Why Online Retailers Continue To Open Brick-And-Mortar Stores

Editor’s note: Mike Kercheval is president and CEO of International Council of Shopping Centers.

In an age when new technology and the growth of pure online-only retailers have industry analysts questioning the future of brick-and-mortar stores, what are online retailers doing to grow their businesses and gain market share? Why, opening up physical storefronts of course. The benefits that physical spaces provide make up three of the top reasons why online retailers are setting up shop, including: multisensory consumer experiences, better logistics and consumer service offerings and strong, lasting brand relationships.

The rise of omni-channel retail strategies in which mobile, online and in-store experiences complement, rather than compete with, one another has ushered in a new era for online retailers. Birchbox and Frank & Oak are just a couple of examples of e-tailers that have planted roots to remain competitive and provide a seamless customer experience across all shopping channels.

And it’s no wonder they’re buying up real estate; the economics speak for themselves. According to our latest consumer survey, 78 percent of consumers prefer to shop in-store and they spend six times more in-store than online. This is reflected in the fact that the majority of all retail sales still occur in the physical store. In 2013, the U.S. Census Bureau reported that 94 percent of retail sales were conducted in brick-and-mortar stores, while just 6 percent occurred online. Physical stores are simply good business.

Multisensory Consumer Experiences 

Nothing beats holding a product in your hand, feeling the fabric and seeing the minute details – something that can’t be done online. We found that 73 percent of consumers want to try on or touch merchandise before they make a purchase. Physical shopping centers allow consumers to do just this — interact with a range of products to make informed decisions about what they’re buying.

Furthermore, physical stores have been busy retrofitting their spaces with technological advancements that make the in-store customer experience more efficient, which effectively eliminates the guessing games encountered online. Is the size or fabric not quite right? Or maybe it fits perfectly, but you want to try on every color option available? These are solvable problems when you are shopping in a physical store.

After several experiments with pop-up shops in New York City, online costume jewelry e-tailer BaubleBar has opened up a permanent location, with more on the way. BaubleBar, like other online retailers who have invested in brick and mortar, has found that the in-store experience, which encompasses direct contact with products and a unique brand experience, translates into not only more sales and fewer returns, but an increase in repeat customers.

Better Logistics and Consumer Service Offerings

Today, retailers that started out only online are using physical storefronts not merely as showrooms, but also as storage and shipping centers to support their online businesses. Instead of one single warehouse to fulfill online orders, storefronts across the country help these once pure e-tailers reduce shipping times and costs – a benefit to both consumers and bottom lines.

Just this month, Amazon.com announced it is opening a physical storefront in the middle of New York City, the first of its kind in the company’s 20-year history as an online retailing giant. The store will be located in Herald Square, near the famous Macy’s department store and the Empire State Building, an area that receives some of the most significant foot traffic in the city. This announcement speaks to the importance of an omni-channel strategy, and certainly could have significant positive effects on the real estate side of the retailing business.

Retailers are also trying to better meet hectic consumer schedules and changing needs. I recently returned a pair of hiking boots which I had ordered online from REI at the physical store because it was more convenient than standing in line at the post office. While I was there, I browsed the aisles and bought a few extra items for my upcoming hiking trip – something that never would have happened had I returned the purchase remotely.

A Shop Visible study found that flexible pick-up and return options at physical stores drive incremental sales. For online sales with direct delivery and only remote exchanges, retailers can expect a net sale of 77 percent, whereas online sales with in-store returns result in an expected net sale of 95 percent because of an 18 percent increase in additional sales.

Strong, Lasting Brand Relationships

As we move from an age of transaction-based retailing to one of relationship-based retailing, American shoppers are looking for more than just products to buy. They’re looking to connect and establish a rapport with companies they give their business to. But it is not an easy task for online retailers to provide unique brand experiences to consumers when their main interaction is conducted through a computer screen or smartphone. This is why online retailers are looking to the physical store as an avenue to meaningfully engage customers and build strong, trusted and lasting relationships.

Warby Parker, an online eye glasses retailer, is one e-tailer that has successfully integrated storefronts into its online business to better connect with its customers. On a recent Saturday in New York, I wandered into the company’s shop in SoHo which was packed with New Yorkers trying on new eyewear. Through beautiful, modern stores opening up across the country where customers can try on glasses, receive an eye exam and take pictures of themselves in a photo booth to compare styles, Warby Parker is giving consumers a space to experience the company and simultaneously growing strong, trusting and lasting relationships with their customers.

So what does the future hold for retail?

We have seen that the omni-channel customer shops more frequently and spends 3.5 times more than other shopper types – and that, I believe, is the path that we will see retail continue to head down. Online and mobile channels are now being recognized as an enhancement to brick-and-mortar stores, and not a detractor. Today’s consumer wants to shop when, where and how they want, and physical stores will no doubt continue to evolve and enhance the consumer experience and continue to fortify themselves as the preeminent retail channel.