Online vs. Offline vs. Online AND Offline?

I’ve found the recent trend of online retailers opening up offline retail stores very intriguing, given that in the past few years, there has been a lot buzz around ecommerce and about how online stores were going to reduce and eventually obliterate the need for brick & mortar stores.

In a bid to not be left behind, big box retailers such as Macys, Walmart and Target had made a significant investment in increasing their ecommerce presence and capabilities. However, just recently, it was announced that Amazon, the world’s biggest ecommerce retailer had opened up an Amazon brick & mortar store. Some other players that started online have also expanded into offline stores such as Warby Parker, BirchBox, BaubleBar in recent years.

This to me shows that there is no one simple answer to the question of online vs. offline stores. The question should thus be: should a business be an online only store or be an offline only store or be in both retail channels. And if the plan is to be an omni-channel retailer, should the business start online and then expand to offline or start offline and then expand to online? And are there specific product categories that each of these strategies works better for?

To answer this question, I analyzed the pros and cons of having an ecommerce only company. The major benefit of starting a business online first vs. offline is the low upfront cost associated with building an online store. Websites like shopify and squarespace make it easy and cheap to start selling items online. This gives one an opportunity to prove the concept and to prove the demand for the product before investing significantly in it. Online stores also provide a broader reach and more national or global exposure than offline stores given that anyone can access the website from anywhere in the world and potentially make purchases from it. Being able to carry a diverse and unlimited inventory of products is also a benefit of an online store as there are no physical space limitations. On the negative side, online stores tend to have high logistics costs and a high return %.

There are also a lot of benefits to shopping offline, which is why approximately ninety-two percent of all purchases in the U.S still happen offline. The benefits include being an avenue for people to touch, feel, and try the product before purchasing, having a personalized in-store experience such as great customer service which can lead to brand loyalty, legitimizing the business for those who don’t know or are not yet trusting of the company, building the brand look and feel through the physical design and experience in the store. A physical store in a great location also serves as a form of marketing, because it will attract new customers to the store. These benefits all translate to an increase in repeat customers, a lower rate of returns, and potentially more sales as its easier for someone to buy multiple items when they see them in person than online. The cons of this approach are the pro of online stores such the high startup and overhead costs, the limited reach of customers, limited physical space etc.

In addition to the aforementioned benefits of both models, other benefits to the hybrid model of retail includes providing an avenue for one to buy online and to return to the store, where they can in turn find something else that suits them, thus ensuring the sale is completed. From a logistical standpoint as well, being able to fulfill orders from the store closest to the consumer as well leads to reduce shipping costs and shortened delivery times, both of which are of value to the consumer.

Some product categories such as beauty products, home and office make more sense to start online because for beauty products, online allows one prove out the concept and demand for the products first, and home and office will result in high rental costs initially so starting online is a way of getting maximum value at a lower overhead cost. However, most other categories such as fashion, electronics, mobile, games, tablets, computer, collectibles can be profitable if started online, offline or if a hybrid model is employed. I think it comes down to the personal preferences of the entrepreneur, the amount of funding secured, how quickly they are looking to build a brand presence and to grow, how sure they are of the demand for their products, how important the in-person experience is for the brand and what it represents and finally what kind of store do they the capabilities to build and manage as the needs for the two types of stores are very different.

By: Oare Avbuluimen

 


1 Comment

  1. Evan Valentini

    Great article Oare! Really got me thinking…

    I suspect Amazon's decision to open brick and mortar locations is related to the decline of traditional brick and mortar competitors in key product categories like electronics (e.g. RadioShack). 92% of purchases may happen offline, but how does this vary by product category? I suspect the figure is significantly lower for say, flat screen TVs. Brick&mortar retailers are free showrooms for Amazon to the extent that they carry everything Amazon is selling and are easily accessible to consumers. As brick&mortar competitors close down and/or pare down their product assortment, moving away from items that are easily "showroomed", Amazon has to build its own showrooms to fill the gap.

    Does Warby Parker really want to open its own stores? I think they would much rather LensCrafters put WP glasses on their shelves. I would further speculate that Warby Parker can't get distribution at LensCrafters because LensCrafters knows they would end up getting used as a free showroom for Warby Parker. Customers would shop in store but buy online at a lower price.

    Wouldn't it make more sense for BirchBox to sell through the makeup counter at Macy's? I think it would but I can't imagine Macy's would go for it. Customers using BirchBox have less need for a make up counter now that they can try cosmetics on at home for free. Macy's would be driving its own customers away.