Balancing the scales in retail: Why the physical store is more important than ever? 11 tips on how a physical store can add value to a retailer’s business

05.08.2019
In the past few years, the retail landscape has gone through a huge and quick transformation in many global markets due to digitalisation. This is also true for Citycon’s key market – the Nordics.

Sweden is a good example to illustrate where the growth is taking place nowadays.  A common question in the industry is what effect e-commerce will have on physical stores, but I believe that the opposite questions are just as relevant – what effect will physical stores have on e-commerce and how can they be combined into a successful business model for retailers and property owners?

Stores increase web traffic

The International Council of Shopping Centers recently conducted two major global studies, ‘Bricks Drive Clicks’ and ‘The Halo Effect’, which investigated how physical stores affect online sales and web traffic. One of the most interesting take-aways from these studies was that the opening of a physical store in a market could increase the retailer’s web traffic by 37%. In the opposite way, store closures have a negative effect on web traffic. In fact, every third respondent stated that they would shop less from a retailer that closes stores.

Balancing the scales

Although the above studies are international, their implications are still very much applicable for the Nordics. The debate regarding online vs offline, regardless of the market, is often quite one-sided and offers few positive outlooks for physical retail. Is this really the case? I would argue that physical stores are more important than ever. Will we see fewer and smaller stores? Yes, we probably will, BUT those who remain will be the best stores, in the best locations and with the greatest prospects. 

Here are 11 tips on how a physical store could add value to a retailer’s business.

1. Sales – Obvious, isn’t it? But as mentioned earlier, most of the sales are still taking place in physical stores. The income generated is financing the build-up of many traditional retailers’ e-commerce and their transition into an omnichannel business model.

2. More profitable – Average operating margins for physical stores are more than twice as high as e-commerce.

3. Click-and-collect – Many traditional retailers’ e-commerce sales are generated through click-and-collect to a large extent, sometimes as high as 70–80% or more. This implies that consumers want to visit stores to get their products rather than get them home delivered or to another location. Thus, the physical store is the most valuable part of the supply chain in these cases.

Balancing the scales in retail, Cityscape blog, Citycon

4. Urban logistics – Looking to the UK, large and small warehouses are becoming more attractive on the property market while medium-sized warehouses are becoming less attractive. This implies that more retailers prefer to establish one or a few large warehouses to cover the logistical needs in a market supported by a greater number of micro warehouses in urban locations. The large warehouses are needed to handle massive volumes effectively and the micro warehouses close to the consumer enable lightning-quick deliveries, sometimes within an hour of an order being placed. Stores have a great potential to be micro warehouses and play a crucial role in the last-mile delivery. 

5. Trust – Stores build trust between consumers and brands. Online safety is still an obstacle for online growth. A physical store can add credibility and assurance that the consumers can go about their shopping in a safe way. This is especially the case for new brands or international retailers entering a new market.

6. Touchpoint – Stores add value as a touchpoint to meet and talk to customers, which is not possible through online channels.

Balancing the scales in retail, Citycon, Cityscape blog

7. Engaging –  Sometimes the store can let customers try the products in a live situation like Adidas’ flagship store in Paris on the Champs-Élysées. The store has a runners’ club, football simulators and treadmills, which lets the customer experience products before buying them. In stores like this, it is all about building community and engaging customers in various ways.

A store is in many ways a hub which can add value to the customer journey

8. Added value – A store is in many ways a hub which can add value to the customer journey. A lot of customers prefer to make their returns in a physical store. This is a good opportunity to sell additional products and offer various services to the customer.

9. Marketing – A store is a marketing channel just like many other media. Sometimes, the ‘store’ doesn’t even sell any goods; its sole purpose is to build brand awareness, brand experience and loyalty. 

10. Flexibility – Pop-ups and showrooms can drive web traffic and online sales. The effect is even greater for new brands or online retailers without any previous physical stores.

11. Reaching new customers – Opening a store in an area with a low conversion rate can attract new customers from that area. The store can work as a way to gain new customers both online and offline.

It is obvious that physical stores have an important role to play for the foreseeable future. From a consumer perspective, it is also quite clear that physical stores and e-commerce can complement each other. There will, of course, be consolidations and physical retail will focus increasingly more on urban hubs with a wide offering of goods, services and with great communications resulting in high footfall. These are the places that can expect a new kind of retail leveraged from both physical and online presence.

Leasing Manager Tobias Rönnberg

Tobias Rönnberg

Leasing Manager with an analytical background from HUI Research (Swedish Institute of Retail). Optimist (also with time) who believes in data-driven decision making and that all work can be done more efficiently. Loves thai boxing, great food and the outdoors.