Retail Resurgence: Why Brick-and-Mortar is Central to the Omnichannel Equation
For many, the 2008 recession marked legacy retail's first nail in the coffin. The Great Recession led to the collapse of countless storied names, many with decades-long histories. The growing popularity of online shopping and, later, the COVID-19 pandemic only accelerated this downward trajectory.
And yet, despite this purported death spiral, legacy retail still lives on. By some estimations, it's even recovering from the challenges of the past two decades. According to a recent report, 2022 saw a 50 percent drop in store closures compared to the previous year and a modest 1 percent rise in new store openings.
These figures follow similarly strong numbers from 2021, when life began inching closer to pre-pandemic normality and a wave of rising consumer confidence and pent-up demand buoyed in-person retail. What’s more, we've seen a growing trend of online-only brands opening physical retail while some are entering physical stores via wholesale partners.
For example, SKIMS, Kim Kardashian’s digitally native shapewear brand launched in 2019, entered wholesale through Nordstrom in early 2020. The fashion mogul continues to expand SKIMS’s retail presence in 2023 via a shop-in-shop experience for customers at Saks New York and a pop-up shop at Rockefeller Center in New York City. Glossier, the cult-favorite direct-to-consumer (DTC) beauty brand, opened its first store in 2016. It recently revealed a new flagship store in SoHo in February 2023, and the company continues to expand to other cities like Chicago. During the same month, Glossier also debuted its products at Sephora stores across the United States and Canada, launching its first wholesale partnership. Warby Parker, the digital-native eyewear brand, is following suit with plans to open 40 new stores in 2023 after opening 40 stores in 2022.
SKIMS, Glossier, and Warby Parker are just a few examples of well-loved brands looking to recreate success outside of the virtual realm. Outside of rising online customer acquisition costs, these companies understand the incredible power of physical retail, both as a branding tool and a vital component in an omnichannel strategy. An in-person presence doesn't merely expand a brand's reach; it also serves as a tool for differentiation in an ever-crowded market. It can help raise brand awareness beyond what's otherwise possible through digital methods alone.
Why Retail Still Matters
Apple is the world's most valuable company. It's also a byword for innovation, with the company spending $26.3 billion on research and development in fiscal year 2022 alone. First launched in 2001, the Apple Store has since expanded from a solitary outlet in McLean, Virginia, to a global retail empire, with over 500 locations across 25 countries.
Framed against in-person retail's perceived decline and irrelevance, this seems like an odd — if not totally irrational — move. And yet, these outlets are vital to Apple's bottom line (according to its most recent financial report, 38 percent of all revenue came from Apple's in-person and online stores), as well as its brand — which is continuously ranked as the most valuable in the world.
To understand the last bit, we must look at the Apple Store in its historical context. In 2001, the company was just beginning to recover from its near financial collapse. After a prolonged decline, Apple clawed its way back from the brink and was eager to assert itself as a dynamic company. It wanted to reintroduce itself to consumers who had never used its products — and perhaps never wanted to.
The Apple Store was a showroom more than anything else. Consumers could walk in and interact with the products. It was a tool for relationship building. It also allowed Apple to assert its core brand values.
The first Apple Store embodied the design we now instinctively recognize. Bright lights embedded in high ceilings gave an airy, open feel. The simple low-rising furniture and hardwood floors ensured that customers' attention naturally gravitated to the laptops and desktops on display. It meant people naturally associated Apple products with elegance and sophistication.
This winning formula has since been replicated across the world. And for a simple reason — it worked. The Apple Store is a core factor behind what makes Apple an influential company. It's a tool for relationship building and outreach.
The Power of Differentiation
As a business, Apple is an outlier. Few companies are as influential, valuable or powerful. However, the advantages Apple gained from a solid in-person presence are common to this one business. With the right strategy, they can be universal.
Retail's biggest strength is that it's fundamentally experiential. The Apple Store lets people explore and experiment with the brand's latest technologies. For a clothing brand, an in-person location allows potential customers to not only touch and feel the products but also to visualize themselves wearing the outfit through product merchandising and store layout (potentially increasing the customer’s basket size). They can try on the clothes without first having to make a purchase. They don't have to return it if they don't like it or if there are issues with fit.
This saves the consumer time and saves the retailer a lot of money. Shipping packages — to the customer and returns — is a significant expense for online-only retailers. It's not merely the cost of freight but also handling, administration, dealing with missing or stolen packages, and having to write off soiled or damaged products.
A physical location allows a brand to differentiate itself from its competitors. An online presence is constrained by the limitations of what's possible within the browser and the standards of UX and design.
By contrast, a retailer can create an in-person experience that's unique and designed to stimulate the senses. You can control the lighting, music, and how store personnel interact with customers.
Some retailers incorporate olfactory methods into their customers’ store experiences. Perhaps one of the most well-known companies to use a signature fragrance in stores was, and continues to be, Abercrombie & Fitch. Many U.S. millennials will recognize the distinct fragrance, which was utilized to trigger the limbic part of our brains that influences emotions and memory. It's a tactic that seemingly works, with one study showing a 20 percent increase in customer spending when shopping in the presence of a simple scent.
And, as mentioned, a store's design can communicate the company's brand values. It can cement an image of "coolness" or aspiration in the minds of prospective customers. And that perception lingers well after they've left the premises.
Embracing an Omnichannel Future
Brands — particularly those reliant on online channels and digital marketing — face a rocky future. We're in a period of transition where the old marketing rulebook is rapidly becoming obsolete. Technological and regulatory changes — from Apple's App Tracking Transparency technology to introducing GDPR and similar legislation — have made identifying, segmenting and targeting a likely customer harder and costlier.
With Google set to discontinue support for third-party tracking cookies by 2024, this situation will only worsen. The businesses that thrive during this period are those willing to experiment and diversify.
Rather than being dead or irrelevant, physical retail provides a valuable tool for branding, differentiation and outreach. Now is the time to embrace it.
Marcel Bens is managing partner and COO at Emil Capital Partners, an early stage investment firm focused on long-term success.
Related story: 2022 Top 100 Omnichannel Retailers
Marcel co-leads Emil Capital’s investment activities. He started his career in the world of Automotive, serving in various key operational roles at Daimler AG in the United States, Germany and South Africa. Before joining Emil Capital in 2011, he worked at a multi-billion dollar distressed private equity firm in New York City, and at a strategic and financial advisory firm in Sydney, Australia. Marcel holds a joint master’s degree in mechanical engineering and economics from the Technical University of Berlin, Germany and an MBA from Columbia Business School in New York.