Retailing in the digital age is going to be dramatically different than it has been in the past. Net only stores like amazon.com are springing up all over the place, and “bricks and mortarÃ?Â¤ retailers are setting out to do business on the net as well. Those are two dramatically different approaches, and they each have their advantages.
Bricks and Mortar
If you’ve got a physical retail store, and you’re looking to go on the web, you’ve got some big advantages over the net only competition. The very first is that you’ve been in business for awhile. One of my clients, for example, points out on the opening page for its webstore that they’ve been in business for over fifty years. They point out that the webstore is their fourth location, and that there are three other physical locations.
That reputation is a big plus. People know you, and they know that if you’ve been in business for any time at all, you’ve got a track record. You’ve made people happy. That makes them comfortable when they order.
You’ve got a big advantage in your actual physical location. In a recent study of retail preferences, we found that one thing that people really look for is an easy way to return merchandise. They seem more comfortable if they know there’s a physical store they can bring merchandise into. Even if they can’t physically bring it in, they like to know that there’s a physical location they can identify that they can ship merchandise to.
The third, and probably the biggest advantage if you’ve got if you’re a bricks and mortar store looking to go on the net is your customer base. You’ve already got people who love you. Long-term profitability for almost every business is built on increasing and expanding the sales from people who are already customers. You’ve got, hopefully, their names and addresses. You can get their e-mail addresses.
Overall, your advantages as a physical store retailer when you start to go to the net are all the things you already have in place – your reputation, your physical store, your customer base, your advertising and marketing. So what could be a problem?
The problem for most physical stores is that when you were on the net you’re already a prisoner to what’s worked for you in the past. In my experience, most retail stores do not have inventory systems that are well planned.
The inventory system usually has grown up over time, kind of like sticking pieces on a giant Velcro ball. When I work with retailers to go on the web, one of the most important things to do is to look at how they handle their records and inventory. Usually we find that we have to revamp the system to make it work effectively. Note that I didn’t say that we have to revamp the system to have it work effectively on the web.
It’s true that the web is the driver here, but what we usually also gain are economies and efficiencies in the system that weren’t there before. The reason nobody put them in place was that they’re the result of lots of small changes that would have had to be made. When we take the system down to the ground and come back up, we have the chance to build inventory and record systems that work better not only on the web but also in the physical world.
Another problem for physical stores looking to the web is that suddenly they have to become something like a catalog merchant. Most physical retail stores do little-to-no shipping or delivery. When you go on the web, though, delivery becomes a significant part of the game. And if delivery becomes a part of the game, so does picking and packing and shipping. I found that when we worked with physical retail stores on these issues, we almost have to set up a separate shipping department or outsource the work.
Finally, physical stores looking to go on the web face the great pricing dilemma.
The great pricing dilemma revolves around the fact that you have certain items that are high margin that you sell locally, but where you face severe price competition on the web. You have to make decisions about whether you will have the same pricing on your physical and webstores, or whether the pricing will be different.
I usually advise clients to consider a system based on known-value pricing, and to make that system consistent in the physical stores and the webstore. The evidence seems persuasive to me that stores who have tried different kinds of pricing systems, such as Barnes and Noble, have consistently angered their customers more than they’ve gained any business or profitability. My rule is that teeing off your customers is a bad idea regardless of why you think it’s a good idea.
Web Only Stores
What if you’re starting from scratch, like an amazon.com? Then you’ve got some pros and cons as well. The biggest plus for you is that you’re starting from scratch.
Because you’re starting from scratch, you can design your entire system: your order taking, inventory, warehousing, shipping, and returns for maximum effectiveness. That’s a big advantage over stores that have built up systems over time and need to evaluate each piece and modify several.
Your other big advantage is that because you’re a web-only operation, you can probably price lower than a physical store can. You simply don’t have the kinds of overhead that go with a physical store location.
That sounds good, so what’s the downside to web only?
Well, the biggest downside is also the biggest upside. You’re starting from scratch. That means that everything you do is going to take a little bit longer. ItÃ?Â¢ll take longer to build up the kind of customer base that a physical store already has. ItÃ?Â¢ll take longer to build up name recognition, and probably cost you more money, too. It will take longer to build loyalty among your customers.
YouÃ?Â¢ll also have to fight the concerns that being a new business always raises. People will wonder if you’re reliable. TheyÃ?Â¢ll wonder about whether they can return merchandise if it doesn’t work for them. TheyÃ?Â¢ll wonder about your honesty.
Clicks and Mortar
Step back a minute and take a look at these two situations. On the one hand, we’ve got physical store retailers who already have a solid customer base, solid infrastructure, and reputation. On the other hand, we have stores that can start from scratch with very little overhead. It doesn’t take a retailing genius to see that putting the two together can give the best of both worlds. That’s why I think that the kind of stores that we find “clicks and mortarÃ?Â¤ will be the ones that will carry the day in the digital age.
A clicks and mortar operation is one that has physical operations as well as a net-based operation. What’s happening on the net is similar to what happened in catalog merchandising just a few years ago.
There was a time when the catalogers were mostly separate from the physical store retailers. Then, suddenly people, like The Sharper Image, and Eddie Bauer started looking around and saying “wow, we could have stores, too.% So they set up stores. In some ways, this is a return to the original idea of companies like Sears and Penney’s. In another way, it was a brand new kind of insight. The stores help give presence and credibility to the company, and the catalogs help give reach and profitability.
When the catalogers did it right, the catalog encouraged people to visit the stores, and the stores passed out catalogs so people could shop from home when they didn’t want to make a trip downtown. That’s pretty much how it works on the web, as well.
If you’re looking at a retailing future in the digital age, consider a system that combines physical stores and effective webstores. Forget web sites, that concept is weak. Instead, think about webstores that carry on retail operations.
Forget about physical stores that are separate from your web. Put kiosks and terminals in your physical locations that look and feel like what folks will see on the web. Put coupons on the web that people can bring to the physical stores. Hand out coupons in the physical stores that encourage people to order from the webstore.
Look for ways to integrate your operations so that your web presence builds business for your physical presence and your physical presence builds business for your web presence. Integrate this in your operations, your promotion, and every aspect of your business.
The digital age future in retailing belongs to people who can integrate face-to-face physical retailing with “click here to order.% There’s no reason you can’t be one of them.