Online-only stores like Amazon have been outcompeting bricks and mortar stores for decades now and the situation shows little sign of changing. Even if the “great acceleration” of the last two years had not happened, people’s lives are moving increasingly online and their purchases are moving online to match.
Price has long been how ecommerce stores have tempted people to buy online instead of from their local high street, but as logistics and deliveries have improved in recent years convenience has also become a major factor.
Here are four ways online continues to outcompete bricks and mortar:
Economies of scale
High street stores may be part of larger chains, but each location is only a fraction of the size of the warehouses used by online stores, and that means that it is incredibly difficult for these physical stores to compete on price with their online competitors.
Bricks and mortar stores will generally also have huge warehouses they use for distribution to their high street stores and digital customers, but this all just adds to their property and staffing bills.
Property prices
High street property is incredibly expensive. Despite two years of little footfall, property firms have only slightly reduced rents and this is a huge expense that high street stores need to pay that ecommerce stores simply do not have to pay.
Both online and bricks and mortar stores have large out-of-town warehouses that are much less expensive, but the simple fact that stores on the high street will be paying thousands of pounds per month in rent means that they either need to charge higher prices or will have lower margins than their online competitors.
Employee numbers
The other issue high street stores face is that they need to staff more properties than ecommerce stores and that means significant extra costs. A mixture of robots and backroom staff can deliver significantly more order per hour than high street staff waiting for customers to walk in the door.
Retail employees may be relatively low paid, but employees consistently make up a large proportion of any company’s outgoings, so the lower the number of employees the higher the profit margins a company can find per sale.
Logistics
A company that distributes B2C to the whole country from a handful of warehouses is a much simpler task than trying to distribute stock efficiently to both physical stores and directly to the consumer.
If you add to this the difficulty of more complex orders, such when ordering prescription sunglasses online as opposed to simply clothes or homeware, the ability to manage the entire process with fewer locations can save significant expenses.
High streets have changed significantly in recent years, with the big chain stores struggling to compete with the efficiencies of their online competitors. However, it is not all doom and gloom, as the disappearance of these chains is forcing property firms to reduce rents and giving smaller independent businesses a chance to find local customers. These boutique smaller stores offer unique services and products are do not compete on price, so for these new businesses the online giants are less of a threat. It could just be that the much discussed “death of the high street” might actually be the birth of something much better.