Clicks to bricks – the future of physical retail

Apr 24, 2017

Guest contributor and co-founder of brand experience agency Hot Pickle Rupert Pick contends that having a permanent physical footprint is not only desirable, but strategically essential for all brands.

“We’re going to open a Marmite pop-up shop,” I said confidently. Cue uncomfortable silence and raised eyebrows. “Have you completely lost it?” they laughed. “Nobody’s heading to the high street anymore, they’re all shopping online. Not only is your model outdated Rupert but you’re building a store around a breakfast spread half of us don’t even like.”

Back in 2009 this was pretty much how everyone reacted to our idea. You couldn’t blame them. The tide was turning; digital retailers were flying but the traditional offline players were struggling, weighed down by legacy estates and diminishing footfall. The death bell was being rung for the high street.

Fast forward eight years and it genuinely feels like the offline retail world has rediscovered its mojo and realised that physical stores have a significant role to play in the evolution of retail. Rather than freeze, a number of traditional retailers grasped the nettle, added clicks to their bricks and built impressive omnichannel operations. But that’s only one side of the story. Ironically the return to confidence owes much to the actions of a group of digital retailers; just the type of businesses we all thought would kill the high street.

This is the story of clicks to bricks.

Amazon opened its first bookstore in Seattle in late 2015. To many this was a surprise development by a company often seen as posing an existential threat to bricks-and-mortar retail. But Amazon is far from alone in this move. A clear trend has developed among e-tailers to establish a physical presence on the high street and that trend continues to gain momentum. But rather than pursuing the temporary headline-grabbing goals of pop-up stores, this is a strategic move from clicks to bricks and is underpinned by a strong economic rationale.

The Amazon Bookstore opened in Seattle in 2015

UK online retail sales grew 10.4% to £43 billion in 2016. Yet despite the increasing significance of the digital channel, online sales still only account for 12% of total retail in the UK, which was £358 billion last year, according to Retail Economics 2017. But rather than being a black and white choice between physical and digital channels, the interplay between clicks and bricks is a more complex and complementary one. This is supported by data from the Deloitte’s 2016 study into the area. They showed online engagement and influence plays a role in 38% of retail sales in stores, and that consumers who use a device during their shopping journey are 40% more likely to convert to a sale [Deloitte 2016].

The winner-takes-all nature of e-commerce has left much of the digital market in the hands of a few big players. Amazon alone accounts for 10% of all online retail in the UK, with the top four accounting for a quarter of the whole market, according to Retail Week. This phenomenon has served to drive up the cost of customer acquisition as the price of appearing ahead of the major players on Internet search pages has continued to rise to often-prohibitive levels. Before it was bought by Walmart (for $3.3 billion in August 2016) the US multi-brand and grocery retailer Jet.com was spending $5 million per week on advertising, or $100 for each new customer acquisition.

A network of physical stores is a way of addressing this challenge, especially for startup companies eager to attract an audience.

The Bonobos Guidestore

When Bonobos opened a store in Chicago last year, CEO Andy Dunn estimated that 70% of the company’s target market in the city were not familiar with the brand. Since making the move into physical stores in 2012 the menswear brand’s stores have proved highly profitable. “We were telling ourselves that the Bonobos experience was better because it was online only,” explained Dunn at the 2016 Shoptalk conference. “Once we put a fitting room in our lobby we realised we were wrong.”

Two of the main reasons shoppers give for buying in-store instead of online are the ability ‘to see, touch and try merchandise’ and to be ‘more certain about the suitability of a product’ and UK home furnishings retailer Made.com is a great example. 80% of the visitors to the showrooms already know the brand but wish to see products, check fabric swatches, get expert advice from the staff. “We probably see about 10% of people converting then and there,” says Rebecca Ruddle, head of showrooms at Made.com, “and about 30% of people come back for another visit.” With the added confidence that showrooms provide, the average order value of in-store visitors is £530 compared to £265 online – a key factor in the retailer’s impressive 44% sales jump year-on-year.

A Made.com physical showroom

Although different sectors and retailers vary, the store format generally enjoys a far higher conversion rate than the digital channel. Physical stores also reduce the impact of returns and just over half of shoppers (53)% prefer to by in-store instead of online ‘to get products immediately’, according to an L2 study in 2016 – highlighting one of the biggest challenges facing online retail; delivery costs.

Amazon’s shipping costs reached $16.2 billion last year, a 40% increase from the previous year and UK supermarkets, are losing about £300 million a year from their online business. In response, 58% of retailers in the UK now offer click-and-collect services, according to IRUK, including those pursuing a clicks to bricks strategy.

Amazon recently announced it will be opening more book stores in New York, Chicago and Boston later in 2017 as part of the company’s continued expansion plans. Rather than a legacy of traditional retail in gradual decline, physical stores are finding new purpose as part of a totally integrated retail landscape in which digital and bricks-and-mortar channels work in concert. Fierce competition in the online space, the preferences of the shopping public and the demand for seamless service and delivery makes a permanent physical footprint not only desirable, but strategically essential. As the trend from clicks to bricks continues to grow, I predict that Amazon is just one of the many digital-first brands we will see appearing to transform the high street.

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