WHAT DREW AMAZON, ALIBABA & CO. TO BRICKS-AND-MORTAR

  ©Outdoor Voices

©Outdoor Voices

The world’s online shopping giants are following smaller web retailers into what might appear to be the merchandising past. Amazon, Alibaba and most recently JD.com, are operating brick-and-mortar stores, joining companies such as the formerly web-only Warby Parker and Outdoor Voices and reoccurring pop-up events by the likes of Gymshark and Aday. Even Tencent, the Chinese games and social media giant, is doing deals in retail.

After Wal-Mart's acquisition of Bonobos for USD 310 million and Amazon taking over Wholefoods, Alibaba has been pouring cash into experiments in what its founder, Jack Ma, calls “new retail”: a kind of teched-up re-envisioning of how people shop in store. They hope to gather more detailed user data, which could help it offer more personalized services and ads to its customers online and off. These companies are part of a new "bricks and clicks" trend blurring the division between online and in-person sales. Traditional store-based retailers are joining in by elevating their web game.

1. What explains web giants establishing stores?

Not everyone wants to shop online, or to buy everything that way, and some people simply can’t. While China has close to 800 million people who access the internet, that leaves hundreds of millions who don’t. But much of the population lives a short drive from one of the stores now backed by Alibaba or JD.com. 

2. How are they going about it?

Mostly by investing in brands with existing store networks and retail expertise. Amazon, the world’s biggest online retailer, bought the U.S. grocery chain Whole Foods and its more than 460 stores in 2017 and has also opened 13 bookstores since 2015. Alibaba acquired a department store chain with 29 stores and 17 shopping malls last year and also bought a slice of a China’s largest hypermarket chain. 

3. Do physical stores detract from web business?

Probably not. Web retailers are learning that stores can complement and improve their online business. Physical stores offer advantages web stores don’t, including walk-in traffic and spontaneous purchases. They can be marketing tools, helping raise the profile of brands that emerged online. And technology has enabled retailers to gather data on shoppers, learning who they are and how they move around the stores in a bid to push customized coupons.

4. Won’t physical stores mean new costs for e-retailers?

Yes. Purely web-based retailers don’t have to pay for prime real estate in shopping districts and so, at least theoretically, can offer lower prices. But property costs could be balanced by the advantages of operating physical stores, while also reducing costs tied to shipping and returns. 

5. What are the risks of having stores?

Because costs are fixed, a retail footprint becomes a millstone if revenue growth stalls. And opening new stores in prime shopping locations can be more challenging than building distribution centers on city outskirts. There are also labor costs associated with running stores.

6. How are traditional retailers responding?

They are moving toward a blended model. Options like "click and collect" allow companies to offer the convenience of shopping online, while still keeping their stores at the heart of the retail experience. Customers can search, select and pay for a product online, but still visit physical locations, raising the possibility they’ll step inside and buy more. Some large retailers are also expanding their stake in online shopping through acquisitions.