Why Brick and Mortar Isn’t Dead?

Companies are investing in omnichannel distribution– a seamless network of platforms for customers. The omnichannel retail platforms market, valued at $3 billion in 2017, is expected to grow to $11 billion by 2023, with reason. BigCommerce’s 2018 Omni-Channel Retail Report revealed that only 11.8% of Gen-Z shops on Facebook, while nearly 25% of Baby Boomers do. Millennials, meanwhile, prefer to buy products they discover on Instagram and Snapchat.

Retailers must maintain an active presence on various channels– including websites, marketplaces, social media and brick-and-mortar– in order to keep customers engaged from first impression to point of sale. Businesses that have failed at this have suffered: a majority of brick and mortar coming into this fight unprepared have been wiped out with over 7,000 store closing announcements and 662 declarations of bankruptcy in 2017 alone. In 2018, Sears and Kmart announced bankruptcy as well. North Beach– a San Francisco town north of the financial district that used to be known as a major shopping destination– saw a storefront vacancy rate of 10.25%, more than double the rate in 2015, according to a survey. Yet, this pattern doesn’t stop in the Bay Area: Manhattan, Chicago, and New Jersey’s Westwood, among other major U.S. cities, have all experienced alarmingly high rates of vacant storefronts that used to house smaller, boutique stores that failed to create an omnichannel network to be profitable enough to rent in an area with high living expenses (in North Beach, an average three bedroom rented for anywhere between $5,600 and $12,000 on Craigslist in 2016). 

Where we’ve seen success is with the hybrid approach: brick & mortar married with a digital presence or an experience enabled or enhanced by physical products. When a business isn’t constrained by the limitations of four walls, we see potential to generate more profit through extending a customer’s lifetime value to something (often an experience) beyond the product purchased in store. For example, Peloton is the poster child of this hybridization: showrooms for their use-at-home bikes and a plethora of live indoor cycling classes draw customers in, but those who purchase a bike to use at home are greeted with the database of workout content recorded in the live classes.

Similar companies like Pivot and Mirror also sell digital subscriptions to online classes in addition to their hardware components. The digital platform houses the major elements of a company, with the benefits of better margins, inventory management, and less theft, among other reasons. However, as digital customer acquisition costs are rising and online content marketing becomes less effective, these brick & mortar stores serve as an initial marketing tool that lure customers to further experience the products online. In fact, a recent study claims 55% of consumers prefer to experience both the digital and physical platforms before making a purchase. However, the experience that consumers actually buy into becomes the bulk of long-term revenue.