The Surprising Truth Behind Competing With Amazon
According to RetailDIVE, online sales in the U.S. will grow by 15.8%, to $452.76 billion, by the end of 2017. Not surprisingly, E-commerce giant, Amazon, is poised to capture 43.5% (or $196.75 billion) of that amount—almost 4% of all retail sales in the U.S, with overall E-commerce accounting for 9% of all U.S. retail sales by the end of 2017.
While it’s true that many brick-and-mortar stores have experienced a decline in sales as a result of E-commerce and many retailers continue to worry about the future of their businesses, Forbes assures retailers that their future remains strong and bright in a revealing article titled Five Signs That Stores (Not E-Commerce) Are The Future Of Retail.
“To say that digital commerce is killing off physical stores is lazy thinking and a half-truth. On the contrary, pure-play online shopping is the imperiled model, evidenced by the lack of e-commerce-only retailers — save for Amazon and eBay — that have gained any meaningful heft and influence.”
That’s not to say that e-commerce hasn’t transformed the way people shop. In fact, according to i-SCOOP:
[Tweet “90% of pre-purchasing research happens online.”]
- 90% of people use their smartphones in stores while shopping for price comparisons, production information and checking online reviews.
Forbes also points out that, despite the talk about e-commerce putting brick-and-mortar out of business, it’s actually the online-only merchants that are struggling to go it alone. Here are 5 compelling facts to support their theory:
1. All Top Ten U.S. Retailers Are Physical Chains, Except One
With the exception of Amazon, the top 10 U.S. retailers are old-school, brick-and-mortar stores, according to the Top 100 Retailers list from STORES magazine. These include, in ranking order, Wal-Mart Stores, Kroger Co., Costco, The Home Depot, CVS, Walgreens, Amazon.com, Target, Lowe’s and Albertson’s.
2. Physical Stores Are More Profitable Than E-Commerce
While the Top Ten Retailers mentioned above all have E-commerce sites, their physical stores are still the bread and butter of their business.
Forbes notes that bricks generate higher conversion rates (the % of store/site visitors who make a purchase) than clicks. Additionally, store purchases are more profitable than e-commerce orders due to shipping and handling charges, as well as the costs associated with increased returns, which can eat into margins. One study revealed that physical retail stores were actually subsidizing their online businesses.
3. E-Commerce Giants Are Buying Up Physical Stores
When the nation’s biggest E-commerce retailer purchases one of the largest brick-and-mortar chains in the nation, it’s time to pay attention. While Amazon has been dabbling with Amazon bookstores and Amazon Go, its purchase of the 460-store, $15 billion Whole Foods chain hints at a major commitment to brick-and-mortar.
4. Millennials And Generation Z Prefer the In-Store Experience
Although Millennials and Generation Z came of age during the rise of Amazon, Facebook, and Instagram, both groups prefer in-store to digital shopping.
In fact, 70% of global millennials prefer brick-and-mortar retail stores, and over 77% of Gen Z consumers, born after the mid-1990’s to early 2000’s, indicated that brick-and-mortar stores are their preferred shopping channel, according to Accenture research.
“These groups are the future of retail,” says Forbes. Millennials outrank baby boomers as the nation’s biggest buying group, with an estimated 80 million millennials in the U.S. spending approximately $600 billion each year. And Generation Z is expected to reach a population of 2.6 billion by 2020, with an estimated $44 billion in buying power.
5. Online Retailers Are Being Acquired By Legacy Retailers
Traditional retailers are gobbling up online-only merchants. Nordstrom, for example, acquired Haute Look, meanwhile Bed Bath & Beyond scooped up furniture site, One Kings Lane. Even Wal-Mart is getting in on the action, buying up Jet.com, Modcloth, and Bonobos.
“Brick merchants are buying click merchants because online-only is not a viable retail model…[F]or one, “walk in traffic doesn’t exist online, while stores can generate organic traffic. And expansion builds brand equity…”
That’s the reason online players like Amazon are scrambling to open stores. They recognize the value of a brick-and-mortar presence.
And consumers recognize it too, as this quote from i-SCOOP points out:
“The in-store customer experience matters even more than in the past, with consumers wanting more engaging and personalized experiences.”
Furthermore, Synchrony Financial points out that consumer’s “want an immediate purchase and an exciting experience.”
In a Capgemini study of consumers, more than 70% of the respondents stated that they’ve used online search, social media, etc. in their shopping journey, which is now an essential part of the modern customer experience.
However, more than 90% of revenue still comes from the physical retail channel and it remains the favored destination for shoppers to complete a transaction. While the future of brick-and-mortar seems secure, retailers still need to do more to attract customers and build loyalty. Offering exciting and seamless experiences online and in-store will go a long way to accomplishing that goal:
“Today’s digital consumer switches from channel to channel during the purchasing process; an online presence and a bricks-and mortar store both play important roles. The challenge for the retailer is to create a seamless omni-channel experience to win customers and nurture them through the purchase—and beyond.”
Source: Retail Week via i-SCOOP