Direct-to-consumer (DTC) and e-commerce business models have made an enormous impact on consumers and brands alike. With the advent of e-commerce marketplaces like Amazon, and the ease of selling DTC using tools like Shopify, it has never been easier to launch new products and get a brand off the ground. As many digitally-native brands are discovering, however, standing out and growing organically in the crowded online retail landscape is becoming increasingly difficult. Search, social media, and e-commerce ads have all become more expensive while simultaneously suffering from declining engagement, leading to increasing customer acquisition costs. Stepping into brick-and-mortar, where more than 80% of sales still occur, is one attractive solution to this situation. However, it must be done carefully and with considerations for physical retail’s unique benefits and challenges. In this article, we explore why physical retail can be beneficial for DTC and e-commerce brands, and highlight some key strategies for success.
Benefits of Physical Retail
The benefit that’s most frequently top-of-mind is the discoverability advantage. Beyond the obvious exposure to infrequent online shoppers, a physical retail presence allows you to reach audiences who are not actively searching for you. Such serendipitous discoveries account for a large fraction of discretionary purchasing and are much more difficult to leverage online. Physical stores also offer a tactile experience where customers can touch, inspect, and test products; along with the instant gratification of in-store shopping, this is a major reason why consumers are known to be more spendy in-store. Direct customer engagement via sales associates enables brands to gather rich feedback (without surveys or web forms) and use it to improve products and customer experiences. Finally, it is much easier to engage in synergistic partnerships and collaborations with other brands or local businesses in physical spaces. Many of these potential benefits of physical retail also present added complications and challenges for brands that are used to only selling online. It is crucial that a retail entry be carefully planned, so we now dive into some key areas where brands can set themselves up for success.
Physical Retail Entry: Key Strategies for Digital Brands
Start Small and Test the Waters: Before committing to a full-scale retail expansion, consider starting with a pop-up store, pilot location, or selling through an established retailer. This allows you to test the market, gather feedback, and assess performance without large capital expenditures.
Working with established retailers is usually the least costly, and can take the form of a collaboration with a branded store, or a more traditional supplier-retailer relationship. Entering retail this way can be complex, especially if selling through traditional retailers, so be sure to check out our other pieces for tips on how to succeed here.
Pop-ups are another cost-effective way to test the waters, but it is important to understand what they can and cannot tell you about potential retail success. For a pop-up to generate significant interest and sales (thereby reducing its net cost), it’s often a heavily marketed, event-like affair. While this generates foot traffic and sales, it is difficult to sustain and may not be representative of actual retail performance.
Opening your own pilot locations is the most costly and best for strong, established brands that can actively and consistently drive foot traffic to their stores. However, it gives brands near-total control over their image and presentation to the customer. This can be a blessing and a curse, because the brand itself must execute properly on every aspect of retail, from logistics to inventory management to in-store customer experience.
Don’t Neglect Omnichannel: Omnichannel integration, when done correctly, creates a seamless shopping experience for customers. But doing it right is hard from both operational and technical standpoints, and what omnichannel looks like is rather different depending on whether the brand operates its own stores or sells through a retailer. In both cases, consistent messaging and inventory information is key. Inventory management can be a challenge even for large, established retailers, and it should not be neglected by brands operating their own stores. If selling through a retailer, accurate information on where your product can be found goes a long way to creating a positive customer experience. Yet, in our experience, such information is inaccurate a significant amount of the time, even on brand and retailer websites. “Buy online, pickup in-store” programs are a great way for brands to bridge e-commerce and retail, but require significant tech investments or relationship capital with retailers.
Create Engaging In-Store Experiences: This is one clear advantage for a brand operating its own store – the sky’s the limit when it comes to controlling and crafting the in-store experience. Beyond customer service, layout and aesthetic, consider brand partnerships and events to elevate the experience further. These can help build rapport and trust with customers and complementary brands. Both of these pay long-term dividends to enhance a brand’s moat. Brands selling through retailers can also keep the in-store experience in mind. Placement in-store, attractive displays, and effective visual merchandising are key. This can be especially important in channels like convenience where distributors are the primary point of brand contact, and brands don’t always know the retailers in which their products appear. By default, brands may not always know where their products are ultimately sold or how they appear to customers.
Leverage your Customer Data: One of the unique advantages that DTC and e-commerce brands have when entering physical retail is access to extensive online customer data. This can be used to gain insights into customer preferences and buying behaviors to identify potential locations where the physical presence is most likely to bear fruit.
Build a Strong Store Team: Although this has different meanings depending on whether a brand operates its own stores, it is critical in both cases. If selling through a retailer, a brand should have experienced individuals dedicated to inventory management, logistics, and relationship management with the retailer and possibly distributor. If operating its own store, a brand must ensure that all aspects of the retail operation are running smoothly.
Know your Metrics: Continuously monitor store performance and measure key retail-specific metrics. Chief among these are variations of revenue or profit spatial density. Physical retail space is finite and costly, and any retailer looks to maximize its earnings from its space. Check out our article on valuing shelf space for more on these KPIs.
Although our lives have become increasingly digitized, 80% of sales still happen in physical stores. Leveraging brick-and-mortar retail space is an effective but nuanced strategy for digitally-native brands to enhance market reach, improve customer experience, and differentiate in the competitive e-commerce landscape. By following the guidelines above, brands can harness the unique advantages of physical retail without falling prey to its challenges. While the shift from digital to physical demands a thorough understanding of the brick-and-mortar landscape, it can prove transformative for brands willing to engage intelligently.