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Back to the Future: Online Retail Embraces Real Stores

28 March 2014 in Trading Ideas

If bricks-and-mortar is dead, why are so many hot Internet retailers deciding that a physical presence is a key part of their growth strategy?

Earlier this week, the New York Times reported on Birchbox, a four-year-old fast-growing online beauty products provider that has become the latest e-tailing success to attempt opening an actual store.1

The company, the Times said, has shaken up the cosmetic and beauty industry by figuring out a way to get consumers to buy makeup online — and to pay for samples that department store makeup counters usually give away.

But for its next attempt at building the business, Birchbox plans to fill a 4,500-square-foot space in Manhattan with more than 2,000 products. And the company clearly isn’t forgetting its technology core – at its new digs, touchscreens will be plentiful throughout, while customers will be able to answer questions about themselves and pull up product recommendations and customer reviews.

The Times noted that Birchbox’s move follows other purely online players deciding to “get physical” during the last couple of years. Eyeglass retailer Warby Parker, men’s clothing company Bonobos and women’s fashion retailer Piperlime, all once web-only enterprises, have opened scattered stores over the last few years.

The Times article then poses the interesting question: Can a retail company really exist exclusively online? It cites a recent study by PricewaterhouseCoopers that concluded, what consumers really want is the “Total Retail” experience, not separate channels like online, mobile and in-store, but a fully integrated relationship with a brand.

“Convenient physical stores, a website capable of handling purchases, a mobile site or app — these capabilities are simply the price of admission for a healthy relationship with a consumer,” the report said.

The allure of a physical presence is still so powerful that Craig R. Johnson, president of Customer Growth Partners, a retail consulting and research firm, told the Times that he believes even some of the blockbuster Internet brands that are not specifically retailers will at least consider it in the coming years.

 

Many physically focused retailers, of course, continue to show sustained success. And investors have taken notice, bidding up the stocks of many of the sector’s names. The Hot Retail motif, which focuses on stocks of retailers with bricks-and-mortar presences, is even with the S&P’s flat performance over the past month, but has gained 23.1% in the last 12 months. The S&P 500 is up 21% in the last 12 months.

Regardless of physical or online presence, the fate of retailers is extremely dependent on the willingness – and comfort level – of consumers to spend, and that tendency seems to have improved amid a stabilizing economy and rising home prices.

Earlier this month, the Commerce Department said overall US retail sales increased 0.3% last month, with receipts rising in most categories. The gain followed a 0.6% drop in January and ended two straight months of declines, much of which was thought to be the result of a brutal winter keeping shoppers away.2

The notion that consumers are now more willing to spend – and continue to travel to do it – is likely a key element for online retailers’ physical-store plans.

1Hilary Stout, “Birchbox, Seller of Beauty Products, Steps Out from Web With a Store,” nytimes.com, March 23, 2014, http://www.nytimes.com/2014/03/24/business/birchbox-seller-of-beauty-products-steps-out-from-web-with-a-store.html, (accessed March 26, 2014).

2Lucia Mutikani, “US retail sales rebound from winter chill, jobless claims fall,” Reuters, March 13, 2014, http://www.reuters.com/article/2014/03/13/us-usa-economy-idUSBREA2C13J20140313, (accessed March 26, 2014).

Tags: Hot Retail

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