Most brick-and-mortar retailers recognize the value of having web stores. Meanwhile, most e-tailers have managed to avoid the challenges of real estate management. Until now, that is.
Today, more and more e-tailers are opening up brick-and-mortar stores because they realize the value of offering shoppers multiple and integrated points of shopping access.
Some of the advantages of this model include: strengthening brand-name recognition, giving local customers a physical location to return merchandise or buy items right away without having to pay shipping costs, lowering promotional costs through cross-marketing and cross-merchandising opportunities, and expanding your customer base. In addition, experts say that when shoppers have multiple channels of access to a retailer and its products, they are more likely to be loyal customers.
There are other reasons to offer bricks and clicks, says Irene Dickey, a lecturer in the management and marketing department at the University of Dayton School of Business Administration in Dayton, Ohio. "There are consumers who love the social interaction shopping provides," she says. "There are consumers still afraid to purchase online because of security issues, and many customers prefer to 'try on' items before buying."
Of course, there are certain risks and costs associated with opening a physical store--like theft, personnel turnover, government regulations and inventory problems, not to mention high overhead costs. According to Patti Freeman Evans, an analyst with Jupitermedia Corp. who focuses on multichannel retail strategy, it can cost "in the thousands [or] the hundreds of thousands, depending on location, inventory, type of store, product category and marketing approach." You can mitigate your risk in part by researching the market, writing a solid business plan and making sure there will be demand for your products at that location.
What's in Store
The founder of Ace Karaoke Corp., a City of Industry, California, company that sells karaoke music, machines and accessories, faced those risks head-on by opening two brick-and-mortar locations in the past year. The company, which started as a Yahoo! Store, has seen sales grow from $8.6 million in 2004 to a projected $10 million for 2005.
David Su, 32-year-old founder, president and CEO, got the idea to open up a retail location after his company set up a small display space in the front office of its warehouse. Local customers began stopping by to test out the karaoke machines before buying them.
Today, both stores allow customers to experience the latest karaoke equipment and club systems. In-store karaoke specialists demonstrate products and answer questions for customers. "We give them a walk-in discount, because we traditionally offer free shipping," says Su. "We want to pass the [savings on] to them." Today, Su's goal is to open seven to 10 stores in Southern California within the next three years.
A key reason for the company's success, says Su, is that his website was already well-known to his loyal customer base. In fact, to promote the stores, Ace Karaoke sent out e-mails to its database of 100,000 customers--about 5 percent to 10 percent of whom were local--and also advertised in local media.
Su says it cost him about $300,000--including the lease, store renovation and inventory--to open his first location. His advice for e-tailers thinking about opening a brick-and-mortar store: Make sure you can stock enough inventory, hire the right people and have a broad customer base. He also advises against going retail until you're ready to:
1. Commit to a schedule: Each team member will have separate duties, functions and time commitments. You'll lose the freedom of running the business at your own pace.
2. Make a long-term commitment: If your product has a short life cycle or if you can't make the time commitment of, say, a three-year lease, opening a retail store is not for you.
3. Cover the expenses: A retail store requires a significant investment and will cost even more to maintain. You'll need advertising to generate sales and enough money to pay for your monthly overhead until you become profitable. You also may need enough money to weather slow seasons and wait for the holiday rush.
Not sure if you're ready? Test the waters by moving to a small office or warehouse environment first.
With a physical location, it takes longer to recover your investment than with a web store. But it will allow you to build credibility, gain new customers, establish local loyalties and reach those who just don't like shopping on the web.
Melissa Campanelli is a marketing and technology writer in New York City.