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Report: Online retailers continue to move to brick-and-mortar

BY Marianne Wilson

There is one trend from the past couple of years shows no signs of stopping anytime soon: the movement of online-only retailers to the physical space. If anything, it’s gaining more momentum.

According to JLL’s Screens to Stores report, even more online retailers will experiment with physical locations in the next five years.

“Some observers are surprised that online retailers would choose to take on the added cost of operating physical stores, but online retailers are slowly realizing that nothing packs the marketing punch like a physical store in a strategic location,” said James Cook, director of retail research, JLL. “Those that sell apparel and accessories find real stores especially attractive. What we have seen so far is just the beginning.”

JLL analyzed 51 notable e-tailers that are translating their brand offline, and found that there are four key phases of e-tailers’ evolutions. They are listed below:

1. Experimentation with Pop-Up Locations in Dense Urban Markets: Long-term leases can be a daunting commitment for an online-only retailer, so pop-up shops, which have short-term agreements that can range from a day to six-12 months, provide the delicate balance e-tailers’ need. According to the report, only 14% of e-tailers studied are in this first phase.

2. A Handful of Strategic Permanent Stores: Post- pop-up, it’s time to commit to a permanent storefront, which is typically a solo flagship that personifies an online retailers’ best qualities and products. JLL found that approximately 63% of e-tailers opened their first permanent store in a prime urban corridor, with nearly one-third opening their first store in New York City.

“New York’s density and diversity provides a general baseline for success, which is why we see it as the top market for e-tailers to test their brand receptivity,” said Erin Grace, managing director of retail for JLL based in New York.

3. Roll-Out across Top Cities: After testing out one physical location the next step is to open two to 10 strategic stores. Primary markets typically take priority, but up-and-coming secondary markets, like Portland and Austin, are occasionally added to the mix. More locations means more customers can connect with a brand.

A JLL survey of 500 U.S. consumers found that 40% agreed or strongly agreed that they would be more likely to buy clothing or accessories online from a retailer that has a physical store in their area.

4. Full-Fledged Fleet of Stores: The last phase for an e-tailer’s physical migration is a national roll-out of stores on street level and in shopping centers. One-quarter of the e-tailers we analyzed are at this stage with 11 or more stores. Once this point has been achieved, e-tailers turned retailer continue to build their brand and seamlessly integrate their online platform into their brick-and-mortar.

“E-tailers see the need to move their businesses into physical locations in order to grow sales and further market their brands, but the process of expanding into brick-and-mortar stores is an emerging discipline,” said Cook. “Online retailers must be thoughtful as they select physical locations to preserve their brand image and keep their business profitable. Whether it’s testing potential retail locations with pop-up shops to an eventual national roll-outs of stores, every step in the growth process counts.”

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