Brick and Mortar versus E-Commerce: Rethinking Sales Focus

Staples recently announced a new strategic plan for growth, with e-commerce firmly at its center. The office supply retailer has outlined plans for $250 million in cost-cutting activities as it expands its online operations and works to better integrate online and retail offerings. The decision by Staples is indicative of a dilemma faced by many brick and mortar retailers: In an environment where consumers are increasingly turning to the internet to fulfill their shopping needs, both for price comparison and expanded product assortments, how can retailers step away from the traditional brick and mortar model and successfully integrate all shopping channels to find success?

In what circumstances does an increased focus on e-commerce make sense for traditional brick and mortar retail businesses?
 

Reducing Selling Costs

Many brick and mortar retailers, particularly those of the “big-box” variety, are notorious for having an inefficient cost structure when it comes to selling expenses.  A hefty square footage means that these stores typically have high carrying costs for rent and occupancy. In the case of Staples, a significant percentage of the company’s customers are small business accounts—customers with no need to browse the aisles of a big-box store. By closing down select stores and “rightsizing” existing locations, Staples will see a reduction in selling costs and will be better-equipped to drive more customers to its online sales channels.
 

Sales Tax Worries Diminished

When making buying decisions for most products, online consumers don’t seem as concerned with the collection of sales tax as was once feared, providing another reason for brick and mortar retailers to focus on online strategy.  Online retailers like Amazon have historically had the advantage of not being required to collect sales tax in many states because they did not have nexus, or a physical presence, in those states.  Conversely, brick and mortar retailers like Staples were perceived to be at a disadvantage since their locations in most states meant they were required to collect sales tax on online purchases in those states.  With the impact of sales tax collection on the consumer’s decision to purchase online diminished, Amazon is now free to expand its physical presence, entering the brick and mortar retail space and adding distribution centers across the country—a sign that online retailers like Amazon believe that customer service is now more important than sales tax considerations in the eyes of consumers.  Consumers will soon enjoy same-day delivery on the majority of their online orders, but should be prepared to pay sales tax on those orders.  Brick and mortar retailers will have yet another avenue to compete against online retail giants.
 

Logistics

Today’s e-commerce strategy is not just limited to providing consumers with an opportunity to purchase products online, it has also evolved to include a focus on customer service.  Today’s online consumers expect excellent service—including fast shipment, easy return and exchange policies and access to full product assortments.  In order to satisfy those expectations, online retailers must have a logistics strategy that ensures their ability to deliver a large assortment of products fast and process returns and exchanges quickly.  Amazon is legendary for their superior logistics and are now upping the game with same-day delivery. For brick and mortar retailers that are now focusing on e-commerce sales, seamlessly integrated online and in-store sales channels are no longer enough.  Now, the real differentiator will be having an e-commerce channel that is faster and more efficient than the competition.  In this instance, brick and mortar retailers may have a built-in advantage over their online competitors if they can successfully leverage their retail locations to deliver online orders and provide superior customer service.

What are your expectations for e-commerce and brick and mortar retailers in the future?

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