Do online retailers benefit from having a physical store?
I’ve heard from a few retailers that their online sales only picked up when they got a physical store, somehow giving them extra credibility with consumers. Is this still the case in Australia, despite the rise in online shopping?
Selecting the right business model is one of the most critical decisions one has to make when starting up a business from scratch.
As an online retailer, if you add a physical store, don’t be fooled to believe that you will simply succeed because of the “extra credibility” gained with consumers. Yes, you may garner extra trust from consumers, but those same consumers whom now trust you are unlikely to want to pay the higher prices to cover your cost base that has now blown out!
As an online retailer there are more effective ways to garner trust and credibility from your customer base. These include: providing excellent 24/7 customer support; customer testimonials on your product pages; product videos showing all features of your products; detailed product descriptions; professional product photos; third-party reviews of your products and business; plus a well presented, safe and secure website.
The online retailers that are setting up showrooms or physical stores to gain “extra credibility” are either just buying themselves a day job (and giving them somewhere to go during the working week) or just simply do not understand the most effective way to run a profitable and successful business.
The large retailers have a similar issue, but in the reverse, in that they have the physical stores and now are setting up online stores to complement (think Myer or David Jones).
Known as multi-channel or omni-channel retail, this model too has its challenges. How does one set prices with this strategy? Online customers in Australia will hunt for the best prices (armed with shopping comparison sites), so if best prices are not offered, customers will not purchase. Does the retailer set lower prices for online and the higher prices in-store? If so, this will cannibalise in-store sales. If they don’t, their online stores will never succeed. It remains to be seen if this strategy can work.
As outlined, there are many flaws to the models mentioned and for those reasons we have always believed that the "pure play" online model, which we operate at Milan Direct is the best model to use to serve your customers. Pure play keeps our costs base low, savings which we can pass straight back to our customers. It also allows us to be agile and ensures we can respond quickly to changing consumer behaviour.
Today’s consumer is simply thriftier and demands the best deals so, for mine, the pure play online model will always come out trumps!