Beyond Bankruptcy: The Value in Physical Stores
The Wall Street Journal recently published a great article about bankrupt retail brands coming back online. I highly recommend the article and the graphic of the costs and higher profitability of ecommerce relative to stores.
However, there’s one thing it doesn’t tackle and that is the challenge of an online-only brand in generating traffic and sustaining itself as an ongoing profitable entity.
While the article does a good job of isolating costs, it leaves out a key point: there’s still a lot of value in physical stores.
As Brendan Witcher, Forrrester analyst, has pointed out there is inherent value of being able to return items to a store, mainly because it creates trust and confidence when ordering online. In this way, a consumer can take advantage of free shipping, but if the item doesn’t fit or if it just isn’t right, they can easily hop into a nearby store to return or exchange it (instead of repackaging, going to the post office and sending it out into the delivery unknown). A consumer’s ability to oversee and manage that return/exchange process is invaluable and also hard to measure. When given a choice of ordering an item through a retailer that has a physical location up the street or an online only brand, I suspect many would opt for the brand that has a local store.
Another huge piece of a physical retail store’s value that extends from the return/exchange confidence is signage. We’ve all heard the “location, location, location” mantra and it definitely applies to the retail word as well. Physical stores are constant reminders of the brand and their products. The absence of physical stores removes that ability to remind and advertise the brand and their offering to consumers. Over time with the absence of physical stores, consumers will slowly stop buying, stop visiting and may even forget about the brand. Advertising’s maxim about frequency still applies to return visitors and the decrease in frequency of brand reminders will hurt the transaction volume and subsequently the brand value over time.
Consumers still purchase approximately 90% of their merchandise in physical stores and online sales only equal 10% of total retail sales in the US.
Those numbers are shifting slowly but there is an incredible amount of value to physical stores that isn’t calculated in the Wall Street Journal article that should not be overlooked.
Retail brands that close their physical stores do still have value, but in the absence of true customer engagement innovation (outside of email, apps or an online store) or significant increases in advertising spending, that value will attrite over time. And more than likely that attrition outside of a core group of brand fans will happen fairly quickly.