How Online Retailers Can Make Physical Locations More Than Vanity Plates
A mere five years ago, the idea of an online retailer opening a physical location would have seemed to be strategic lunacy. The rationale has been pretty straightforward: Why would an online retailer forgo its primary differentiators (i.e., the ability to be nimble and cost conscious without the burden of a physical store, employees and suboptimal inventory management)? While that question may not be so surprising anymore, the response from historically online-only retailers has raised eyebrows.
In the early days of e-commerce, it seemed like anyone was only a good idea away from establishing an online storefront. It was relatively easy to hang a shingle and get your wares in the hands of would-be customers. Over the past few years though, a few changes have made the process more challenging. First, the increasing demand for and availability of free shipping and/or same-day delivery/pickup options have placed a significant operational and financial burden on online retailers. At the same time, the ability to compare products online (particularly noncommodities) can lead to a reverse logistics headache with customers wanting to try options at home, only to return what doesn't work.
What's an online retailer to do? For some, the answer is opening small physical stores. The benefit of this seemingly backwards strategy can be significant, given that the vast majority of retail sales still happen offline. Many well-respected online shops (e.g., Warby Parker) have created the kind of alluring brand experience that consumers are excited to engage with in a physical sense. Just the same, the pitfalls of this move can be substantial. Brick-and-mortar locations for online retailers have to consciously avoid falling into the trap of over-expansion, or trying to carry enough inventory to satisfy every shopper that walks through the door.
As you can imagine, this concept doesn't work for all online retailers. For those that deal primarily with commodity goods, the benefit from opening a physical store will certainly be far less than a retailer that's focused on something such as apparel. When the products engender something more akin to a social shopping experience, or the consumer wants to "try before they buy," a physical location can be a great benefit — both operationally and in driving top-line results.
Online retailers slotting a brick-and-mortar expansion into their short-term growth plans may very well be setting a broader standard for the industry's future. Fighting for more consumer dollars puts a premium on customer experience; the more that online retailers can create memorable and high-end experiences through physical store locations, the more likely they are to drive repeat business. Using physical stores as sales centers (not just showrooms) allows associates to introduce consumers to products they may otherwise miss in an online shopping scenario. At the same time, opening smaller stores with less inventory allows for smaller footprints and better optimization of back-end fulfillment capabilities.
What seemed crazy before isn't so crazy anymore. Just the same, these physical store locations can be far more than a vanity plate. They can drive increases in revenue, customer adoption and overall brand experience. As with anything in retail, however, consumers can be fickle, so tread lightly.
Sean Adkins is a managing director and leader of the operations excellence practice at management and technology consulting firm West Monroe Partners.