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Is the future of online pure players in brick-and-mortar shops?

The question may seem provocative but the reign of pure online strategies may slowly come to an end. Consider the following

  • 53% of all EU retailers are selling through the internet
  • In Ireland, Denmark and the UK, between 88% and 93% of retailers use distance sales channels
  • But distance selling only represents between 5% and 7% of the retail turnover (FTI estimates)

Add to this the economic crisis situation, the perception by consumers that transport doesn’t add any value. This is why e-tailers like Amazon have a Premium program to get everything shipped free of charge in 1 day) and you come to situations like the following ones. This Premium program now even applies to their newly opened cars parts shop that will probably change the rules of competition on a market operating already with very thin margins.

Yet there are some signs that the situation may not turn to a 100% online model. Consider this.

  • Before the two founders left the company, Pixmania was looking into expending with 100 physical stores. The current owner, given the bad balance sheet, has decided to stop those plans however.
  • In the Czech Republic, the popularity to set up ‘brick and mortar’ shops for Czech internet discount servers and e-shops is growing, due to customers’ trying to save on postage of goods and the desire to see their purchases before paying. According to Heureka.cz, some 57% of internet shoppers take the opportunity to physically collect goods, purchased on-line, from shops.

Advice for your marketing strategy

We have no idea whether this trend will expand in other countries but we think changes should be expected and a mix of online and offline distribution may become the rule in some places. We don’t think that brick-and-mortar shops are the solution; they add too much to the cost structure and unless you have large economies of scale your overheads will be negatively impacted and your margin will become even thinner in a global market that is already very competitive.

However there are maybe new innovative supply chain solutions to be found to keep a light cost structure and nevertheless add more flexibility for consumers regarding delivery. Future will tell.

In any case you should consider that each country has its peculiarities. Look at payments of online purchases for instance. The cultural and technological background of a country like Germany makes that 50% of online purchases are still paid by wire transfer. For the same cultural reasons (which will take decades to disappear) French still pay 30% of their online purchases with checks. This patchwork of differences is problematic for companies aiming at becoming global; globalization imposes a certain standardization and taking each country’s differences in the commercial approach for instance clearly becomes an impediment for a low-cost business. Low-cost approaches require standardization and Europe seems not to be a playground where standardization can be imposed at all levels.

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Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)

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