Over the last 20 years, the rise of the internet has created a large rift with the way bricks and mortar retail stores have been operating and the growing market share of online shopping. Online retail has brought about significant change in the Australian culture by changing the way consumers are making their transactions. This has forced bricks and mortar stores to innovate and adapt the way they do business so they will not lose more market share to the growing online retail sector… But will it? In this article, we will discuss the pros and cons of online stores and bricks and mortar stores.
Set Up Cost
The costs of opening up a retail store vary based on the type of retail business you’re starting. Size and most importantly location, play the biggest part in the costs your business will incur. Other costs for bricks and mortar stores include rent, licensing fees, store fixtures, initial inventory, equipment including POS (point of sale), signage and interior decor aesthetics. These near immediate costs require significant initial start up capital,(upwords of $30,000) which make starting a bricks and mortar store, a financially more risky venture then starting an online store.
Starting up an online store requires little initial investment, making it an attractive option for first-time business owners or experienced retail shop owners looking to expand their business online. It is possible to start a lean online store for as little as $500 dollars. Depending on what you plan on selling, and on the minimum order quantity (MOQ) that your vendor requires. Below is a quick breakdown of start-up costs associated with starting an online store. Excluding product sourcing costs as these vary.
- Web domain $9.99
- Web Hosting $10.99 AWS also offers a free tier for 12 months
- Install Open Source Shopping Cart-Free
- Web Design from Freelancer – $100
Here are the costs if you go with a fully hosted platform like Shopify or Big Commerce.
What are the Benefits?
BRICKS AND MORTAR
There is an old saying in retail “the first three advantages of retailing are “location location location.” Brick-and-mortar stores are uniquely positioned to reap the traffic associated with specific destinations or shopping patterns around them. In short, bricks and mortar stores are able to immediately attract potential first time customers, thanks to the locations’ foot traffic. Bricks and mortar stores also have the ability to design provide a “brand experience” to reflect the stores brand. This is particularly important, and if done correctly can be beneficial for the stores overall brand perception and bottom line.
Despite these benefits, there are three undisputed core advantages that bricks and mortar stores provide that online stores cannot. These are the ability to physically inspect the goods prior to purchase, the ability to immediately receive the goods after purchase and perhaps most importantly the face to face customer service provided in a bricks and mortar store. The latter also connects with the “brand experience” mentioned earlier. Customer service and shopping experience are the two main drivers for shoppers who continue to shop at physical stores. According to Marketing Mag, 55% of Australian shoppers choose to shop in store over online because they enjoy a store’s atmosphere.
As discussed in the first section of this blog, the main benefit of starting an online store is the cost savings. Starting and running an online store is far cheaper than opening and operating a retail store. These lower overheads allow for products to be sold at a significant discount this is a big motivator for consumers to purchase online. Online stores also require fewer employees and less time to operate, making it an attractive option for first time entrepreneurs and side hustlers. Online stores are also open 24/7 with no trade barriers. Anyone from anywhere can buy your product at any time once your product is online. This is the biggest advantage of an online store.
BRICKS AND MORTAR
Despite the benefits of a running brick and mortar store, there are also some disadvantages. The first is one we have already touched on. Cost. Bricks and mortar stores require large upfront costs to start and significant costs to run. These ongoing costs include wages, utility costs, rent, stock purchases and theft. Bricks and mortar stores will need to cover the operating expenses until the business reaches a break-even point. It is likely that a bricks and mortar store will not be profitable in the first several months, and it may even take years.
Another disadvantage is the opportunity cost required to run a bricks and mortar store. Running a bricks and mortar store requires a full-time requirement no matter the size of the business. This is a limitation for bricks and mortar store owners. As there online counter parts are more time free and have the ability to travel and work from anywhere.
Online stores can be great side hustles and first time businesses for aspiring entrepreneurs. However, overcoming these disadvantages will be the difference between success and failure. The first disadvantage of an online store is no immediate customers. Unlike physical stores, who get initial traction from foot traffic, online stores get little to no traction once the store is up and running. This can be a difficult hurdle for the new businesses to overcome. This is because the level of competition is extremely high and the barriers of entry are low. Lets be honest we all know someone who owns an online store. This is why having a point of difference and well thought out marketing plan is essential for online businesses to be found by their target consumers.
Despite what everyone thinks Bricks and mortar stores are not dead . They are just evolving. The physical retail models which worked as recent as 10 years ago needs to be refreshed as the role of the bricks and mortar store is changing.
In the future, the line between bricks and mortar and online stores will become more and more blurred, as hybrid models emerge. Online retailers are expected to expand into other sales channels over the next 5 years. Pure online-only retailers are using multiple channels to engage and connect with customers. Some are opening flagship brick and mortar stores which act as showrooms as a means of naturally growing the business. We are also seeing bricks and mortar stores entering the online shopping industry. This is because the online shopping industry is growing at 9.5% per year according to the latest IBIS World Report. It also a way for trusted bricks and mortar stores which have been operating for many years to expand their business and secure there positions for years to come.
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COLES CASE STUDY (BRICKS TO CLICKS)
First opening it’s doors in 1914, Coles Supermarkets is one of Australia’s oldest retail chains. Founder GJ Coles created a store that would lower the costs of living for Australian families. Over the last 100 years, Coles has gone through a host of changes as the retail world continued to evolve around it. Some of these changes include, a pivot from its origins as a variety store to a food retailer and more recently the introduction to self scan check outs.
One of the biggest changes occurred in 2003, where Coles began to offer click and collect services for there groceries. The move to offer supermarket products online proved to be a popular one as Australian shoppers continue to seek convenience as they continue to become more time poor.
FRANK + OAK (CLICKS TO BRICKS)
Launched in 2012, Frank + Oak is an online destination for mens premium threads at affordable prices. After three years of success in the online retail world, the next step for the brand was to open its first bricks and mortar store in downtown Montreal Canada. It has since expanded to 13 locations including 3 outside Canada.
Moving to a physical store allowed Frank + Oak to strengthen its branding experience and positioning as a men’s fashion destination. This was done with in store cafes and hip barber shops. This physical brand “experience” is also coupled with rich online content on its website. This multi-channel strategy ensures the brand’s profitability for years to come.