Digital versus Bricks and Mortar Business Landscape

Posted by Hari Shetty

Comments (7)

October 31st, 2013

The debate of 'Digital versus Brick-and-Mortar' is perhaps over. They are not competing ideas. Digital won't lead to the death of
the brick-and-mortar store. Rather, digital presents retailers with the opportunity of creating yet another type of shopping
experience, making it more attractive for shoppers by offering them further options on products, SKUs, pricing, convenience
and personalization. Brick-and-mortar meanwhile is becoming increasingly important in an omni channel retail environment. A
recent study by AT Kearney[i] found that consumers spend the majority of their time shopping in stores (61%), followed by online
(31%). The physical store was the channel of choice across all ages (from Millennial to senior citizens) and household income
levels (from less than $25,000 per year to more than $100,000 per year). Can retailers build strategies that combine the
strengths of digital with brick-and-mortar to draw consumers and build loyalty? Is it time to remove the "versus" in the equation
between digital and brick-and-mortar and replace it with a "+"? Or perhaps even go a step further and make the two
experiences completely seamless?

Shopping behavior is undergoing dramatic change. Consumers today demonstrate non-linear shopping behavior. They will
research online, use their communities for recommendations, look for product reviews online and then test the product in a
store before making a purchase online. Then, they may want to pick up the product at a store nearby and also use the same
store for after sales service or upgrades. Notice that neither the digital nor the brick-and-mortar environments play a central
role. Together, they build out a more convenient experience for the customer.

Emerging shopping behavior is placing greater emphasis on tight integration between channels and brick-and-mortar stores.
The focus of the integration should be on enriching the customer contact. This contact should result in richer customer data
which can then be used to improve the overall shopping/brand experience.
However, it is interesting to examine the characteristics of both shopping environments. When shoppers visit a brick-and-mortar
store they generally tend to spend more time in the store, they are relaxed and open to being informed and entertained. This
means bringing more focus to store locations and store formats that can help build stronger customer relationships. A digital
presence of a store on the other hand caters to shoppers who are pressed for time, look for convenience and bargains and,
strangely enough, are more susceptible to impulse shopping. Digital interactions with customers present the opportunity to
make them instant champions of the brand, by ensuring they share their views and experience with others in their community.
Digital interactions also present the opportunity to understand customers better and personalize offers making it more likely that
they will stop by and make a purchase.

But the truth is that there is only one way to look at digital and brick-and-mortar: as a single, completely fused entity. Take this
scenario: a customer walks into a brick-and-mortar store, checks out the merchandize, researches the options using a
smartphone while standing in the store, places an order in the store over the mobile and collects the order right there.
Consumers are buying online right from the store. Where is the difference between digital and brick-and-mortar?

It is no surprise then that retail giants are in a head-to-head race one to improve digital presence and the other to improve
brick-and-mortar presence. Recently, one of the largest retailers has gone on a technology shopping spree with the purchase of
companies like Torbit, One-Ops, Tasty Labs and Inkiru that gives it the tools to manage data and make their digital presence
more dynamic. On the other hand, other large retailers are boosting physical presence by establishing more warehouses and
pickup locations. If there is visible convergence happening in retail, it is nowhere more apparent than in the convergence of
digital and brick-and-mortar.
brick,Consumers,Mobile Apps,mortar,Retail,Smartphone

About Author

Hari Shetty- Vice President & Global Head Of Retail

Hari Shetty is part of the senior leadership team at Wipro and heads the Retail vertical across the globe. As
head of Retail, he is responsible for strategy and execution of Wipro's business plan within the industry
segment. Hari has been part of the Retail vertical since its inception and today Wipro is among the top 7
Retail technology service providers across the globe and provides services to 10 out of the top 20 retailers.

Hari has over 20 years of consulting experience in the industry. His experience spans across multiple
functions in retail and he has worked with some of the best-in-class retailers on cross channel strategy,
business transformation, simplification, predictive analytics, and technology transformation. Prior to his
current role, he was responsible for technology and architecture in Retail and Consumer Goods industry
groups.

Hari has multi-disciplinary background in technology, management, finance and law.

