Clicks vs bricks
E-commerce has indeed picked up over the past decade. According to the US Department of Commerce, US consumers spent USD 601.75 bn online in 2019 (an increase of 14.9% from 2018). The proportion of spending in e-commerce within retail has increased from 12.96% in 2017 to 15.97% in 2019. Looking at e-commerce and total retail sales since 2010: e-commerce sales have increased at an average of 14.9% per annum, whilst total retail has only increased 3.9% on average per annum. This does not mean that traditional brick and mortar retailers’ sales have declined, but rather that their landscape is adapting to consumer preferences.
Raydiant gathered data on the US consumer and found that 55.1% of people between the ages of 17 and 34 prefer to shop online; while 57.5% of people aged older than 34 prefer physical stores. The preference for online shopping appeared to stem from convenience (47.8%); discounts (15.4%) and the speed of transactions (11.9%); whilst the preference for physical stores stemmed from the tangibility of purchases (40.4%) and experience (38.4%). The study additionally found that, whether it be brick and mortar or e-commerce, people are shopping more. The report revealed that at least 76.3% of respondents were shopping more online; whilst 68% of respondents were shopping more in stores.
A 2016 BigCommerce survey found that 67% of Millennials and 56% of Gen X-ers prefer online shopping. While the perception is that younger generations will prefer online shopping to in-store; a more recent study by Morning Consult found that Gen Z (those born between 1997 and 2017) prefer shopping in brick and mortar stores. Speculators have attributed this to the spontaneity and tangibility of brick and mortar retail. The study found that 66.6% of Gen Z shoppers will go shopping for fun monthly, and Target and Walmart were listed as two of their top 10 favourites. This contrast goes to show that preferences can and do change.
Amazon, the e-commerce giant, saw sales increase during the Coronavirus’ toughest period. Best Buy said their quarter to date online sales were up 255% on July 18th (42% of their US revenues for Q1). The Coronavirus pandemic increased the necessity for contactless transacting, and an immediate decline in foot traffic of stores.
As the world is reopening, brick and mortar stores are seeing their shoppers return. The reason for this reversal, despite many now being comfortable with online shopping, has been attributed to four main reasons by Retail customer experience:
- Shopping is an experience
- Instant gratification
- The third place need
- The BOPIS effect
BOPIS – buy online, pick-up in store
Point a) and b) are largely intertwined. Individuals, who have been cooped up for the duration of lockdown, feel excited about getting out of the house. The whole experience of going to a store is exciting. Coupling that experience with the instant gratification of being able to take your purchase home immediately, entices individuals to rather purchase in-store. This is predominantly true for bigger ticket items and necessities. One day shipping may seem great, but when you are out of toothpaste – it’s far too long. Once customers are in store, retailers have the opportunity to capitalise on their inherent need to be “anywhere, but home”. The term “third place” refers to an ideology by Ray Oldenberg that suggests the third place for individuals to create connections and the sense of inclusion are retail locations (after home and work). Retailers are focusing on this aspect and investing in enhancements that support it. Lastly, the BOPIS effect. Approximately 90% of people buying online elect BOPIS as the preferred delivery method; 85% of these customers frequently make additional in-store purchases when collecting.
The merge of two worlds – a prime example
While traditional brick and mortar stores have expanded and reinvented themselves to include an online offering; e-commerce focused retailers are additionally looking to expand into physical stores. For example, Amazon’s purchase of Whole Foods and their introduction of AmazonGo. More recently, Amazon has announced their investment into two new brick and mortar stores in South Florida, as well as one in Orlando. These stores will be “4-Star” stores, stocking only those products which have received at least a four-star rating on their e-commerce platform. Amazon has already opened 12 of these stores. The investment Amazon is committing to physical locations speaks to the value they see in brick and mortar.
Some traditional brick and mortar retailers who have expanded their offering into the e-commerce space include Walmart and Macy’s. Walmart launched their Good and Gather offering coupled with the revamp of their same-day, curbside pick-up option (‘Drive Up’). Macy’s has managed to transform most of its heritage brand to online and has been commended for frictionless payment capabilities. Both retailers feature within the US’s top 10 largest online retailers.
One of the main pro’s of online shopping is the convenience of the experience. Many traditional retailers have embraced this and introduced their own delivery and in-store pick up options to improve customer experience. The customisable level of convenience offered to customers is what is attractive. As consumers, we have become demanding. We don’t want to wait in queues or be stuck travelling from store to store to look for our size or a perfectly ripe piece of fruit. Traditional brick and mortar retailers have introduced: in-store pick-up; ship to store; and return in-store to their online shopping experience.
A large benefit of the changing landscape is that it necessitates less store space for retailers in expensive shopping malls. Warehouses can keep more stock for shipping, whilst the brick and mortar stores are equipped to enhance customer experience at a lower cost (lower rental, fewer employees, increased service revenues). In addition, micro trips due to in-store pickup have allowed retailers to have more efficient store formats and targeted marketing.
