There’s been plenty of good news to go around for the world of eCommerce over the past few years. Far more recently, reports have shown that, for the United States and the United Kingdom, things are really on the up-and-up.
But with things looking so good for eCommerce, Brick and Mortar retail hasn’t seen so much sun behind the storm-clouds. According to a 2019 report by Coresight Research, nearly 9,000 stores in the US, and over 500 in the UK have closed down.
And this has all the potential to get worse for physical businesses, as analysts from UBS recommended that more than 45,000 physical stores be closed from 2020-2026 within the US alone.
But there’s more to it than just poor performance. The increased costs, rising uncertainty, and emerging competitors all make brick and mortar a risky, but not impossible venture.
Brick and Mortar Retail – The Challenges
While the report by UBS explains that it’s the diminishing returns from brick and mortar stores that leads to these widespread closures. Examples like Toys-R-Us and Beales in the UK show that it’s also a matter of rising rent costs and business rates. These mean that the kind of leeway for error that stores have is getting thinner every year.
For example, the difference between running an online vs physical storefront can mean as much as a $200k difference in the amount of money a business has to bring in to break even or generate a profit.
Business rates in countries like the UK also present a serious problem for store longevity. Over the past couple of years, rates have more than doubled, placing pressure on those already in operation. But also presents a serious challenge for businesses looking to establish a store, or expand into new territory.
Even when major sales events take place, brick and mortar companies start at a loss compared to online retailers. The latter of which has reduced pressure of covering costs of upkeep, in contrast with Brick and Mortar. This allows online stores to provide more competitive rates while still hitting a profit.
Even though there’s a reliable number of people (6/10 according to one study) that would come to a physical store for promotional offers or special events. A reduction in the number of customers in-store was one of the reasons for depreciating returns. With more customers choosing to get online, or purchase online and pick up their purchase in-store.
This fall in the number of customers going to physical stores was previously due to financial uncertainty, but also due to the fact that storefronts in previously convenient locations are no longer as convenient as online stores. Moody’s Analytics actually found that storefront vacancies were at a record high because of this.
If you combine financial uncertainty with this thinning balance between the profitability and costs of running a physical store, things start to look really precarious.
Competition from Online Retail
Of course, one of the big reasons for this decline of brick and mortar stores is down to the increased competition between themselves and the online market.
As previously mentioned, online stores carry lower overhead costs and provide customers with a high level of convenience compared to the effort of finding products.
While physical stores hold some aces in their hands when it comes to promotional events, the ‘retail experience,’ and providing customers with the ability to try on items. They’re offset by the fact that online stores can advertise wherever their customers are; such as through social media, google searches and retargeting via other businesses.
Online stores carry their own cons, however. There will always be a preference for customers to go to a physical store for certain items or sales.
There’s a significant trust factor that comes into physical vs online spending as well. Public trust towards social media platforms and the internet as a whole has only just started to increase. Even so, the risk of credit/debit card fraud is enough for some to be put off an online sale entirely.
Is it Bye Bye to Brick and Mortar?
Even with all of these challenges in front of them, Brick and Mortar retail aren’t really going anywhere. We’re always going to have customers that enjoy the experience of going into a store to try on products. As a result, it’s not really a case of online vs offline, but creating an omnichannel experience for customers.
Relatively new concepts like Click-and-Collect have proven to be incredibly lucrative concepts for retailers to pick up. In the UK, for example, the Click-and-Collect market is set to reach a valuation of £10bn by 2023. In the US, companies like Walmart, Target and Home Depot have rapidly embraced Click-and-Collect as examples.
Customers reliably purchase one or more specific products on a recurring basis too. Meaning that physical stores will be needed to allow customers to pick up some of these items regularly.
Some of the most popular and regular purchases and pick-ups for customers tend to be medications, toiletries, cleaning supplies and prescriptions.
For eCommerce businesses, this is important to keep in mind for payment flexibility; allowing customers to make recurring/subscription payments. Doing so gives customers one less thing to worry about.
One net advantage that physical stores will have for the time being, is the in-person experience. With 6/10 customers being more than willing to visit physical stores for specific sales events, the personal experience still has a powerful draw.
Customers will always want the immediate and hands-on expertise of the people in-store. 79% of people surveyed enjoyed the experience and expertise of sales associates at whichever store they go to.
That’s not something that online stores can offer fully just yet, and this is something that can prove a powerful carry-over to the online space, especially social media.
Is it a case of Brick and Mortar going out to pasture? Not really.
While companies continue to embrace innovation and find new ways to get rid of friction for users, you’ll likely see more diversity on the high street instead of less. Especially as physical stores look online for new methods, and online stores look to get physical.