In the United States, retail businesses are a significant part of the economy. Even with COVID-19 setbacks, retail is still projected to grow to nearly 6 trillion dollars by 2024. While many entrepreneurs are vying for a piece of that pie, new digital storefronts continue to rival the brick and mortar behemoths of the past. If you’re a small business owner deciding between opening an online or brick-and-mortar retail business, we're here to help. Keep reading to discover the findings of our latest research into industry trends and statistics, along with the pros and cons of both options.
Brick and mortar is a term used to describe a traditional business that offers products and services directly to customers through a storefront. This physical location is owned or rented by the business. An example would be a corner-store gas station or main street bank. For many years, large retail malls dotted the American landscape, dominating the way many Americans chose to shop.
While some falsely assume physical retail stores are dying, the numbers tell a different story. As of 2020, there are more than 320,000 brick-and-mortar retail stores in the U.S., with convenience stores making up the lion's share of those numbers. In part, this growth is spurred by consumer preference. One recent survey showed that more than half of people older than 34 still prefer to shop in-store rather than online.
Even with consumer support behind them, brick-and-mortar stores are not without their pitfalls. Below, we'll discuss some critical pros and cons to consider before opening your own traditional retail store.
Some advantages of starting a brick and mortar retail store include:
Opportunity to build personal relationships with customers
Providing hands-on experiences for your customers
Greater customer loyalty
Easier to sell big-ticket items
Faster to exchange or refund items in-person
No need to worry about shipping costs or management
Still, there are some disadvantages of owning your own physical retail store, including:
Have to pay rent or mortgage for a building
Additional costs of utilities and maintenance
In-store staffing and employment requirements
High overhead means it will be harder to compete on price
Limited customer hours
Online stores, like their brick and mortar counterparts, offer goods and services to their customers. However, a strictly online establishment does not maintain a physical storefront. Instead, their address can be found 24/7 on the world wide web. Transactions, customer support, and inventory management are done online and through a myriad of software and applications. Upon purchase, products can be shipped worldwide to the physical address chosen by the customer, or digital products and services can be delivered almost instantaneously via email or other digital delivery methods.
With large online players like Amazon disrupting physical retail stores around the world, it should be no surprise the online stores are here to stay. It’s no surprise that the COVID-19 pandemic spurred a massive restructuring of the retail industry to an even more online model. 88% of retailers do business online nowadays, in order to serve shoppers that make 43% of their monthly retail purchases online.
Whether you are opening your first online store or looking to diversify a traditional retail operation, online stores can open up new revenue streams and endless opportunities for retailers. Below, we'll discuss some of the advantages and disadvantages of opening an online store.
Online stores offer many advantages for their owners. Plus, you may not even have to worry about manufacturing, storage, or even shopping for a dropshipping store. Online store pros include:
Your store can be open 24/7, 365 days out of the year
No overhead costs for a physical store
Fewer employees needed
You can automate and outsource much of the shopping experience
Quickly process payments online
Just because your store is online does not mean it is free to start. There are many upfront costs to open your store, including purchasing a URL, designing and hosting your site, and additional add-on services to provide customer support. Some of the main cons of starting your online store may also include:
Losing out on customers that prefer to touch and see products first
Still not trusted by older customers
Difficult to sell large, expensive items such as vehicles
Stiff competition with large online retailers like Amazon and eBay
While there are some clear advantages and disadvantages to online and traditional retail establishments, the truth is more and more businesses are choosing to pursue a hybrid model. Longstanding stores like Best Buy, for example, have turned their stores into showrooms that focus more on providing an experience for their customers while simultaneously beefing up their online presence and offering price matching compared to their top online competitors. This model has allowed them to compete, while other brick-and-mortar retailers have had to close their doors. Before you choose what's right for your business, consider asking yourself the following questions:
While these days you can sell anything online, some products and services may do better online or in person. Do your research before deciding which retail model to follow. For expensive, tactile objects, you may want to consider pursuing both options to give customers an experience where they can try before they buy.
Likewise, do your customer research. The age of your potential customers may be one strong indicator of if they will be willing to shell out cash to purchase from your store online versus a brick-and-mortar storefront.
Unless you are the first to market with a particular product or service, you may have the advantage of researching your top competitors. See where and how other companies are selling similar products and try to learn from their efforts before embarking on your own retail journey.
Starting a retail business in today's climate can be challenging. To help you navigate the waters, we've done the research to help you succeed. You can read about retail trends and discover the benefits of forming an LLC in your home state in our 2021 Industry Report.
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