How Brick-and-Mortar Stores Are Transforming for an Omnichannel Era

The pandemic spurred a surge in e-commerce, but as COVID concerns have eased, shoppers have rushed back into stores. Any localized marketer knows that the question going forward will not be ecommerce or brick-and-mortar but rather how retailers and brands optimize for both and meet omnichannel demands.

I connected with Nikki Baird, VP of strategy at Aptos, to discuss how retailers can succeed in the era of omnichannel shopping.

How are brick-and-mortar stores transforming to capitalize on e-commerce growth?

After all of the growth in e-commerce and digital engagement that was accelerated by the pandemic, stores are facing a crossroads for their future. On one hand, retailers can invest to make the transition from online to store easier for customers — but this is really challenging. Investment in mobile apps for consumers that have an “in-store” mode are probably the best current effort. Retailers can also choose to reinvest in stores to capitalize on things that only work in the physical world. This ranges from events and classes that are hands-on, to product repair and service, to inventory pickup and return. 

In order to do this well, the physical layout of the store has to change: floor space needs to be reallocated from selling space to event space, pickup & return / customer service space, and inventory (backroom-style) storage.

What are the barriers to adoption of these new retail trends? How does this vary across larger brands and smaller businesses?

Physical constraints are definitely an issue. While some of this can be reconfiguration of existing space, creating a larger back room with a smaller selling floor is more hard-core construction, and that is a capital outlay, and it’s also a supply chain and labor issue because it’s construction.

But I think the biggest barrier is putting together the business case. There are a lot of corporate myths out there about how, on the surface, it looks like using retail space for inventory storage (for example) is not a profitable move. But retailers have to be very holistic about how they look at retail space and how it’s used — and this is not something that is easy or natural for them to do.

For example, in order to fully understand the value of the store as an inventory location, you have to look at both the cost of fulfillment as well as the speed — while a warehouse may be the most “efficient” place to pick and pack inventory, it doesn’t matter if you’re spending all kinds of money expediting shipments to customers or losing sales because you can’t get the product to the customer in a time they expect at a shipping price they are willing to pay. When you start looking holistically at some of these things, you find that sometimes something that looks expensive on the surface is actually a money maker when you look at the big picture. Not having to cross zones in shipping can both save a lot of money and deliver with greater speed, which more than offsets the cost of inventory in a retail location.

Larger vs. smaller is probably not the issue for business size — yes, a larger business has more locations and so has more opportunities to optimize, but a smaller business has more flexibility to blur the lines between online and stores, so they each have advantages and disadvantages. But there are definite differences between a small-format store and a large-format store. Large-format stores have more flexibility with what they can do with the space, like removing selling square footage without impacting the sales per square foot, for example. Smaller stores don’t have that option — and they typically are minimally staffed, so they don’t have a lot of workforce flexibility either. Retailers with smaller formats (typically mall stores) will have to consider different kinds of locations in different places, rather than revamping existing locations.

Is there synergy between e-commerce and local stores? Could a local store offer ecommerce returns or BOPIS, which might fuel in-store commerce?

Absolutely. Returns are a huge opportunity for stores — it’s a better experience for consumers than going to the post office (and probably more convenient for them), and it takes the uncertainty out of getting credit for the return. It gives the retailer an opportunity to not have to ship the inventory back to a DC if it’s sellable at that location, and it gives the retailer a chance to capitalize on what is typically an incremental trip for the consumer, turning the return into an exchange at minimum or a whole new sale.

How will this space evolve over the next few years? Anything to watch out for?

All of this is well and good for stores that have street-level store fronts. But it doesn’t work as well for mall-based stores. While mall operators are trying to support more of these processes more seamlessly for mall stores, I expect to see a growth in a portfolio approach to stores, where a retailer looks regionally across both stores and online, and puts in place a range of locations that fulfill multiple purposes. Maybe a retailer opens an events-only location or a local gray store that has selling space but really primarily functions as fulfillment. I think we will see a lot more variety in stores going forward.