WHAT DO THEY HAVE THAT WE DON'T? BRICKS WATCH E-COMMERCE STARTUPS TAKE RETAIL MARKET BY STORM

07 November 2015

Are old-school retail companies facing hard times? With more of retailers' sales happening online or via mobile and shipping straight to home, large retail chains are closing more of their stores. Meanwhile, retail startups are booming.

E-commerce startups are redefining contemporary retail. And while dynamic growth of online ventures has driven several high-profile bricks to close some of their stores, the storefront is far from being dead. They are quick to embrace new technologies that help them revolutionize the shopping experience, such as virtual fitting rooms, showrooms and many other innovations that are designed to cater to the omnichannel consumer.

Saving on space rental

Briefly, the rapid growth of e-commerce boils down to profitability. While large retail store chains must sign long-term leases for their stores due to their massive stocks and ample resources, online startups can opt for much shorter, less-than-a-year long contracts. That offers a great opportunity for startups for a number of reasons. Vacant storefronts, landlords' penchant for short-term leases and rental websites make it easier for e-commerce startups to step into the retail environment, quickly learn the ropes of business and then bank on these relatively low-risk lessons learned.

Online startups usually carry less inventory than physical stores, which enables them to save on rent. Consequently, they can generate retail profitability much faster than bricks. Even if they lease some retail space, it usually does not have to be that big as in the case of large retail chains. Besides, they generally encourage their clients to shop online.

Distribution: merging offline and online

E-commerce firms that move offline also report considerable savings due to centralized inventory and cutting the cost of shipping. In retail, inventory is often associated with tied-up cash. Born on the Internet, e-commerce ventures have the unique ability to blend their online and offline inventories for distribution. It facilitates the process of fulfilling online orders from retail stores.

Another thing is free shipping. The bulk of e-commerce startups opt for free shipping both ways. Example: Warby Parker ships up to five pairs of frames to customers both ways for their "try at home" program. For them, the offline retail model considerably slashes the shipping costs, not to mention the costs of possible returns and exchanges.

'Know thy customer'

Contrary to some very traditional retailers, e-commerce startups are extremely well up on their customers. In fact, they know them almost intimately, especially when it comes to their personal preferences, favourite shopping locations or purchasing patterns.

Bricks should follow their example. That translates into the ability to design store experience in such a way that it really speaks to customers. Establishing that connection is the absolute priority. Retailers should know where to open their stores (city, neighbourhood or street) to attract most shoppers. It also means tailoring experiences in the retail environment to the needs and expectations of target customers. If you hit all the right notes, you will soon see your sales go up as the in-store foot traffic soars.

A payback period of an average brick-and-mortar store is two years or less. E-commerce can considerably reduce it through flexible, cheaper short-time leases, centralized inventory, and good understanding of the customer. Furthermore, the limited shipping impacts the e-commerce bottom line.