Physical retail could yet stage a comeback, according to new research just published by CBRE Investment Management, despite the negative sentiment about the sector due to the rise of e-commerce.
Bricks and mortar shops could become more attractive as online retailers grapple with the rising costs of digital advertising and goods fulfilment, as well as the growing importance to consumers of minimising the negative impact on the environment, according to the research titled Clicks to Bricks: Physical Retail as a Solution to Digital Deterrents.
As the online retailing space has become more crowded recently, customer acquisition costs have risen significantly and this trend is expected to continue, says CBRE. This makes the cost of building a meaningful presence solely through digital means less affordable.
“With rental demand for high-street stores decreasing, physical retail is becoming a viable and cost-effective way to support e-commerce in establishing a brand and acquiring customers,” the research says.
A physical presence offers other advantages too. A recent survey conducted by the Baymard Institute found that almost 50% of digital shoppers who abandon their carts at checkout do so because of extra costs, mainly delivery costs, being too high. A further 19% object to delivery times being too long.
Therefore a physical location functioning as a service point or logistics facility can enable more fulfilment options and faster delivery times, as well as cutting costs associated with returns by allowing customers to see and try on products before buying them. Unwanted purchases that have been returned to the store can quickly be prepared for resale, rather than being shipped back to the retailer.
Legislation and consumer behaviour could boost physical retail
Modern consumers’ growing desire to shop sustainably, coupled with ever-tougher legislations, could also provide a boost to physical retail, CBRE points out.
A 2020 report by the European Commission found that additional demand of almost 1.5 million tonnes of cardboard and 26,000 tonnes of light density polyethylene foil are generated by e-commerce in Europe, equating to 490,000 tonnes of extra CO2 released during the production of these materials.
On top of the additional packaging required, there is the issue of the carbon footprint of deliveries plus the fact that many returned products end up in landfills. Physical retail therefore appears as a more sustainable option compared to buying online.
“We still expect online retail to account for a greater share of total sales over time, necessitating a net reduction of total retail floor space, but we also believe that physical stores can help operators navigate the risks associated with a fast-changing retailing environment,” said Darya Frolova, associate, European real assets research, CBRE Investment Management.
As digital retail becomes ever more competitive, other well-established direct-to-consumer e-commerce players are increasingly considering physical retail to complement their offer, she said: “Omnichannel operators and larger online-only retailers will look to assets that are experiential and can serve as advertising platforms and fulfilment centres.”