Long live the store: Why web-only e-commerce is getting physical

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The retail store is dead. It was only two years ago, in a PandoDaily interview, that famed venture capitalist and technology investor Marc Andreesen declared the death of the store. “Retail guys are going to go out of business,” he said.

We’ve certainly seen, and will continue to see, retrenchment among less agile retailers (e.g. RadioShack). Yet, over this same period there has also been tremendous innovation in the space and a growing trend for brands that were born online to expand into mainstream retail. Ironically, this trend is largely driven by the very technologies that created the threat in the first place.

Apple (a first-mover as usual), Frank & Oak, Birchbox, Bonobos, and even Google have all ventured from the virtual to the physical world of commerce. Warby Parker, which began disrupting the eyewear space as an e-commerce pure play, raised more than $100 million in a recent funding round largely to invest in the build-out of their retail store footprint. And then there’s Amazon, which is determined to work its way into every corner of commerce, as long as it sees potential opportunities. The venerable leader in e-commerce is now in the game, opening a New York City brand store, and piloting a bookstore concept at select universities.

The future will likely not be dominated by any one channel. Instead it will thrive across many touch points, led by brands that create well-executed hybrid experiences that drive engagement and sales, regardless of source.

Opportunity Knocks

Industry-wide, ecommerce revenue has grown in the low double digits year-over-year, far outpacing overall retail growth, and the e-commerce industry is projected to continue that performance over the next few years, according to Forrester Research. This is still only a small slice of total retail sales. According to a Google presentation at the 2015 Global Retailing Conference at the University of Arizona, 93 percent of all retail sales are still conducted offline (this is projected to dip to 87 percent by 2019). That translates to a few trillion dollars up for grabs. However, according to the same presentation, 70 percent of all sales are influenced by digital channels.

This new shopping behavior aligns well for brands that were forged in the digital world. They’ve already learned how to build awareness and connect with their customers through their websites, apps, and social media channels. Reaching these tech-savvy consumers and driving them into their stores, is the next logical step to drive growth. It’s been reported that Warby Parker, for example, averages sales per square foot annually that are among the highest in the retail industry. And where one brand finds success others are sure to follow.

Omnichannel is the New Normal

Consumers have gotten a taste of omnichannel commerce—even if they’ve never actually heard the term—and they like it. To them, functionality like buy online / pickup in store doesn’t seem revolutionary; rather it’s a natural progression of how brands should take advantage of technology to interact with their customers. They have no idea of the underlying complexity involved in making that work, and they don’t really care. All they know is that they want to do business on their terms as easily as possible.

For Japanese eyewear brand Jins, which recently expanded to North America, this means extending their e-commerce channel to present “endless aisle” shopping experiences in store, and leveraging their e-commerce implementation to create a tablet-based app that serves as a customer prescription capture and point-of-sale tool. Not only does this allow Jins to interact with their customers in new and better ways, it allows them to do more with their technology investments.

From smart, shoppable dressing room mirrors to mobile devices effectively becoming personal shopping assistants to retail stores being used as distribution centers, the lines between channels continue to dissolve. Through this, it’s become clear that e-commerce and traditional retail can be merged to play to each other’s strengths and mitigate weaknesses. Higher levels of service and richer brand interactions can be delivered in store. Wider selection, convenience, and efficiency can be delivered online. All of which can combine to deepen customer relationships and brand loyalty.

The concept of omnichannel commerce is still relatively new. As technology advances ever faster, the bar will continue to be raised, putting both established and upstart brands on equal footing, as they compete to deliver better integration between the online and offline worlds. So, there are ample opportunities for them to learn and grow these capabilities to the delight of their customers. Those companies that can deliver stand to win market share.

The Online-Off Approach

If recent history is a guide, we’ll see more emerging brands establish a following digitally, and then expand physically. Scalability, reach, and economics provide numerous advantages to this digital-first approach.

With the right product(s) and strategy, it is possible to build a significant brand in a relatively short timeframe. It is also possible to launch a national, or even international, enterprise-class ecommerce presence for the cost of opening one or two retail digitally-enhanced storefronts. Because of this, these brands are able to use digital commerce to either fund offline expansion or serve as a proof-of-concept to spur outside investment that enables retail growth.

These stores have fewer locations, and the selection process is informed partially by ecommerce data. They are generally smaller. Inventory is highly curated by location, augmented by ecommerce capabilities. Service is more personal and is enhanced by digital tools at almost every touch point. This is creating a new kind of retailer that is blending the technology of today with lessons of the past to shape the future of commerce. Long live the store!

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Randy Kohl
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June 25, 2015
Randy Kohl

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