CACI Warn Closing Physical Stores Can Cause Online Sales to Halve

 

The pace of growth in online shopping might have tempted you to question whether having a physical store presence is still worth it. This is not an unusual question for a retail business to be asking when you consider what the shift to e-commerce entails. Customers are fleeing brick and mortar stores in droves, attracted by cheaper, more personal offers in the online world.

 

New research has emerged, however, showing why you might want to take a closer look before ditching your physical storefront altogether.

 

 

 

A London-based marketing company called CACI conducted research into the effect of physical stores on sales across shopping channels. They found a positive and substantial “halo effect” on overall sales that was attributable to operating a physical storefront.

 

 

 

CACI surveyed more than 2,500 shoppers as part of its study. The company found that shoppers were more likely to spend more online with brands that had a physical store in their area where shoppers could browse items. 

 

Brands that had a physical store saw higher sales online, with the magnitude varying by vertical, as follows:

Closing your physical stores, hence, could reduce your online sales as well by as much as 50%.

 

 

 

The finding that physical stores boost a retailer’s sales might seem counterintuitive today, but this used to be conventional wisdom before the internet. Back then, everyone understood that having a physical storefront was how you connected with customers and made sales. 

 

Now, in an internet shopping world, the advantages of having a physical store might be lost on some retailers.

 

 

 

Some of the buying habits from an earlier time have endured even in this new world of ecommerce shopping. 

 

As the CACI research found, shoppers like certain aspects of the physical store. According to the research, up to 50% or more of purchases had a touchpoint to a physical store. 

 

This does not mean that the buyer bought in store. Rather, they might have purchased online but visited a physical store for any of these purposes:

Physical stores, thus, have the advantage of offering the customer a more experiential form of shopping. In the virtual world, the buyer cannot handle or try the actual product.

 

 

 

While each individual retailer’s circumstances are unique, it’s clear that cutting physical stores indiscriminately is far from optimal. Here’s why.

 

If a retailer with both an online storefront and a physical storefront is struggling, it’s easy to mistakenly implement cuts in the wrong area. For example, looking at the overhead expenses of your storefront, you might jump to the conclusion that that’s where you need to cut. 

 

By closing your physical store, however, you might, say, close the channel where your heaviest shoppers spent the most. It’s not unusual for your most loyal customers to also be the ones who frequent your store the most. 

 

 

 

A new buzzword that has entered retail circles in the last decade is “omni-channel.” Omni-channel refers to retailing that creates a seamless experience across all the touchpoints available. These include physical stores, the web, mobile, and other platforms.

 

 

 

Rather than being just a buzzword, omni-channel retail can deliver real results for retailers willing to take the plunge. According to a collaborative study by the Harvard Business Review in partnership with other researchers, omni-channel works and is used by a majority of shoppers.

 

In a study of 46,000 shoppers, the researchers discovered that 73% used multiple channels. Only 20% of shoppers were store-only shoppers. Even fewer, 7%, were online-only shoppers. If you are focusing on just one channel, chances are you are losing customers to your competitors if they go omni-channel.

 

 

 

Another important finding from the Harvard Business Review study might be a bit surprising, but it encourages paying more attention to omni-channel strategies. 

 

The study found that not only were omni-channel shoppers avid users of all the various touch points available in-store, they were the biggest spenders as well. 

 

If omni-channel shoppers are going to spend the most in your retail stores, you might as well look at how to make omni-channel shopping work better for them.

 

 

 

Despite the growing understanding of the benefits of omni-channel retail, that has not been enough to stop closures of physical stores. A variety of factors have led to the closure of stores even by big brands. These closures might seem hard to justify if omni-channel works as well as its proponents claim.

 

 

 

The reality, however, is that many retailers have been slow to adopt strategies like omni-channel retail. The fast pace of technology and changes in buyers’ shopping habits has left behind many, with large retailers among those still catching up with the times.

 

In 2019, for example, many large brands have closed stores or announced plans to shutter stores. Marks & Spencer in the UK and Family Dollar in the US are just some of the latest big retailers to fold some stores.

 

 

 

As explained in a Michigan State University business post, for some retailers, closing stores can increase a store’s value. When a store brand has too many outlets and cannot justify the overhead, it might be time to close some stores. 

 

For publicly traded companies, such cost-cutting moves increase investor confidence in the strategic direction of the company. For smaller retailers, there might be no immediate boost in equity value, but you should still compare the different payoffs from keeping stores or jettisoning them.

 

 

 

A final takeaway from this ground-breaking research is that the much maligned physical store might not be as bad as it’s been thought in the past. While online shopping might be the rage now, especially with tech-savvy shoppers, the physical store is not dead at all. Rather, it continues to play an important role in the shopping experience. That role may be different now from what it was fifteen years ago, but the physical store can still help you grow your retail business.