Online shopping has offered us the glorious ability to purchase everything from kitchen supplies to electronics to apparel from the comfort and convenience of our own homes. The Internet is the ultimate one-stop shop, where nasty weather, long lines, and under-stocked inventory cannot stand in the way of my purchase. With return processes becoming cheaper and easier, is there really any reason to go to a store anymore?
The data says there is. According to a study by A.T. Kearny 90% of shoppers still prefer to go to a store to pick out their products. An article in the Harvard Business Review reports that the ecommerce growth rate has slowed from 30% per year in the early 2000s to less than half that rate today. The result is a push towards establishing on and offline presence, also called omni-channel retailing. Both the David’s (Warby, Bonobos, Rent-the-Runway) and Goliath’s (Amazon) of the e-commerce space are opening their first brick-and-mortar stores to match customers’ old school desires.
Last Thursday, November 13th, Jack Erwin, the direct to consumer men’s dress shoe company, opened their first showroom in Tribeca (read about it here). Working with the company’s CEOs this semester, myself and four other InSITE fellows were able to participate in discussions about the opening. Specifically, we learned some of the advantages and challenges for an e-commerce company entering brick and mortar.
Let’s start with the advantages. First, a general rule of thumb is that channels of distribution should match customer needs and customers still need to go to stores (as evidenced by the stats). Second, a store is a huge marketing opportunity. The physical presence of a company makes the brand tangible. A sales person can set a tone to the brand that cannot be easily replicated on a website. Third, it follows that a store signals the credibility of the brand. Trust is more easily attained and customer loyalty can reach new depths.
Now, the downsides. For starters, there is the issue of inventory. Stocking inventory introduces a slew of operational challenges. Not stocking inventory means that customers do not get the satisfaction of walking out with their purchases. There is also the question of data collection and tracking. If a customer walks into a store but makes the purchase later on-line, what was the cause of the purchase? How do we measure the effectiveness of the store above and beyond the online presence? Additionally, there is the challenge of management. A store requires a trained sales force, with compensation plans and incentives programs. All of a sudden, the company faces the issue of focus and spreading your startup team too thin. Finally, there is no guarantee that your customer will come back. In the case of shoes, for example, once you have tried on the pair, do you ever need to re-visit the store?
While these are real challenges that firms will have to tackle, it seems that the shopping trends of the masses will continue to push e-retailers to open stores. A website may no longer be able to grow without spreading their reach across different retail channels.
Carla Giugale is a first-year MBA student at NYU Stern School of Business and an InSITE Fellow. Prior to Stern, she taught fourth grade as a Teach for America corp member.