Electronics retailer Best Buy has posted online sales exceeding $1 billion for three consecutive quarters, exemplifying an economy that continues to gravitate toward the Internet. At the same time, online-only retailers have been investing in short-term physical locations to sell their wares. What does this two-way trend mean for the future of retail?
Over the last few decades, there has been a large-scale shift in the economy. Consumers no longer need to travel to get the goods they need. Now those goods often come to them. Traditional retailers that have been unable to adapt in a meaningful way have been forced to close down or sell out to larger companies.
This shift infiltrates beyond standard retail categories like clothes and electronics. The same trend is occurring in the essentials. Online grocery delivery, for example, is becoming extremely common across America. We can even get our medicine by mail by filling prescriptions online.
Even though consumers increasingly turn to the Internet for their shopping needs, the concept of the physical store isn’t disappearing. In fact, many retailers that have sold their goods exclusively online thus far are now looking for real estate in the real world.
While brick-and-mortar businesses are struggling to find success, why is it that online retailers look to the physical world for expansion?
Electronics retailer Best Buy is currently experiencing something of a retail renaissance, the majority of which is firmly seated in online retail. On top of the momentum they’ve gained over the past three quarters, they are poised to surpass $5 billion domestically by the end of this year. With a year-to-year growth rate of 26.8%, their online sales make up 12.9% of their total domestic revenue.
Best Buy is doing what many others have not: they’re leveraging a widespread network of stores as an advantage instead of an anchor. According to the CFO of Best Buy, Corie Barry, over 50% of online sales are picked up or delivered directly from a Best Buy store. This avoids a large portion of the dreaded last-mile delivery, but also saves the company money, allowing them to ship orders from stores near the destination using products that are already in stock.
One of the most crucial tasks for any modern retail business is streamlining the shopping experience. From Best Buy CEO Hubert Joly: “Much of the customer experience has been starting online…what we’re seeing today is a continued effect of the cumulative investments we’ve made in simplifying and streamlining the customer experience. There [are] a lot of details that you do to tweak and eliminate the frictions in logging and checkout, every step in the journey.”
By investing in a user-friendly online shopping process and executing orders through a physical retail network, Best Buy is applying lessons learned from years of online shopping trends to their existing business in a way that is complementary, not conflicting.
Ecommerce is certainly changing the way we buy and sell goods, but it’s not the only path to retail Nirvana, nor is it the only reason traditional retailers are suffering. From Forbes: “…retail bankruptcies, store closings and liquidations [don’t] mean consumers have traded in bricks for clicks. They reflect a mixed brew of factors, including a vastly overstored retail landscape still sized for a pre ecommerce/pre Great Recession shopping mindset, just as consumers buy fewer tangible things, like a new purse, opting for more experiential purchases, like a dinner out.” They go on to cite a CRBE survey that found Millennial consumers still tend to prefer brick-and-mortar stores over online retailers, contrary to popular belief.
Image source: Retail Environments
Evidence of the preference for physical stores can be seen in recent business decisions by online retailers across the market. An excellent example is provided by the meal kit industry. Companies like Blue Apron have shipped their meal kits across the country for many years. It became clear, in their ill-fated attempt to go public, that this business model is not easily sustainable. Alternatively, meal kit competitor, Plated, signed a deal with grocery chain Albertsons to offer their products in thousands of stores nationwide. This deal doesn’t eliminate online orders and delivery, but also gives customers access to meal kits without the added shipping costs.
Online retailers are also embracing less permanent methods to physical retail. Pop-up shops are a recent phenomenon where online businesses lease retail space in the short term. It enables them to test different markets and experiment with a business model that’s capable of taking advantage of “pick up from store” services, reducing shipping costs. If it doesn’t work out, they simply don’t renew the lease and carry on as usual.
This technique is especially useful for seasonal retailers. We’ve all seen the vast Halloween emporiums that open for the month of October then disappear like ghouls into the night. It wouldn’t make sense to maintain a Halloween storefront year-round, but for one month of the year a brick-and-mortar store can be extremely lucrative.
In any market, it’s necessary to examine existing trends in order to make effective decisions. In today’s retail environment hybrid businesses succeed. Companies that rely solely on ecommerce, like Blue Apron, take on a lot of risk. Even ecommerce giant Amazon is beginning to invest in brick-and-mortar. The cost of delivery and market saturation mas made it tough to set up shop exclusively on the Internet.
The same goes for retailers that have no online revenue. Old-guard corporations like Sears are suffering because they’ve almost entirely missed the trend. Even Walmart, until recently, neglected their online store presence, but is now funneling money toward multiple ecommerce acquisitions to revamp their model. A weak Internet presence can be a death sentence, especially for large businesses.
The logical conclusion for business owners is to incorporate aspects of both online and physical retail into existing business models. Offering online sales and advertising over the Internet is enormously helpful for attracting new customers. It can also be extremely helpful to utilize brick-and-mortar locations where your target audience resides.
The most effective business of the future will combine the best of both realms of retail into a model that is, above all, adaptable. It will utilize the lengthy reach of ecommerce while simultaneously maintaining physical stores that are strategically placed and lightweight enough to be removed if the local market flags. By lowering shipping costs through pick up from store programs, testing markets before committing to them via pop-up shops, and making your real-world and online business as seamless as possible, you can ensure your business a seat at the table for years to come.
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