01 July 2015 #Commercial Real Estate
The UK is one of the world’s biggest internet shoppers with almost £1 in every £8 now being spent online. This year we are expected to outspend the Americans by disposing of nearly £1,200 per person on the web.
Does this indicate that there is little need for a bricks and mortar sales space? Apparently not as in recent years many online retailers have decided to open high street outlets.
A good example of this is Rapha who started as an online business selling cycle wear in 2004 and 7 years later opened their first physical store. Others UK examples include Oak Furniture Land and Google. North America has also seen a plethora of such openings including Bonobos, Bauble Bar and Frank & Oak.
Perhaps the most interesting of all is Amazon. The online retailer has been accused with being one of the main causes of the decline of the high street, with consumers preferring to shop from the comfort of their own offices and homes. Yet, in February of this year they opened their first physical store on a University campus in Indiana with rumours that there will be more retail stores to follow.
Why do these retailers feel that a physical presence is needed?
Research shows that people enjoy a multisensory shopping experience. They want to feel the items and see them at close quarters. Furthermore, it has been shown in recent studies that people will pay more for products they can see in person.
Having a few stores rather than one distribution centre can greatly improve shipping times and costs and ultimately improve customer service which itself can drive sales as a satisfied customer is more likely to repeat purchase. More locations also make it easier for the consumer to pick up and return items making for a swifter turnaround in sales and better customer service.
By interacting with their customers on a personal level retailers have found that their consumers show more loyalty to the brand. They feel a connection to the product and so spend more on it or will recommend it to others or repeat purchase in the future.
There are however some potential downsides to a movement into bricks and mortar.
Opening a store can be costly, particularly in respect of the rents payable and the cost of fitting out and maintaining the unit along with the added expense of hiring and paying staff.
Where your shop is located tends to determine your customer base. By having a fixed location your trade is often limited to the individuals passing your door. On the internet you are “open for business” to millions of potential customers.
Some stores that already have both an online and offline presence have also realised that opening more physical stores can drive their online sales. John Lewis is a good example of this and they have seen an upward increase in sales from adopting this strategy. They realised that consumers have changed their shopping habits. It is not unusual for a customer to visit a store to check the sizing, colour and fit of items and then go home and order them in the comfort of their own home.
Another revolutionary shopping habit that seems to be quickly growing in popularity is “Click and Collect”. Retailers are realising they need to accommodate consumers wishing to order online and collect from a convenient location. This has also lead to companies such as Doddle, who have opened 32 stores near railway stations, where customers can arrange for parcels to be delivered to for them to pick up on their way to or from their homes.
Often the e-retailer looking for their first bricks and mortar retail unit will consider a pop-up. By their very nature these are temporary short lets and can therefore be used to test the market’s appetite for the store and to put the physical products in front of the consumer in a relatively low cost way.
As with any property transaction there are a number of legal considerations the retailer will need to be aware of, including fit out costs, business rates, VAT, planning approvals and premises licences. These are looked at in more detail in our earlier online article Popping Up Everywhere – What are pop-up tenants’ key considerations?