In a surprising e-commerce twist, big-name retailers that used to be online-only — like Amazon — are now adding physical storefronts to their list of revenue-producing channels. It’s an expensive endeavor that has many industry specialists scratching their heads. Why make this move? And should e-commerce retailers jump onboard this trend?
Early indications from Amazon’s experiment suggest it’s not just large e-commerce retailers who are poised to benefit from a storefront. The expansion into multichannel selling can also help smaller e-commerce merchants as they look to grow their bottom line and capture new markets.
Deciding to expand into a physical location isn’t easy. Merchants must carefully consider both the potential benefits and drawbacks to adding a brick-and-mortar location to their selling channels.
How a Physical Location Can Benefit Retailers
As e-commerce retailers build a successful online business, they may consider expanding into a physical storefront to improve on delivery (local stores can double as pickup locations) and encourage additional purchases (retailers can tempt customers by pairing the season’s hottest skirt with several tops and accessories). Merchants can also benefit from:
Cornering a Geographic Market
When merchants sell online, they compete against other online retailers from anywhere in the world. However, when selling at a physical location, they might be the only retailer of that kind in a geographic area, letting them capture that entire market share.
Accessing New Demographics
Online, a retailer might be found by only a narrow audience. But a brick-and-mortar location — especially in a high-traffic area — provides additional visibility that lets the retailer increase customer awareness, improve branding and drive traffic.
Offering a Multisensory In-Store Experience
Some customers don’t want to purchase a product without physically seeing, touching or trying it — something that’s difficult to do as an online-only retailer.
Developing a Better Understanding of the Target Audience
Retailers can benefit from in-person interaction with customers by asking them questions about the products and the shopping experience and using that information to fine-tune branding.
Research by the California Institute of Technology suggests that people sometimes pay up to 50% more for items they can touch.
Creating Omnichannel Marketing Opportunities
Merchants can combine their shopping platforms to provide customers with a seamless, integrated shopping experience.
Supporting the Online Channel
Physical stores can encourage digital sales by driving in-store customers to the e-commerce platform for additional products, contests, the opportunity to share user-generated content and more.
The Disadvantages to Opening a Physical Location
Opening a storefront may provide opportunities, but they aren’t without risk. Consider these potential drawbacks that online-only businesses don’t face:
Hiring Extra Staff
A storefront requires additional financial and human resources for staffing salespeople and stockroom and management personnel.
Selecting the Right Location
Merchants must choose the best place for their storefront to attract new and repeat customers.
Setting Up a Storefront
Physical locations require ongoing expenses — like insurance, inventory, rent, utilities and furniture — that the online channel doesn’t.
Having Fewer Sales Hours
While an online shop is open and generating revenue 24/7/365, physical locations can make money during only their operating hours.
Targeting a Narrow Customer Base
While online shops can attract customers from around the world, brick-and-mortar locations must cater to shoppers in their immediate geographic location.
Requiring Larger Amounts of Inventory
Retailers with a physical store must keep more stock on hand than online retailers (who often use dropshippers to fill orders). This can present financial and storage issues if supply exceeds demand.
Reducing Owner Flexibility
While a retailer can generally manage their online shop from anywhere in the world, a physical location tethers the owner to that area.
What to Consider Before Opening an e-Commerce Storefront
The pros and cons list is helpful, but it may not be enough for an online retailer to confidently decide whether to open the doors to a physical location. So how can a retailer know if a physical storefront would offer enough return on investment to be worthwhile?
Here are eight factors for online merchants to consider:
1. The Product Itself
Will seeing the merchandise in person drive more customers to make a purchase? Often, yes. Many customers like to see and touch products before purchasing them to determine their quality. Online product descriptions alone aren’t always enough for shoppers to confidently make purchasing decisions. Other products, like software, are less tactile in nature and rely more on clear product descriptions and user reviews.
2. Customers’ Preferred Method of Purchase
Do the target customers prefer shopping online or through physical channels? (If you’re not sure, a customer survey can provide plenty of useful data.)
3. Customer Location
If a merchant has a cluster of customers in a particular geographic area, a retail location may be a logical extension of an online shop.
4. Purchase History
E-commerce retailers should view customers’ purchase history to determine if shoppers are buying a range of items from the store or just single items. Seeing that customers are buying multiple products across a range of merchandise bolsters the case for a physical location.
5. Brand Engagement
Online merchants may benefit from a physical location if they have a loyal customer base that enjoys interacting with the brand.
6. Test Market
Merchants who aren’t sure how a permanent physical storefront would perform might test (and gather data from) the market with a pop-up store (a temporary storefront used to gauge customer interest). They can also consider opening a guideshop (a shop that doesn’t maintain inventory but lets customers come in to see, touch, try on and order products).
Opening a storefront requires a significant financial investment for the space, furniture, displays, additional inventory and staffing. Projected revenue must exceed estimated expenditures for a physical location to be the right move.
Merchants can’t think about staying solvent only for the short term; they should ensure the location and the clientele will support the location for years to come.
How Investing in Fraud Protection Benefits Every Sales Channel
When done right, opening a physical storefront can complement an e-commerce retailer’s online presence by increasing brand exposure, facilitating growth and helping a retailer stay competitive.
But regardless of which shopping channels a merchant pursues, they must remember to protect their most important assets: their customers and their revenue. This means implementing a robust fraud protection plan that can defend against fraudsters no matter how they attack.
ClearSale’s omnichannel fraud protection solution can help protect your growing business and your customers against the rising threat of card-not-present and friendly fraud. Talk with a ClearSale credit card fraud analyst today to learn why companies around the world have selected our advanced approach to complement their selling strategies — both online and offline.