He is an evangelist on multi-channel retailing and strongly believes social media and a connected customer
experience will change the face of retail.
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Comments (7)
Mahesh - November 20th, 2013
It was please reading the blog about tends in retail market it is a Rich Thoughtful Insight. However,
consumer is aware about the choice and price with the help of smartphone. Say in the case of electronics
goods preferred mode is online which gives better discounts and price. Consumer uses different virtual or
real shopping based on the commodity.
Mahindra - November 20th, 2013
I agree with your views on seamless shopping experience all channels that is trend picking up in the retail
industry across all formats..the percentage of online sales is rapidly increasing vs the traditional brick-and-
motor. The entry of google into online retailing..shopping express same day delivery will be further driving
the online/E-Commerce sales for these retail giants.
Hermann Geueke - November 20th, 2013
You are right with your arguments. Omni channel is a challenge to all retailers . The special feature of this
model is that the retail believes that if this model is not implemented that market shares get lost. Zalando ,
Amazon demonstrate how much revenue with online business is possible if you get the right model , the
right service and the corresponding response (good and simple Frontend ) offered to the customers. In
retail, where also brick & mortar need to operate, the challenge will be what kind of service model can be
offered. Goods must be available at short notice, they must be individually offered with different service
models . The right software, the right supply chain model and the balanced service that is also affordable,
must be chosen by the Retailer. Which priority topics within the retail business is going to be used, is less
relevant. It is important that retail offer these models to the customer so that market shares get not lost. All
customer group may jump on it
Arun - November 19th, 2013
Hari, I agree that Digital & Brick and Mortar will continue to exist atleast for the next decade. To add to your
debate points, customer categorise the products that are brought online and in stores. Digital presence
enables the Brick & Mortar sales especially for niche high end products and also for the discounts/offers for
FMCG.
Pallavi Borah - November 19th, 2013
Completely believe that retailers are left with no choice but seamlessness. In a squeeze to please retailing
world , retailers will have to look at optimizing - Optimizing blends of store space investment verses online
investment - Optimizing blends of social media spends verses store associate productivity - Optimizing
blends of 'a place to show' verses 'a place to sell'
Vijay Kumar - November 15th, 2013
A very precise and excellent articulation of the current transformation scenario in digital. A quick point inline
with this is the recent trend in the digital implementation is to have 'same theme / merchandising options' as
in store , to provide the unified experience to customer.
Kush Pathak - November 15th, 2013
Apart from what B&M(Brick and Mortar) and Etailing currently offers, Etailing has a lot of scope to replace
some core services offered by B&M stores. Of course, if used together, both channels add more value to
the customer, but how much fixed costs of Brick and Mortar clips bottom line against the value add(and
hence top line) to the customer who ultimately orders online need to be quantitatively assessed. Recently,
JCPenny struggled as their B&M sales went down because fixed costs were huge, and their competitors
were not B&M but Etailers, so in such cases synergy in collaboration wont be substantial.
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What is 'Click And Mortar'
Click and mortar is a type of business model that includes both online and offline
operations, which typically include a website and a physical store. A click-and-mortar
company can offer customers the benefits of fast online transactions or traditional face-
to-face service. This model is also referred to as clicks and bricks.

BREAKING DOWN 'Click And Mortar'

An increasing number of big brand retail stores, such as Wal-Mart, Best Buy and
Nordstrom follow the click-and-mortar business model. Also referred to as an
omnichannel strategy, the merging of online and offline channels provides customers
with an enhanced shopping experience with more choices, greater flexibility, more
convenience and more services. Retailers benefit from improved customer relations and
more customer transactions. Due to their ability to spend millions of dollars on click ads
with search engines, their promotions tend to show up higher in product search results.
From Bricks to Clicks
Nearly 70% of shoppers use the internet at some stage of the shopping process to
research, compare or purchase. Recognizing the lost opportunity, major retailers have
developed online channels to complement their physical store channels. In most cases,
customers may shop through the stores website, make the purchase online, and either
have it shipped or pick it up at a store location. Some retailers utilize customer data and
in-store Wi-Fi to connect with customers while they shop to make special offers or guide
them to areas of interest. Shoppers of high-end merchandise, such as designer clothing,
jewelry or flat-screen televisions tend to use the physical location to touch and feel the
products before going home and ordering online. Click-and-mortar retailers benefit from
having customers browse while in the store. They also benefit by having physical drop
locations for products ordered online by customers who dont want to wait for shipping.
Ship-to-store ordering reduces shipping costs and increases traffic at the physical stores.

From Clicks to Bricks

Pure online retailers are finding that, by adding physical storefronts, they can increase
traffic on their websites while reducing their digital marketing expenses. In many cases,
the storefronts work as showrooms for customers who want try out products or size their
clothes or shoes before purchasing online. The stores typically have web kiosks that
allow shoppers to place orders right in the store. The practice has captured a segment of
shoppers who are not confident about buying certain types of products from online-only
brands. The presence of physical storefronts also helps to build brand recogination
What is 'Brick And Mortar'
Brick and mortar is a traditional street-side business that deals with its customers face to
face in an office or store that the business owns or rents. The local grocery store and the
corner bank are examples of brick-and-mortar companies. Brick-and-mortar businesses
can find it difficult to compete with web-based businesses because the latter usually
have lower operating costs and greater flexibility.

