The Stores Strike Back Again. Again. — Steve Dennis
Physical retail isn’t dead. Boring, unremarkable retail is.
Yet while the pervasively popular “retail apocalypse” narrative conveniently ignores the fact that many thousands of stores continue to open and that sales rung up in brick-and-mortar locations have grown every year since 2009, something far more interesting has actually been happening.
A year before Covid-19 upended our world, I called attention to this phenomenon in my Forbes post “The Stores Strike Back.” Despite the notion that many legacy retailers would be made increasingly irrelevant by an inexorable shift to all things e-commerce — and that physical stores were therefore growing liabilities — brands like Target, Best Buy, Home Depot and Tractor Supply decided not to store close and cost cut their way to a brighter future.
Instead, they began to see their stores as critically important assets to invest in. They began to more fully realize that a compelling brick-and-mortar presence that was well harmonized in concert with an improved digital offering, could be leveraged to competitive advantage.
In the depths of the Covid crisis, the stores struck back yet again. Amidst the stories of a 10 year acceleration in the growth of e-commerce (which, by the way, is now starting to look more like 18–36 months), many in the media and the self-described “retail futurist” class (quick aside: what’s the difference between God and a retail futurist? God doesn’t think he’s a retail futurist) concluded that such a dramatic and massive shift to online shopping would sound the death knell for many thousands of retail outlets.
While pandemic induced shifts in category spending did force several over-leveraged retailers to seek bankruptcy protection, overall the exact opposite happened.
As it turns out, a lot of people get distracted by where orders get placed and lose sight of how demand gets generated and where it ultimately gets fulfilled. Anyone who understands the data knows that physical stores play an important role in customer acquisition and re-activation (part of the so-called Halo Effect), even if the customer ultimately transacts primarily online.
But the big shift during 2020 was the role of physical locations in e-commerce fulfillment. Scores of retailers now report that a very substantial percentage of their online orders (Target is as high as 95%) involved their stores, be that because of BOPIS (buy online, pickup in store), curbside pickup, shipped from store via the mail, or local home delivery from store stock. BORIS (buy online, return in store) also gained far greater adoption. Simply stated, in many cases, without a store the online order would not have happened (or would be far less profitable).
Now, the stores are striking back once again. While e-commerce did dramatically outpace sales rung up in a physical location in 2020, as my fellow Forbes contributor Jason Goldberg points out, brick-and-mortar sales growth exceeded e-commerce for all of 2021. In addition, more stores opened in 2021 than were closed for the first time in many years.
In recent months, well-established and “disruptor” brands alike have announced aggressive store opening plans. Digitally native brands like Warby Parker and Allbirds, that once believed they could become large, profitable businesses without those pesky things we call stores, have adding many more brick-and-mortar locations at the center of their growth strategy. Dozens of these venture capital darlings have also embraced wholesale partnerships with national retailers like Walmart, Target and Nordstrom to sell their products through physical stores. There is also a little outfit by way of Seattle called Amazon that is upping the ante on their physical store presence.
To be clear, it’s virtually certain that e-commerce growth will significantly out pace growth through physical stores in the future. Some of the factors that led to a slight reduction in e-commerce’s overall penetration in 2021 are not likely to be repeated. I expect that sales rung up in an online channel are likely to increase at a rate of 3–5 times as fast as those transacted in a brick-and-mortar location going forward.
But we make a huge mistake when we lose sight of the critical role stores can play in overall brand growth and profitability. In many cases it’s not about digital vs. physical. It’s about how they work together to deliver a more remarkable customer experience.
Originally published at https://stevenpdennis.com on March 2, 2022.