Many entrepreneurs and startuppers who want to delve into the world of retail may soon or later address this question: is it better to sell through typical brick-and-mortar stores or through online platforms?
The answer to this question depends on a variety of factors, including: the specific industry you are in, the type of product you are selling and the characteristics of your customer. As a general principle we could say that if your product has a large market, a physical store can be a viable option, but if you are working with a niche product, then an online retail strategy can be a better fit.
As deciding factors you may want to look into:
- The product you are selling. If the product you are selling is expensive, complex and exclusive, well then physical distribution is the way to go. If you are selling a commodity (undifferentiated) product, which is low in price and part of every day transactions, then online can be a good choice too.
- The profile of your customer. In the context of a business model, online or physical distribution decisions are taken on the grounds of the type of customer segments you are after. By understanding your customer needs you can better understand what distribution strategy works best for you. Age could play a role in this, as well as their area of residence (urban or rural) or income.
- The localglobal competition. OnlinePhysical distribution strategies can result from an analysis of the competition experienced in your industry. If the competition is more local, then considering online distribution is an option so that you may better access international customers. If on the contrary your competition is global, then a niche, or a geographically targeted approach can set you apart from direct competition.
Now that we’ve clarified the basics, let explore in more detail the pros and cons associated with each option. Here follows a quick breakdown of the structure we’re going to follow to explore this exciting and highly strategic topic.
- Pros and Cons of Ecommerce Platforms
- Pros and Cons of Retail Store
- The Perfect Synthesis: Omnichannel Stores
1. Pros and Cons of Ecommerce Platforms
Regardless of the fact that ecommerceonline platforms are on the rise, it’s a good idea to run a cost-benefit comparison to figure out if the opportunities overcome the challenges of starting an online platform. Here’s a quick pros and cons list to help you make the call.
- Pro. Ecommerce platforms are much cheaper than brick and mortar retail. The cost of entry can be as low as paying under 1000 euros to set up a professionally looking eCommerce platform. A retail store, in comparison accounts for much higher investment costs. Moreover, on an online store, changes can happen quickly without huge upfront investments, and this allows for a more lean management format to try out different online retail models.
- Con. Ecommerce platforms have high customer acquisition costs. At the same time, it’s important to take into account that retail stores will have some natural footfall, whereas online stores may need to continuously invest in advertising to get shoppers browsing. Advertising costs can stack up quickly and as a result, your cost of running your business can still be substantial.
- Pro. Ecommerce Platforms Can Collect Data. As you manage your online store you will see how, over time, you’ll be able to collect a lot of data regarding what products are the most looked into, which ones are instead ignored and pick up feedback on all of the different customer experiences connected to your shoppers’ online behaviour. This data can be then used to optimise your platform over time and it will help you to focus on improving the aspects of your digital store that matter the most for your audience and for your profit.
- Con. Data-driven decisions are not simple to make. As you are not engaging directly with your customers, you may have a harder time figuring out how to establish loyalty and retention. Data can help you make some decisions, but with no human contact, it may be really difficult to understand your customers and their reasons to buy. In this sense, even if the data is there it can be much more difficult to ‘read’ and act upon. What happens in these cases is that retailers end up having to learn software development skills in order to manage their business, which is a challenge not to be underestimated.
- Pro. Great for inventory management. One undeniable benefit of managing an online store is the opportunity to hold a much broader inventory. Due to the fact that you are not limited by retail space, your online store can sell a much greater selection of products.
- Con. Difficult to deliver intangible aspects of shopping. On the flip side, the online store experience is much less experiential and emotional than the one you would get in a physical location. As a result, the sale of goods that are either luxurious or scarce or expensive is impacted by the fact that online sales usually revolve around a different set of values such as promotional discounts and accessibility.
Great, let’s now move on and take a look at what pros and cons come to mind with physical retail.
2. Pros and Cons of Retail Stores
Great, now that we’ve looked into a variety of pros and cons connected to digital stores, let’s see how retail, brick and mortar locations compete.
- Pro. Traditional and uncomplicated shopping experiences. Undeniably, the store experience is something which is much more straightforward and simple from the customer’s end of things. You go into the store, pick up what you like and pay for it before leaving. With certain customer age groups you can’t beat that. The process is simple, you only need to work on displaying appealing products.
- Con. Limited location coverage. Conversely, the geographical coverage of a store is very limited. As a result, there are just so many clients you can reach in any given location. This is connected back to our initial point, as this model requires you to work on products which have a larger market, as niche offers would really be damaged by this downside.
- Pro. Allow to build personal relationships with returning clientele. Physical store experiences will allow for retailers to build honest, spontaneous connections with their customers and create a local, easy-to-retail customer base. It’s very difficult – if not technically impossible – to foster the same type of rapport with online customers.
- Con. Not an easily scalable business. As your business is based on personal relationships and a clientele you can build through meaningful and memorable interactions, actually scaling the business can be a challenge. Scalability is much easier for an online store, as there are just so many customers you can serve at a given time in a physical store. This does not mean that scaling is impossibile, simply more difficult, comparatively.
- Pro. You directly access your customers and observe their behaviour. Another strong suit comes with accessing customer data. As a retailer you have direct and unfiltered access to your customers’ behaviour as you get to observe them everyday in your store. This type of research may be less quantitative, but you can still learn a lot about the way your store converts passers by into profitable customers.
- Con. Fast pace of the industry can be a constant challenge. Some industries have a faster pace than others, and as a result, your physical store may be constantly challenged to evolve. This is something which can become a constant element of innovation that you need to adapt to every season, or every year.
There you go! Now that we’ve covered both ends of the deal, we can’t help but wonder: is there a way to get the best of both worlds? Well, actually there might be a way to build a store that is able to do just that. Take a look at our next section where omnichannel distribution comes into the picture to make this a reality.
3. The Perfect Synthesis: Omnichannel Distribution
Do you really need to choose? Well, not necessarily. Many brands – and this is especially the case in the fashion industry – have decided to approach this from a completely different angle. They’ve built omnichannel distribution strategies. These strategies are designed around the opportunity to merge all of the benefits that come with both physical and digital retail.
Retailers with omnichannel distribution strategies are able to provide a different shopping experience which revolves around the opportunity to provide a new category of services, such as:
- Buy online but pick up in store. The customer is able to conduct a transaction online at the end of a ‘webrooming’ journey, but is still able to access the experiential benefits of collecting the good at the physical store.
- Reserve in store. In this case the customer uses a digital platform to reserve a luxurious product, and sets the time aside to experience it in the retail location.
- Localise store. In this case the customer is able to find all authorised retailers or owned retail locations for a given brand. Customers with this service are able to find the closest location for in-store service.
- Try out in store, ship home. This option can be useful for customers who may not want to be encumbered with too much stuff to carry around, either because shoppers may buy a lot of items, or because the products are heavy or difficult to transport.
- Use technology in store to browse stock. This option is connected with store assortment. When retail space is limited screens and pads can help your customers browse and explore all of the assortment that may not fit into store displays.
These are just a few examples, but if you’d like to learn more about this approach, here’s a quick video you may want to take a look at. Now that we’ve looked into all of these different options to make the call it may be a good time to wrap things up and draw our conclusions.
There you have it! In this post, we’ve discussed a lot of different arguments that you may take into account in order to make this call. Remember that each person will come up with their own unique decision, which fits with all the variables we’ve seen so far.
Whether you are going online or brick and mortar take a look below, here at 440 Industries we have a lot of resources for the aspiring retailer, please find below a selection of articles you may be interested in!