BREAKING DOWN 'Brick And Mortar'

Brick-and-mortar businesses have several distinct advantages over their online
counterparts. Many consumers still prefer to liaise with people directly as they often
believe questions about the product or service can be dealt with in a more
comprehensive and immediate manner at a face-to-face level. Brick-and-mortar
businesses allow consumers to hold, try and touch items before they contemplate
making a purchase indeed 73% of consumers prefer to try before they buy.
Consumers associate legitimacy with a bricks-and-mortar business as a physical
presence often gives a perception of trust.
Brick-and-mortar businesses provide consumers with instant gratification when a
purchase is made. Consumers typically spend 40% more than they intend to at a bricks-
and mortar-store; this compares to 25% spending more than intended while shopping
online.

However, there are several key disadvantages to operating a traditional brick-and-mortar

business. A physical presence requires the need for employees to conduct transactions,
renting or leasing expenses and utility charges such as electricity, gas and water.

Future of Brick and Mortar Businesses

The rise of electronic commerce (e-commerce) and online businesses has led many
commentators to contemplate the future of the humble brick-and-mortar business. It is
increasingly common for brick-and-mortar businesses to also have an online presence in
an attempt to reap the benefits of each particular business model. For example, some
brick-and-mortar grocery stores, such as Safeway, allow customers to shop for groceries
online and have them delivered to their doorstep in as little as a few hours.

The importance of the bricks-and-mortar model is given credence by several large online
e-commerce companies opening physical locations to realize the advantages of
traditional retail. Amazon.com Inc., along with roughly 20 other online companies, has
opened brick-and-mortar stores to help market its products and strengthen customer
relations. However, some business types, for example, those that operate in the service
industry are more appropriately suited to brick-and-mortar form, such as hair salons,
veterinarians, gas stations, auto repair shops, restaurants and accounting firms. It is
crucial that marketing strategies for brick-and-mortar businesses highlight the
advantages a consumer has when purchasing at a physical store.

Bricks and clicks

From Wikipedia, the free encyclopedia
 A Sports Direct storefront advertising the web arm of the business. Sports Direct started trading in 1982 with a single
brick-and-mortar store[1] but has recently grown rapidly aided by a bricks and clicks business model. [2]

Bricks and clicks (aka clicks and bricks, click and mortar, bricks, clicks and flips, Womble Store
Method (WSM)[citation needed] or WAMBAM[3]) is a jargon term for a business model by which a company
integrates both offline (bricks) and online (clicks) presences, sometimes with the third
extra flips (physical catalogs). Additionally, many will also offer telephone ordering and mobile phone apps,
[4]
or at least provide telephone sales support. The advent of mobile web has made businesses operating
bricks and clicks businesses especially popular, because it means customers can do tasks like shopping
when they have spare time and do not have to be at a computer. Many of these users prefer to use mobile
shopping sites.[5]

A popular example of the bricks and clicks model is when a chain of stores allows the customer to order
products either online or physically in one of their stores, also allowing them to either pick-up their order
directly at a local branch of the store or get it delivered to their home. There are many alternative
combinations of this model. The success of the model in many sectors has lessened the credibility of some
analysts who argued that the Internet would render traditional retailers obsolete through disintermediation.[6]

Contents

[hide]

1History

2Advantages

o 2.1Advantages for firms

o 2.2Advantages for consumers

3Disadvantages

o 3.1Disadvantages for firms

o 3.2Disadvantages for consumers

4Legislation

5Notable examples

6See also

7Notes
 8Further reading

History[edit]

A Tesco delivery van in Poland advertising online ordering and delivery from a brick-and-mortar store. Tesco started
their online presence in 1996.[7]

The first ever purchase from a company arguably operating a bricks and clicks business model was a Pizza
Hut pizza, ordered over the internet from a physical store.[8] The online pizza delivery industry is something
of a pioneer of the model and has gained a great deal of popularity since, with delivery company Dominos
Pizza now reporting that over 69.7% of orders are placed online before being sent to a physical store,
gaining the firm 204.7m (approx. $329m) in 2013 in the United Kingdom alone. [9] The great surge in
adoption of the bricks and clicks model came around 2000, with large retailers such as Wal Mart starting
websites that allow users to browse the same goods they would find in store from the comfort of their
homes.[10]

Advantages[edit]

Advantages for firms[edit]

A Safeway delivery truck illustrates how some traditional supermarkets are now pursuing a bricks and clicks strategy.

