Contrary to popular belief, digital commerce is NOT killing off the physical store. For the past decade, headlines have declared the demise of brick-and-mortar by the evil hands of eCommerce. And that story-line acceptance seemed to drive store closures and abandonment of malls due to growing online sales. However, that is not necessarily the case.
Dig deeper into consumer data, and you will find that the truth of eCommerce is murky. Different sectors of retail and CPG are affected in different ways by eCommerce. Although baby products have seen an increase in eCommerce, they have still experienced an overall decline in sales because of the weakness of the sector itself. But for products like cosmetics and vitamins, both brick-and-mortar and online sales have increased. In neither instance did eCommerce share increase enough to affect the result of brick-and-mortar sales. With online grocery, for example, a Food and Beverage Report showed that the online grocery share is struggling to reach its 2% mark. With a low 5% of adults making only six purchases online a year, 78% regularly purchase at your traditional grocery store. However, it also showed only a 2% growth for brick-and-mortar stores but a 14% growth for online shopping.
Of course, eCommerce is giving off data as to how we shop and has had a huge impact on retail as a whole. But the rate of store closings, liquidations, retail bankruptcies that we have seen doesn’t exactly equate to consumers having exchanged bricks for clicks. There are quite a few factors, including a few named above, over-stored retail landscaped that had not acclimated for the eCommerce world, the economic recession, and consumers buying less tangible products vs an experience (fancy dinner out). Despite all of these different factors and chatter about eCommerce killing off the brick-and-mortar retail store, online merchants are really the ones that are struggling against the larger, legacy retailers.
Here are five signs that show eCommerce is not the death of brick-and-mortar stores:
1. Stores have higher sales revenue than eCommerce.
Most of the top 10 U.S. retailers have an eCommerce site, but their actual physical, brick-and-mortar stores are where most of their revenue is gained. It is easy to think that retail eCommerce sites are taking over physical stores. But when looking at the actual numbers, physical stores generate higher conversion rates – a higher percentage of customers who actually make a purchase than clicks on a website. Another factor that often gets lost is stores are more profitable than an eCommerce orders because of costs associated with shipping, handling, increased returns, etc., that eat into profit margins.
2. Legacy retailers (i.e. Walmart) are gobbling up e-retailers.
Traditional legacy retailers are gobbling up eCommerce-only merchants. We have seen quite a bit of hot-flash-sale sites offering 24- to- 36-hour sale events with big discounts on different merchandise. And, we have seen companies like Nordstrom purchasing Haute Look, Bed Bath & Beyond purchasing flash sales site One Kings Lane, etc. Now we are looking at the big players like Walmart who are acquiring e-retailers like Bonobos, Modcloth and Jet.com. These brick-and-mortar retailers are purchasing e-merchants because online-only presence is not a viable retail play or model. While stores can generate actual organic traffic, they are able to build expand and build brand equity. You can see how that has affected the online only stores such as Warby Parker and the big green monster, Amazon, to scramble to open stores; they understand the importance and value of having that brick-and-mortar presence.
3. Physical chains – all but on are the top 10 U.S. retailers.
Outside of Amazon, the top 10 U.S. retailers are brick-and-mortar stores. Most of these names will not surprise you considering they most likely stores you often shop at for different items you may need. In no particular order the top 10 are Walgreens, CVS, Target, Lowes, Albertson’s, The Home Depot, Walmart, Costco, Kroger Co. and Amazon.com. While Walmart (a 55-year-old-company) and the largest retailer grew 8% last year alone, all of the other retailers on this top 10 list are generating sales growth this year so far, except for Target.
4. Amazon acquired Whole Foods.
If you missed the news of Amazon buying Whole Foods a couple weeks ago then you are living under a rock. It is hard not to pay attention when the United States’ largest eCommerce retailer buys one of the largest (30th – according to the NRF) brick-and-mortar chains. This can only confirm how important the physical presence of retailers really is. This is not the first time Amazon has dabbled in the brick-and-mortar area with the rollout of a few bookstores and Amazon Go, but this purchase marks a HUGE commitment for e-retailer.
5. Generation Z (consumer born after mid-90s through early 2000s) and Millennials actually prefer the in-store experience.
When you think of the digital age of Instagram, Facebook, Snapchat, and Amazon, the consumer base that comes to mind is that of Generation Z and Millennials. Many of these young consumers spend their free time online rather than watching TV (as we did in my generation; well, we didn’t have an Internet then). Shocking as it may be, both of these groups actually prefer to visit a physical store than shop online. On a global scale, 70% of Millennials prefer the brick-and-mortar store. This consumer base is the future of retail. While the Baby Boomers were one of the largest generations, they have been displaced by the Millennial group estimating at 80 million alone in the U.S. and spending around $600 billion. Gen Z, however, is expected to reach 2.6 billion – yes, BILLION – by 2020 and expected to spend about $44 billion according to NRF and IBM.
All of this data makes it hard to believe that malls and brick-and-mortar stores will be a thing of the past. Only time will tell.