Online retail today is about 12% of the retail commerce and it will continue to grow. However, there is a consensus by all CEOs of the big online marketplaces (Amazon, eBay, Walmart, Alibaba) that online cannot replace the offline retail totally, at least not in the near future.
The reason is simple, buyers still want the buying experience offered by offline stores. In my article Where Brick and Mortar stores beat eCommerce I share the main reasons for that, and my suggestions for how eCommerce can give a fight.
There is no doubt that online will continue to increase its share, but this will not be enough for eCommerce online marketplaces to really make the difference. Therefore they start invading the offline space.
Big e-commerce sites invest in offline stores
Amazon for sure is the first online retail to take the path into the offline medium, by investing heavily in their fulfillment and logistics services that enable them to offer 2 days shipping service, and in many cases even same day shipping. This is a major competitive advantage but its not enough for Amazon.
In 2017 Amazon had another major move into the offline medium by their $13.7 billion acquisition of the American grocery chain Whole Foods Market. This acquisition gives Amazon the brick-and-mortar real estate to reduce even more the costs of delivery, returns and marketing.
In addition, Amazon invests tremendous amount of resources in its “Amazon-Go” stores initiative. Their dream of having a buying experience that does not require any cashier, cash register, or self-service checkout stand, while billing is done automatically when leaving the store, is maybe the strongest evidence of their belief in the inevitable synergy between online and offline shopping experience.
Alibaba is also gaining more and more presence in the offline retail market by opening 65 grocery stores in China (Hema) in the last year. This year Alibaba also signed a partnership with Starbucks, to integrate its Alipay and delivery services within Starbucks. This is not by coincidence, although China is heavily impacted by the online revolution, still only 20% of the retail commerce is done online. Alibaba understands that in order to continue growing, they need to enter the offline sector as well.
Why are they doing it?
1. Competition from offline retailers is raising
Following its acquisition of Jet.com a little over two years ago, Walmart has invested significant resources into creating a cohesive hybrid online and offline operation that uses mobile apps, cloud computing, and significant logistics and analytics software. Walmart targets year-over-year online sales increases of 40% in 2018, on top of the 44% gains it achieved in 2017. Walmart is expected to overtake Apple as the 3rd largest eCommerce retailer by sales this year, behind Amazon and eBay.
In 2017 Target acquired the startup Shipt for $550 million in order to offer online grocery shopping experience with a very fast delivery service to your door step.
2. Big online retailers already have critical capabilities to compete offline
Online retailers already have some key capabilities that are relevant for offline sales, like order fulfillment (storing, packing, shipping), billing, advertising, customer success operation, branding, etc.
The major missing piece is the physical presence and real estate in central areas. Though opening a physical store is expensive, it is something that is relatively easy to do, because the is no need for major investments in technology.
By leveraging their current capabilities, big online retailers can overcome many of the major entrance barriers.
3. The fight over customers touch points
Being close to the end customer is the most important fight of any retailer these days. Buyers are exposed to so many communication channels, offers, and promotions. Their expectations for a great shopping experience is getting higher and higher. The only way to really catch buyers is to be there wherever they go – it doesn’t matter if it’s online or offline.
By opening physical stores and offline services, online retailers can get more closer to customers and by doing that increase their offering and strength their branding.
For example, most buyers still buy their groceries on physical stores. Buyers like to collect and pick their groceries. Amazon and Alibaba noticed that and therefore decided to penetrate this market. By doing that, they get much more exposure to different customers, they can offer additional services that eventually will push more and more traffic to their online services (which in most cases are more profitable).
Improve conversion by better returns services
Critical pains in online sales are fast shipment and returns of goods.
Buyers these days expect a very fast shipment and the option to return online purchased good after trying them out. By opening physical stores, they can also serve as a local service hub for online customers – collecting goods, returns, and getting fast deliveries, even in remote areas.
Amazon has demonstrated very clearly that by offering easy return services, it increases conversion because buyers are less afraid in making a purchase. If one of the return services includes also the option to return it in a close by store, this simplicity even has a more impact on buyers purchase rate.
On a personal note
In a few years from now we won’t differentiate between online and offline retailers. All major players will compete on both mediums intensively. This is both a risk and an opportunity for all today’s retailers.
My personal opinion that today online retailers (Amazon, Alibaba) have some competitive advantage over the offline retailers (Walmart, Target) due to their critical technological assets, their major presence online, and by working with millions of suppliers worldwide. Amazon and Alibaba both already invested heavily in offline services, so they are half way there.
However, if Walmart and other big retailers will make the fast turnaround and use their physical presence in thousands of stores, they can really influence their huge loyal buyers and offer services that give the best from both worlds.
May the best one win!
Ori Feldstein is a senior manager, experienced in eCommerce and in management of multi-million dollars programs in various industries – Big data, e-commerce and Defense. He is a co-founder of two family owned websites in the B2B eCommerce of chemicals (cheta.biz ; chemcenters.com). Follow him on Linkedin, @ori-feldstein.
View on Leadership & eCommerce - by Ori Feldstein 
Leave a comment