Why Brick-and-Mortar is a Competitive Advantage for Retailers (2022)
In the 2010s, we saw countless brick-and-mortar stores frantically building an online presence to compete with their digitally-native and omnichannel contemporaries. The share of ecommerce in overall U.S. retail grew from 4.2% in 2010 to an all-time high of 15.7% in mid-2020.
As a result, digital-first and online-only—once considered novelties in retail—became the go-to standard for merchants aiming for a business model with low up-front investment.
In the 2020s, however, we’re seeing a reversal of sorts: brands across the online-offline spectrum are now focusing on adding a physical, brick-and-mortar presence to enhance the retail experience they offer to their customers.
DTC brands are now increasingly viewing brick-and-mortar stores as a competitive edge.
This trend is not picking up without good reason. Cost pressures like the 60% rise in customer acquisition cost (CAC), due to unprecedented costs of digital advertising, and new buying behaviors (like customers prioritizing online shopping experiences) are driving this push—and will continue to shape the future of retail in 2022 and beyond.
Let’s take a deeper look at this shift:
Why retailers are going (back) to brick-and-mortar
The retail disruption brought on by the pandemic quickly caused traditional brick-and-mortar retailers to start opening up digital storefronts to keep the lights on. More than 85,000 online stores opened in just four months after the lockdown began.
As mandated store closures went on, these merchants needed a way to continue selling, albeit in a safe, contactless way. For some, it was the push they’d needed to finally open an online store.
However, the reverse is now happening. We’re seeing traditionally online-only retailers investing in physical stores to grow their businesses. In fact, 2021 alone saw U.S. retailers announce twice as many physical store openings than closings, including many digitally-native brands like Vuori, Fabletics, and Warby Parker.
The reasons for this were many; some of the common ones included pandemic-induced lease re-negotiations and retailers revisiting their income and expense structure.
Daniel Benin, the founder of the initiative Support Ukraine, said this: “Bringing traffic to our online store is pretty costly and labor-intensive. By seeking opportunities to physically sell our products in our niche demographic, we’ve been able to double our profits with a fraction of the effort.”
There’s also a growing customer desire for tangible shopping experiences, which was heightened by extended lockdowns. This is not new; as far back as 2019, 63% of customers in the 22 to 36-year-old age group were willing to switch to in-store shopping if the experience was improved.
Ricardo Belmar, Director Partner Marketing for Retail & CPG at Microsoft, factors in product discovery as one of the reasons for this shift: “The acceleration of ecommerce thought to have been driven by the pandemic hasn’t lasted compared to store sales growth. 2021 and 2022 are seeing stores take advantage; partly because consumers want that physical shopping experience they couldn’t get during the pandemic, but also because ecommerce just hasn’t made product discovery as easy as walking down a store aisle or looking at a store display to see something you want to pick up and buy. And then there’s the instant gratification of immediately having the item in your hands.”
It’s also safe to assume that the move to brick-and-mortar retail has been further popularized by other popular DTC brands with retail stores like Casper, Texas Tushies, Warby Parker, and Bonobos (to name a few), who have experimented with innovative versions of brick-and-mortar stores.
An example is mattress company Casper’s “Sleep Shop”, where you can try their various mattresses, schedule a nap session, and more.
Being able to provide a unique experience to shoppers is one of the many reasons behind the shift. Even if a shopper doesn’t make a purchase the day they visit a store, they’ll still remember the experience and feel more familiar with your products and offerings.
What’s behind the pivot to brick-and-mortar retail?
As mentioned, there are a handful of trends driving the rebound back to brick-and-mortar stores, but some of the bigger factors are driven by age-old business levers (like costs and customer experience.)
The three largest factors we’re seeing fuel this shift include:
- Rising CAC
- A need to improve/diversify overall customer experiences
- Opportunities to boost brand engagement and build long-term relationships
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1. Rising customer acquisition costs
CAC represents one of the biggest expenses for any retailer, online or off. As brands moved online, the amount many brands spent on digital marketing and advertising became equivalent to the amount paid in store rent. .
The cost advantage digitally-native brands enjoyed when acquiring customers via digital ads just a few years ago is now no longer as attractive as it once was, either.
The cost of digital advertising has grown significantly over the last five years, contributing to the 60% rise in CAC we’ve witnessed for both B2B and B2C brands. Average cost-per-click for Facebook advertising has grown from $0.7 in 2018 to $2.25 in 2021.
What’s more, since the introduction of GDPR in Europe and data regulation rules like CCPA in the US, big-tech players have been working on updating their privacy rules, bringing trickle-down effects for brands looking to advertise through their platforms.
For example: Apple’s iOS 14.5 update in 2021 changed the way mobile applications track user data: users now need to opt in for apps to have the ability to track their behaviors. According to reports, only 21% of users opt in on average, which gives marketers a much smaller range of opportunities to track and convert browsing shoppers online.
This was followed by Google announcing a phase-out of Chrome’s third-party cookies. As soon as it’s fully implemented in 2023, ad personalization and ROI will fall further, raising the CAC even higher. Brands will no longer be able to collect user data to personalize and retarget ads as they did before.
As a result, brands that traditionally leaned on digital ads are now looking for new ways to acquire customers. As noted, one avenue that’s finding traction is brick-and-mortar retail stores, where brands can raise awareness and acquire customers at a much lower cost than with digital ads.
2. Transforming the customer experience
While online shopping is convenient for shoppers, it still lacks some of the traditional benefits of the offline shopping experience. Since shoppers can’t physically touch or feel the product, they make orders based on reviews and brand image. As a result, online orders see a higher return rate (30%) than purchases from a brick-and-mortar store (8.89%).