The bricks and clicks model has typically been used by traditional retailers who have
extensive logistics and supply chains, but are well known and often respected for their traditional physical
presence. Part of the reason for its success is that it is far easier for a traditional retailer to establish an
online presence than it is for a start-up company to employ a successful purely online one, or for an online
only retailer to establish a traditional presence, including a strong and well recognised brand, without
having a large marketing budget.[11] It can also be said that adoption of a bricks and clicks model where a
customer can return items to a brick and mortar store can reduce wasted costs to a business such as
shipping for undelivered and returned items that would traditionally be incurred. [12]

Advantages for consumers[edit]

A bricks and clicks business model can benefit various members of a customer base. For example,
supermarkets often have different customer types requiring alternative shopping options; one group may
wish to see the goods directly before purchase and like the convenience of quickly shopping on-the-fly,
while another group may require a different convenience of shopping online and getting the order delivered
when it suits them, having a bricks and clicks model means both customer groups are satisfied. Other
previously online-only retailers have stated that they have found benefit in adding a brick-and-mortar
presence to their online-only business, as customers can physically see and test products before purchase
as well as get advice and support on any purchases they have made. [13] Additionally, consumers are likely to
feel safer and have more confidence using a bricks-and-clicks business if they already know the brand from
a brick-and-mortar store.[14]

Disadvantages[edit]

Disadvantages for firms[edit]

A major factor in the success or failure of this business model is in the control of costs, as usually
maintaining a physical presence paying for many physical store premises and their staffing requires
larger capital expenditure which online only businesses do not usually have. Conversely, a business selling
more luxurious, often expensive, or only occasionally purchased products like cars may find sales are
more common with a physical presence, due to the more considered nature of the purchasing decision,
though they may still offer online product information. However, some car manufacturers such
as Dacia have introduced online configurators that allow a customer to configure and order complete cars
online, only going to a dealership to collect the completed car,[15] which has proven popular with customers.
[16]

"On the other hand, an online-only service can remain a best-in-class operation because its executives
focus on just the online business." It has been argued that a bricks and clicks business model is more
difficult to implement than an online only model.[17] In the future, the bricks and clicks model may be more
successful, but in 2010 some online only businesses grew at a staggering 30%, while some bricks and
clicks businesses grew at a paltry 3%.[18] The key factor for a bricks and clicks business model to be
successful "will, to a large extent, be determined by a companys ability to manage the trade-offs between
separation and integration" of their retail and online businesses. [19]

Disadvantages for consumers[edit]

Some argue that online shopping, which makes price comparison easier for customers,
encourages a 'race-to-the-bottom', where retailers only compete on price, with quality and service
deteriorating as a result.[20] This is especially prevalent when comparison shopping websites such
as mySupermarket allow prices to be compared without even visiting a retailer's website. [21]

The prices listed online may not match the prices listed offline. The reasons for this include mis-
management, and economics (overhead cost of an online purchase and an offline purchase is
different). This may result in confusion and deviations of expectations for the buyers. [22]

Buyers may end up buying more items than they need, because online businesses are able to
show them more items, more promotions, and more advertisements.

Legislation[edit]
An advantage to the consumer and a potential disadvantage to businesses is that by adopting a bricks and
clicks business model and allowing customers to purchase goods or services remotely, it is legislated in
many jurisdictions that consumers are granted more rights to protect them. In the UK, for example, any
goods purchased from a bricks and clicks business over a 'click and collect' service would allow the buyer
protection under the Consumer Protection (Distance Selling) Regulations 2000, namely the right to return a
product or cancel a service within 14 days of purchase for a full refund. [23] Similar rights are afforded to EU
Residents, who gain protection under European Directive 97/7/EC. In the USA, the Federal Trade
Commission legislate specifically over how a distance sale should be conducted and the rights that a
consumer has, namely a '3 day' rule allowing items ordered over the web to be returned within three days.
[24]

An example of a retailer falling foul of this legislation is British clothing retailer Next, who were found to be
breaking the laws by only allowing a customer to return goods that they had ordered if they paid return
postage costs.[25]

Notable examples[edit]
In the UK, the method is known as "Click and Collect". This term was invented by British retailer Argos who
already offered "Ring and Reserve" and "Text and Take Home" offerings for telephone and SMS ordering
respectively, where goods would be held so the customer would pay in store. As these existing services
used alliterations for their name, they needed a name for their online ordering proposition and came up with
Click and Collect.

British retailer John Lewis has found success in adopting a bricks and clicks business model, with the
online ordering service outperforming brick and mortar sales for several years running. [26] Online auction
website eBay have also launched a scheme in cooperation with catalogue shop Argos that allows goods
sold by third parties to be collected in a brick-and-mortar location, which allows the customer to collect
goods at their convenience rather than wait at home for a delivery company.[27]

In 2013, music retailer HMV went in to administration despite having operated both brick-and-mortar stores
and an online presence.[28] This was put down by many to the high overheads of operating the brick-and-
mortar side of the business making HMV unable to compete with pure-clicks retailers such
as Amazon.com.[29]

See also[edit]