There’s a common belief that “online-only” retailers are crushing physical stores, but the truth is that, with just a few exceptions, like Amazon and eBay, that’s really not true. In fact, trends are showing that “online-only” is a very challenging business model, and that these companies struggle when they don’t also have a physical store presence. Here are some points to keep in mind:
- Of the top ten retailers in the U.S., nine are brick-and-mortar based companies. The only exception is Amazon. Nine of those 10 retailers experienced growth last year, and the top one, Walmart, grew by 8%.
- Physical stores are more profitable than e-commerce stores. While most big box retailers participate in ecommerce as well, they still rely primarily on their brick-and-mortar business because their physical stores, while growing slower, still have higher conversion rates; that is, physical stores have a higher percentage of visitors who actually make a purchase.
- Online orders also cost companies more because of shipping, handling, and return expenses.
- Online sales continue to grow, but their profit margin has actually shrunk, which means that physical stores are subsidizing online stores.
- Although the younger generation is known to be digital-centric and does much of their shopping research online, according to Accenture research, more than 77% of Gen Z shoppers in the U.S. would rather make their purchases in a physical store than online.
- Brick-and-mortar-based retailers are buying up “online-only” retailers. Economic realities are demonstrating that merchants that sell only in cyberspace are unable to compete with stores that have both physical and online components. This is a prime driver for the growing trend of online-only companies to open physical stores, a move that seems opposite of what conventional wisdom would suggest. Even online giant Amazon has begun opening brick-and-mortar book stores.