The expansion into or reinforcement of existing physical stores is also guided by the golden tenet of retail—customer experience optimization. Physical stores are simply a class apart when it comes to core elements of the shopping experience like product trials, tangibility, and personalized service.
Natalie Berg, Retail Analyst and Founder of NBK Retail, describes the customer needs with a physical shopping experience: “It’s no longer just about selling; instead, the physical store must offer an experience worth ditching our screens for, tapping into emotion, discovery, human touch, and community while simultaneously acting as a hub for fulfillment through click-and-collect and returns. Retailers must continue to adapt to the hyper-informed, digitally-enabled shopper who shops on their terms and is intolerant of mediocre service and disjointed experiences.”
Today’s brands are taking stores a step further by redefining in-store customer experiences. Be it VR, interactive displays, or content studios, some retailers are now building a tech-enabled utopia of experiential retail, where the immersion of in-person shopping is set to surpass the convenience of ecommerce.
For example, Bonobos uses AI and data analytics to offer customers a special shopping experience in their ‘guideshops’. Customers can book appointments ahead of their visits, and once they reach the store, they don’t have to wait; they get personalized help and styling advice right away. What’s more: the shoppers then get their selected picks shipped to their home addresses, meaning there’s no waiting in line to check out.
3. Leveraging short-term storefront models for brand engagement
Not all brick-and-mortar retail is created equal.
Merchants who are on the fence about expanding into brick-and-mortar stores with long-term leases and expensive overheads are discovering low-cost, short-term alternatives that still allow them to get a taste of the physical side of retail, often in the form of pop-ups or short-term store leases.
Neil Saunders, Managing Director at Globaldata, recognizes how operating a store isn’t simple, but the advantages outweigh the cost if done properly: “Opening and operating stores is neither cheap nor easy, but a physical presence helps bring a brand to life and, if done properly, creates a number of commercial and competitive advantages. The keys to success are determining the purpose of the store, such as increasing sales, recruiting shoppers, and gathering feedback.”
This ties in with pop-up stores: low-cost, on-the-ground stores designed to reach customers in a face-to-face setting. With this model, online brands can test their physical retail ambitions without committing to full-service stores.
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BarkShop’s Soho store inviting owners to bring their dogs to shop is a great example of this trend. They hosted their first pop-up in 2016 for a week in New York. With a $30 entry fee, BarkShop offered an exciting experience to the dogs and their owners, in which the owners could understand their dogs’ preference via a mobile app.
The BarkShop pop-up is an example of an in-person event where you invite your ideal audience and provide them with an experience that goes beyond shopping via screens.
Examples of brands reinventing brick-and-mortar
Digitally-native brands have spearheaded the race to master brick-and-mortar retail—the rediscovered customer touchpoint. From kids’ apparel to home decor and beach umbrellas to pet food, these online-first brands are making the most of their newly-established physical presence. Let’s look at a few examples.
Monkland Quilt Studio (MQS)
A boutique quilting studio in Montreal, Canada, MQS operates as an online store but also offers customers to see its products in person at its physical studio.
According to founder Rebecca Savard, her small studio allows her to treat customers to the in-person retail experience while keeping her rent low: “I’m able to provide the in-person shopping experience while maintaining local protocols. A smaller retail space also means lower rent and allows my shop to grow at a rate I’m comfortable with. I definitely feel that I have an edge locally over retailers who operate solely online.”
Offering customers a unique experience makes MQS stand out from its competitors while controlling the costs of maintaining a storefront. It also allows MQS to grow at its own pace.
Glasses maker Warby Parker debuted as an online-only brand in 2010, but soon diversified its online channel with multiple retail stores. Today, they boast more than 160 stores across the U.S. and Canada.
According to the company, their retail stores serve as marketing tools and drive repeat purchases; their in-store retail share stands at an impressive 40% of total sales. The brand also claims a sales per square foot rate of $2,900. For comparison, Apple leads this metric with more than $5,500 in revenue per square foot. (Not bad, considering the difference in price points between these two brands.)
During the pandemic-driven retail slump in 2020, Warby’s mix of online and in-store sales allowed them to grow 6%, beating legacy brand rivals like EssilorLuxotica, Ray-Ban’s parent company. Warby Parker’s Co-Founder and Chief Executive Neil Blumenthal said to DealBook: “[Retail stores] enabled us to take market share, even during the year that we were hobbled.”
Birchbox is known for its beauty subscription boxes, available for purchase online. While the brand did extremely well through its online channel, it later decided to test several pop-ups across the U.S. to give customers a chance to experience its products in person.
The pop-ups offered incentives and event-based activations like manicures and astrology readings, attracting customers to stores and gaining valuable customer data (such as product preferences) in the process.
This experiment led Birchbox to open its first-ever permanent store in New York’s SoHo shopping district in 2014. Today, in-store Birchbox shoppers have 3X higher customer lifetime value than online customers.
It’s not clicks or bricks—it’s both
Brick-and-mortar stores are regaining traction in an increasingly convenience-obsessed climate. Brands have figured out that to succeed in an uncertain retail world, they need to ace a unified omnichannel strategy.
Creating online and physical touchpoints that complement each other generate increased synergies in terms of sales, brand awareness, and operational efficiencies. The question is no longer brick-and-mortar vs online, but rather which avenues provide the most enriching, seamless retail experiences to customers across their entire shopping experience.
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