This article was updated on April 16, 2018.
Amazon, the giant e-retailer often blamed for the demise of many brick-and-mortar stores, opened a physical storefront, and people were a little confused. Why would a brand that built a huge following and lucrative business model online decide to launch a physical location? It just didn’t make sense.
But if you look closely and consider the pros and cons of expanding an eCommerce business into a physical location, you’ll see there are many benefits to taking your online store to the streets.
With $1.3 billion in store sales, opening a physical storefront was the right decision for Amazon. Is it the right decision for your online business, too?
What to consider before opening a physical storefront
There are pros and cons to every decision, and when it comes to opening a physical storefront, every consideration should be carefully reviewed. Let’s take a look to see if creating a brick-and-mortar presence is the right call for your business.
Pros of growing into a storefront
There are many benefits to expanding into a physical storefront.
Less competition. There are thousands and thousands of eCommerce websites, but there are only a limited number of brick-and-mortar stores. Your eCommerce store might blend into the sea of other online stores while your physical property has a higher probability of standing out.
Increases consumer awareness. A physical location — especially a physical location in a highly trafficked area — allows you to catch the attention of passersby. You can increase customer awareness as potential shoppers notice your store by seeing it in person. This is great for branding.
Allows customers to experience tactile and personal products. Customer like to touch and feel certain products before they purchase, so products like clothing, jewelry and eyewear tend to sell better in physical stores.
Customers are willing to pay more for products they experience in person. Researchers from the California Institute of Technology (Caltech) found that in some cases, people are willing to pay more — on average 50-percent more — for items they could reach out and touch.
You can learn from your customers. In a physical store, it much easier to engage with your shoppers and ask questions. You can learn from them and improve their experience by watching their shopping habits and asking them for feedback about products.
You can create omni-channel marketing opportunities. You are limited to the type of customer experiences you can create when your business is entirely online. A physical store allows you to create new, exciting, and interconnected experiences for your customers using omni-channel marketing.
Draws attention back to the online store. A physical store can support your online store. After online eyeglass retailer Warby Parker opened their physical stores, they saw an increase in their digital sales. Co-founder and Co-CEO Dave Gilboa said:
“We also see a halo effect where stores themselves become a great generator of awareness for our brand and drive a lot of traffic to our website, as well and accelerate our e-commerce sales.”
Cons of growing into a storefront
Opening an online store does come with a few drawbacks.
Hiring and paying staff. Managing an online store is very different from managing a physical store when it comes to human resources. If you open a storefront, you likely will need to hire, manage, and pay a team of stock people, salespeople and cashiers.
Location expenses. You also incur additional expenses that relate to the physical location. Rent, insurance, utilities and furniture and fixture expenses are costs you don’t have with an eCommerce store.
Limited operating hours. Online shops are open for business all day, every day. You can make sales while you sleep. Physical stores can only generate sales during their operational hours which are rarely, if ever, 24-hours-a-day.
Limited customer base. The world is your potential consumer base for your eCommerce shop. Customers from around the world can purchase your products. But with a physical store, you are limited to the customers that are near the vicinity of your store.
Maintaining inventory. You need to manage inventory to keep your location stocked with items. This adds additional work to your operations and puts you at risk for being overstocked and forced to sell products at a lower price.
Makes you physically dependent. As an eCommerce business owner, you can manage your online store from anywhere in the world. But as a storefront business owner, you might need to live near the physical store and often spend regular hours at the location, limiting your personal freedom.
How to decide what is right for you
With so many pros and cons, it can be difficult to decide if you should stick with your eCommerce store only or expand into a physical location. If you aren’t sure what to do, answer these questions to guide yourself in the right direction.
Do you sell products that consumers will benefit from seeing in person?
Look at your product line and decide if experiencing the items in person will benefit your customers and guide them toward a sale. If you aren’t sure, don’t guess. Ask your current shoppers and poll your target shoppers to find out.
Where are your typical shoppers located?
Look at your customer’s demographic information. Where are you shipping products? If you are repeatedly shipping to a certain geographic location or area, it might make sense to open a shop in that area. If there is no consistency to your shipping locations, it might be better to stay online.
What products are people buying?
Look at the purchase history of your online shoppers, and consider the following:
- Are shoppers buying a variety of products?
- Are they buying mostly the same product?
- Are shoppers buying more than one item?
- Are they buying only one item?
If your shoppers are consistently only buying one item from your product line, you might not do well with selling your inventory in a physical storefront. On the other hand, if your customer regularly buy multiple items and your inventory sales are varied, you might have a better chance at selling products in a physical store.
Do people buy your products or your brand?
If you have loyal fans who love your products because they love your brand, they may be craving more from you. They may want additional experiences with your brand that you can provide through a physical location. If your shoppers are more interested in getting your product, moving on, and not engaging with your brand, online may be the best place for your store.
Have you considered your storefront space?
If you’ve found that buyers would in fact benefit from you opening a physical storefront, then you’ll need to consider the actual location, too:
- What competing businesses are in your target area?
- How many products do you want to display in your store?
- How will you display your products?
- What square footage will you need to accommodate everything?
If you’re not sure, there’s also the possibility of a pop-up store or guideshop (keep reading).
Would a “pop-up store” work for you?
If you aren’t sure how shoppers would respond to a physical storefront, considering having a test run with a “pop-up” store. A pop-up store is a temporary storefront that is usually constructed in a public space to gauge customer interest in a product or store.
Would a “guideshop” work for you?
If you can’t or don’t want to purchase a lot of inventory for a physical store, you might want to consider starting a “guideshop.” A guideshop is a store where customers can come in and try on, experience, and order your products. Inventory isn’t in the store. Rather, the customer makes their purchase and then the item is mailed to their house. This concept has been proven popular for men who don’t like to walk through malls or shopping centers carrying bags.
Does it make financial sense for you?
Run the numbers on what it will cost to open your store.
- Do you want to buy or rent?
- What is the estimated cost of purchase/rent?
- What is the estimated cost of insurance?
- What is the estimated cost of property tax (if applicable)?
- What is the estimated cost of utilities?
- What is the estimated cost of cleaning fees?
- What is the estimated cost of renovating the space and purchasing furniture and displays?
- How many employees will you need?
- How much will you pay your employees?
- What is the cost of payroll?
- What is the cost of payroll taxes?
- How much revenue will you need to generate to cover the monthly costs of your physical store?
- How much revenue will you need to generate each day to meet your monthly costs?
You probably don’t want to open a storefront if you don’t expect to meet the sales numbers required to pay for the cost of your location.
What do you want in the future?
As a business owner, it’s important to think about your goals for your business and your life. Goals aren’t statements like “stay in business for another year.”
So as you consider opening a physical store, list your goals and see how they align.
- Do you want to be location-independent?
- Do you have revenue goals that a physical store would support or hinder?
- Do you want to expand to other locations?
- Do you want to keep full-control or are you open to hiring managers?
Design your business to meet the goals of your business and life. Deciding to expand into a physical storefront is a big decision — so make sure you consider all of the possibilities and potential problems of making the change by working through this guide.