The Exchange

Online Retailers Go Retro… Open Brick-and-Mortar Stores

The Exchange

When it comes to attracting shoppers, it looks like some retailers are going old school. Realizing that a significant chunk of consumers' shopping habits aren't confined to the web, a few online pure-plays are venturing into bricks-and-mortar territory.

BaubleBar, a two-year-old online retailer that sells fashion jewelry, opened a store on New York City's Fifth Avenue this month.

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Piperlime store opening, New York City

Piperlime, the online shopping boutique owned by Gap (GPS), opened its first real-world store in September in New York City's fashionable SoHo neighborhood (in the photo to the left). The 4,000-square-foot shop sells a mix of clothes, handbags, shoes and jewelry from its web site, and features kiosks that give shoppers access to additional products on Piperlime.com.

Bonobos, an online menswear store that started in 2007, began testing the offline waters last year with so-called Guideshops. These appointment-only showrooms let shoppers try on Bonobos clothes — known for their superior fit — before buying. So far New York, Palo Alto, Calif., Chicago and Boston have Guideshops, with another set to open next month in Bethesda, Md.  And the company started selling its wares in some Nordstrom (JWN) department stores in April. (Bonobos got more than $16 million in funding from Nordstrom as part of the deal.)

Getting the Right Fit

The decision to open physical storefronts depends, in part, on what the retailer is selling. Apparel merchandise, in particular — where feel and fit are so important — benefits more from an in-person shopping experience than, say, books or diapers. After all, who likes having to trek to the store to return an ill-fitting dress ordered online?

But the trend goes beyond clothing. Last year auction site eBay (EBAY) experimented with the trendy pop-up shop concept to open an "eBay boutique" for the holidays in London. Shoppers could browse over 350 items provided by top-rated sellers, and make purchases using mobile devices.

Last month Microsoft (MSFT) said it was planning to make a stronger retail push with the opening of 34 pop-up shops in North America to cater to holiday shoppers. The stores coincide approximately with the release of the new tablet, Surface, which starts to ship on Oct. 26; and, no doubt, they're a bid to compete with rival Apple. (Microsoft already has about 30 permanent retail stores in the U.S. and Canada.)

There were even rumors early this year that Amazon.com (AMZN), the ultimate Internet retailer, had plans to open a store in Seattle that would focus on selling the company's Kindle e-reader. (When asked about plans for a store, an Amazon spokeswoman would not comment.)

So what's behind the bricks-and-mortar expansion? Well, first, that's where more of the actual buying happens. "Online growth is fast outpacing offline. But in terms of sales volume, it remains small compared with bricks and mortar. So online retailers want to capture some of that share," says Alden R. Lury, retail strategist at Kurt Salmon.

Online sales make up just 7% of overall retail sales, according to a February report by Forrester Research, which predicts that number to grow to nearly 9% by 2016. Americans spent more than $200 billion on online shopping in 2011 and are expected to shell out $327 billion on Internet stores by 2016, Forrester predicts.

Perhaps it's also a reminder that, despite how popular and convenient online shopping is, consumers still want an in-store experience. Online pure-plays are "beginning to recognize the need for more touch and feel than the Internet can provide," says Thom Blischok, chief retail strategist at Booz & Co. They want to be sure the shoe fits, so to speak.

"It's a business model that will continue," says Lury. "Bricks-and-mortar stores have been increasing their omnichannel presence, and building more online, and this kind of going the other way."

Blurring the Line

A holiday shopping study commissioned by Google and conducted by market research firm Ipsos OTX illustrates the sometimes circuitous journey consumers take to make purchases. The study found that about half of shoppers will research products online and then buy in-store, while 17% will first visit a store and then purchase online. And another 32% will research online, visit a store to check out the product, then go back online to make the purchase.

Increasingly, consumers are demanding a seamless shopping experience — across online, in-store and mobile channels — or what retail experts call an "omnichannel" experience. A PricewaterhouseCoopers report published in September about the future of retailing, forecasts that, by 2020, "this should be a reality, with shoppers experiencing retailers as a single brand consistently across all points of contact, both virtual and real world."

That strategy might come to look like the online-offline marriage just introduced by fine jewelry maker Ritani. The jewelry manufacturer and wholesaler started in 1999, and this month launched a site that lets people shop for and create custom engagement rings, designed online and delivered to their local jeweler. Customers have no obligation to buy if it's not to their liking, and for those concerned about shipping their diamonds, online orders can be picked up or returned to a local Ritani jeweler (now in seven markets, including New York, San Francisco and Dallas).

As the PricewaterhouseCoopers report notes, consumers avoid retailers that are "ill-equipped to deliver a seamless brand experience online, in-store and across multichannel media." And retailers are trying to catch up.

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