Importance of Brick-and-Mortar Stores for Online Sales

Monday, October 1, 2018

Omnichannel retailing is a fully integrated approach to commerce that provides shoppers a unified experience across online and offline channels. In order for omnichannel retailing to be successful, it is crucial for a store to have a brick-and-mortar presence. As we outline below, the majority of American consumers still want the tactile experiences that are offered by physical stores. 

Key Omnichannel Facts

Ninety percent of sales are transacted in stores, but 95 percent of all retail sales are captured by retailers with a brick-and-mortar presence. Top retailers with multiple channels are spending 76 percent of their capex on store experience and offerings. 

A physical store is no longer just a place to purchase products. It is crucial for online purchases, as two-thirds of customers purchasing online use a physical store before or after the transaction. The physical location serves as an experiential showroom and is a destination for those seeking ideas and inspiration. Additionally, it serves as a fulfillment center for online orders and, although a store may have weak sales, it can be a strong contributor to the retailer’s overall performance. So, the value of physical stores is far greater than the sales that are captured within them for both customers and retailers.

A recent study found that only seven percent of shoppers shopped only online, and, in fact, 20 percent were store-only shoppers. The study further showed that 73 percent used multiple channels. The more channels a customer uses, the more they spend, and, regardless of age, shoppers generally prefer stores.

Omnichannel In the News

Despite concerns on growing trade wars, there has been 4.9 percent year-over-year growth in retail sales as consumers continued to spend. Headlines have been filled with the wave of store closures across the U.S. retail sector, but retailers are often making the wrong decisions about which stores to close, thus inadvertently hurting their business further. Sophisticated retailers are taking an omnichannel view of store performance, allowing each store to get credit for all the sales in which it played a role, whether those sales happened offline or online.

The future of retail is solidly anchored in the brick-and-mortar channel. There has been a net increase of 3,835 store openings year-to-date 2018. Internet retailers are seeing value in physical stores and are rapidly expanding their physical footprint. For example, Bonobos and Warby Parker report e-commerce sales lift three to five times in the built-out markets. Additionally, store count for five click-to-brick retailers has grown by more than 140 locations over the past five years.

Looking specifically at Target, the retailer has experienced 6.4 percent traffic growth, which is the strongest since 2008. Comparable sales increased 6.5 percent, which is the best they have reported in 13 years. Comparable store sales grew 4.9 percent while comparable digital sales grew 41 percent, on top of 32 percent growth a year ago. Investments that Target has been putting into ensuring that online/offline commerce are complementary instead of competing has resulted in a steady positive trajectory.

Sources: A.T. Kearney Analysis, geomarketing, McKinsey, PwC, CNBC, Business Insider

Prepared by:  Morgan Allen, Senior Property Sector Analyst

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