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Bangkok

Why the internet is not enough for retailers

Once online-only retailers are going offline and setting up brick-and-mortar locations


​​Despite the convenience of shopping from your sofa and the evolution of same day delivery, the age old act of going to a physical store is a tradition that can't easily be broken. It's something the emerging pure play retailers have gradually realized, leading to once online-only retailers going offline and setting up brick-and-mortar locations.  According to Canadian retail analyst Jim Danahy, retailers such as organic grocer Spud and contact lenses retailer Clearly Contacts, which started online, are setting up storefronts to snag a larger share of lucrative brick-and-mortar sales.

"Ninety-five percent of retail sales are going to bricks-and-mortar retail," says Danahy. "Five percent is going to the online people. It shouldn't be a shock that the online people want some of that."

The shift from e-commerce to physical space is happening worldwide. Major online U.S. retailers such as eyewear specialists Warby Parker, fashion retailer Bonobos , and UK bedding retailer The White Company are building and leasing retail storefronts to supplement online product sales.

However, it's not an either / or scenario with online and offline. For retailers planning out a successful strategy it's about integrating and aligning their physical and digital presence.

Indeed, few retailers can afford not to trade online, says James Brown, Head of Retail Research and Consulting at JLL EMEA. "Being online alone is not the solution, with a high cost of targeting customers online, high distribution costs, stock control challenges and thin to negligible margins. So in the same way as physical retailers are trying to build up an online presence, the move from pure play retailers to take physical space, to build brand and to provide an additional distribution channel, is the next obvious step."

"Proof is emerging that opening select physical stores for these retailers helps drive both sales in store, but also further supports the promotion and growth of their online business," he adds.

A new model for retailers

These trends should be put into context, says Naveen Jaggi, President Retail Brokerage and Capital Markets, JLL Americas. He points to the fact that the 2008 recession changed the economic model for shopping and created the opportunity for online retailers to gradually increase their market share to the present 15 percent growth per annum.

"Post-recession more retail businesses were going toward bottom-line pricing," he says. "That became the reason to go shopping: pricing, pricing, pricing; bottom line, bottom line, bottom line. And yes, that trend kick-started the growth of e-commerce-only retailers."

It also polarized the post-recession retail market. While luxury and high end retail consumer sales remained strong, middle-market consumers radically changed the way they buy.

Today, they're more value-oriented than ever before and looking for savings wherever they can get them. This shift has made the online experience a vitally important part of the buying experience, but not the be-all or end-all.

Shoppers use retailer websites to educate themselves about what they want to buy; a typical search can involve as many as half a dozen websites. After they've selected a product, shoppers go into the physical store to see what they've researched or ordered online; to inspect, handle, and possibly purchase the item in the physical store.

Jaggi adds: "These days, seamless online and offline integration is required for any retailer to survive. It's what consumers are demanding. Whether it's an online retailer building out a physical store, or a legacy brick-and-mortar retailer increasing its online platform, aligning online and in-store is crucial to a retailer's success."

Of boutiques and superstores

Another important facet of the emerging e-commerce/brick and mortar retail convergence: retailers who started online are not building superstores. Typically, their brick and mortar incarnations are 12,000 to 20,000 square feet – far smaller than a Sears, JCPenneys, or Kohls superstore. And online retailers are stocking only top-selling items in their brick and mortar stores and letting their customers buy the bulk of their products online.

On the other hand, legacy retailers such as Staples, Kohls, Nordstrom, and Macys are advancing their online presence to create a seamless shopping experience. Both Nordstrom and Macys, for example, have a no-questions-asked returns policy. Regardless of whether shoppers buy an item, they can return it to any store and get instant store or exchange credit.

"These legacy retailers are making the entire relationship between online and brick and mortar unified and actually quite pleasurable – as opposed to the online return process where you have to return an item via UPS or another carrier, which can seem daunting to the consumer," Jaggi says.

Online to offline or offline to online – retailers need to break down the barriers between the two to create the shopping experience that consumers increasingly expect. As Brown says: "This is the future of seamless onmi-channel retailing – and we are starting to see that the right combination of product, seamless distribution and customer service, really does work in driving incremental sales."

This article comes from JLL Real Views.