequently retailers can also offer an in store pick up option which may suit customers who work or live close to a store and would prefer not to pay and wait for shipping when they can collect the order themselves. Therefore a physical store enables consumers to enjoy the benefits of both online ordering, and in store purchasing, whilst retailers gain from quicker shipping times and reduced shipping costs.

More Market Research Opportunities

If online retailers open a bricks and mortar store they gain the chance to engage with customers in person, which enables them to conduct valuable market research regarding consumer preferences. This can be particularly useful in terms of ascertaining why consumers prefer not to purchase certain items online. Engaging with customers face to face can lead to online retailers being able to develop new ways to market these products so that consumers feel comfortable enough to buy them online.

Shopping Will Be Considered A Social Activity

Finally, a large number of consumers enjoy the social experience of shopping, and regard it as an activity or hobby that is a part of their day-to-day life. Online only retailers are unable to reach this segment to the same extent physical retailers can, thus an online brand opening a physical can be a huge growth strategy for companies, enabling them to significantly increase the size of their potential market.

Amazon.com’s decision to open a physical store, despite them being the number one e-retailer in the US, may have seemed quite surprising. However, extending the brand to a physical store provided a major growth strategy for the company. The potential benefits Amazon.com has access to by opening a physical store include; increasing potential market size, enabling cost and distribution efficiencies, a point of differentiation between the Amazon.com brand and other e-retailers, improvements to customer service, decreased delivery times and improved flexibility of purchasing options for consumers.