Don't Close Your Stores Just Yet
In his opening keynote presentation at the Shop.org Annual Summit in Denver, Jerry Storch, chairman and CEO of Toys"R"Us, stated his case why brick-and-mortar stores still play a vital — and often profitable — role in the retail industry today. While it's true that e-commerce sales are growing at a clip faster than the traditional store model, the fact remains that the vast majority of consumer purchases still occur within the confines of brick-and-mortar stores.
This is certainly the case for Toys"R"Us and its 875 Toys"R"Us and Babies"R"Us stores in the U.S. As for the reasons why brick-and-mortar stores are still smart investments for retailers, there are a couple of inherent advantages to the channel, Storch said:
- shopping in-store is a national pastime for many, especially women;
- some product categories are better suited to be shopped for in-store (e.g., apparel); and
- the immediacy of the store experience.
Physical stores make sense for retail brands from a P/L perspective as well. Stores are the most efficient delivery vehicles for products, Storch noted. Everything bought in-store is free shipping. In addition to not having to pay the costly shipping expenses that online retailers are burdened with — "free shipping" has to be paid for somewhere, Storch said — brick-and-mortar retailers can offer high-quality customer service that can be hard to find when shopping online.
Is it Really Cheaper?
Storch said he can't help but laugh when he reads articles stating that online retailers are able to offer lower prices. Why? The pricing model is standard for all retailers, no matter the channel: product cost + supply chain cost + profit margin= consumer price. The cost to buy a product from a manufacturer is going to be the same for a brick-and-mortar retailer as it is for an online retailer (if it isn't, someone should contact the Justice Department, Storch joked). The supply chain costs are going to be significantly higher for an online retailer than a brick-and-mortar seller — Storch estimates one-and-a-half times to two times more expensive for pick and pack in the distribution center and 30 times to 40 times more expensive to deliver freight to a customer's home — so where's the profit?