The Bright Future of Brick-and-Mortar Retail: Four Key Drivers

Amazon’s continued move into brick-and-mortar (aka physical) retail can be seen as further proof that the terminal demise of the physical store has been slightly—if not largely—exaggerated. Rather, brick-and-mortar retail is evolving to meet new customer expectations and address the continuous change in the overall retail landscape.

This evolution continues in a similar way that village markets morphed into malls, strip centers, and eventually “lifestyle” centers years ago. For many reasons, physical shopping will continue to generate a significant portion of retail revenue. As such, Amazon’s move into the physical store space makes plenty of sense for the behemoth retailer.

Traditional retailers, take heed: understanding why brick-and-mortar is important to Amazon should guide your own omnichannel strategies. Let’s explore four key drivers behind the bright future of brick-and-mortar retail.

Consumer Desire for Physical Interaction
Efficient and Less Costly Returns

Ability to Attract New Customers
Expanded Ability to Collect Shopper Data

Many consumers still desire personal, physical interaction.

Amazon and other pure-play online retailers have no access to this valuable group in their current digital-centric models. COVID-related lockdowns and the surge for in-person post-lockdown shopping further support this. Moreover, this desire for interaction is true for products as well as with other people. While more prevalent in certain product categories, it applies across various customer groups when clustered based on age.

Many younger shoppers are comfortable purchasing vehicles, appliances, apparel, or even fresh produce sight unseen, via online shopping.
Other shoppers would never even consider doing such a thing for those or other less complicated categories—traditional brick-and-mortar locations will continue to be the preferred channel.
Many times, it is generational, but for some consumers, other factors like data security and privacy drive them to limit the scope of their online transactions. As data piracy and security breaches increase, more shoppers may return to in-person transactions to limit personal data exposure.

Additionally, some transactions just may be more suitable in person. Examples include:

Perishable groceries—some consumers simply will not trust another human being to select their produce or meat (ever tasted a green banana?).
Apparel exchanges, fitting, and alterations—while online-only models have adapted, these interactions are still much more effective and efficient in person.
Last minute access to an item—free/next day shipping doesn’t help when an item is needed for tonight’s event!
Item returns with quicker credits—as consumers are continuously squeezed and economic futures remain uncertain, wallets and budgets are tightly held.

Returns are more efficient and less costly.

Pooling a collection of returned goods and shipping them back to Amazon facilities in bulk for resale, refurbishment, or even disposal is usually much more cost-effective than paying to ship each individual item back separately.

With “free shipping/free returns” table stakes these days, carving out unnecessary supply chain costs has grown in importance.
Incentivizing the consumer to easily drop off returns at an Amazon-owned or affiliated location (i.e., Kohls, UPS stores, or Amazon drop-off locations) helps avoid one of the more expensive components of customer shipping: “the last mile” to/from the consumer’s location.
With the drop-off model, Amazon has shifted the responsibility onto the customer and saved themselves transportation and handling expenses, while also expanding their ability to move things in bulk at a much lower cost.
Further, fueled by these returns, additional customer traffic into brick-and-mortar locations promotes awareness of a retailer’s product assortment (and services, if offered) and increases the opportunity for incremental impulse buys or attachment sales.

A brick-and-mortar sales channel attracts new customers to the brand.

As mentioned above, there is a segment of consumers who will still only shop in physical stores. Amazon may also be making a concerted effort to meet and attract new customers in the way that the customer prefers to interact. Without physical locations, Amazon and other pure plays may not have any access to these consumers.

Physical stores expand the customer footprint by making a brand (and its products/services) available to more consumers.
Amazon uses its many channels to create a “sticky relationship” with consumers, essentially being present and available whenever and wherever consumers need or want something.
Many consumers prefer to shop in a hybrid model (both physical and digital) using both for pre-purchase research and comparison and then completing the transaction using the channel with which they are most comfortable.
It’s unified commerce at work: supporting end-to-end personalization, Amazon can develop and provide contextual experiences that impact specific consumer interactions across its e-commerce sites as well as in their new physical locations.

Physical stores provide opportunities to collect additional data about shopping behaviors.

Amazon’s underscore about the bright future of brick-and-mortar retail is also about amassing more valuable consumer data. Brick-and-mortar consumer shopping habits, likes, dislikes, product preferences, market baskets, pricing tests, etc. represent extremely valuable information. Like many retailers, Amazon is always looking to move into new and profitable product categories—or expand the profitability of existing categories. They can use this “newly captured” customer data from their physical stores to influence how they engage with shoppers and product assortments, thereby presenting a strategic, data-driven, consistent approach across all of their sales channels.

Final Word

Whether accessing new, untapped customer groups, driving costs out of the reverse supply chain, or just stockpiling more consumer data for analysis, Amazon’s (and other online-only businesses) move into the physical retail space, makes perfect sense for an online organization looking to access new customers, enter new product categories and even new markets.

The recognized “OG” digitally-native business continues to disrupt the retail industry with a very old school, traditional approach—indeed the future of brick-and-mortar is quite bright.

If you have any questions about your own omnichannel capabilities, please reach out to us. We would welcome the opportunity to discuss any of your challenges or ideas.

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