Business

brick and mortar

What is a physical store?

The term “brick-and-mortar” refers to a traditional street-side business that provides products and services to customers face-to-face in an office or store owned or leased by the business. Local grocery stores and corner banks are examples of brick-and-mortar companies. Brick-and-mortar businesses are finding it difficult to compete with primarily web-based players such as Amazon.com Inc (AMZN), which typically have lower operating costs and greater flexibility.

key takeaways

  • Brick-and-mortar stores are traditional businesses that have brick-and-mortar stores or stores that customers browse and buy in person.
  • Such traditional stores are going through a tough time in the digital economy, where web-based retailers like eBay or Amazon benefit from lower operating costs and greater customer flexibility.
  • Many traditional brick-and-mortar companies have created synchronized, connected web-based businesses to better compete with online-only companies.
  • Likewise, the long-standing and significant brick-and-mortar model has had an impact on some previously web-only companies that have opened brick-and-mortar stores to realize the advantages of traditional retail.

Learn about brick and mortar stores

Many consumers still prefer to shop and browse in brick-and-mortar stores. In brick-and-mortar stores, consumers can talk to employees and ask questions about products or services. Brick-and-mortar stores have the ability to offer experiential shopping, where shoppers can test out products like video games or laptops at Best Buy, or grab lunch at Nordstrom’s cafe while in-store shopping. Brick-and-mortar stores also provide consumers with instant gratification when purchasing.

Some consumers are wary of using credit cards or other online payment methods. These customers often associate legitimacy with brick-and-mortar businesses because brick-and-mortar stores foster a sense of trust. However, companies operating brick-and-mortar stores can have headwinds, including costs associated with leasing buildings, employees conducting transactions, and utility bills such as electricity, heat and water.

Physical store sales

On a per-store basis, publicly traded retailers typically report same-store sales or comparable-store sales in their SEC-regulated quarterly and annual earnings reports. These financial metrics provide a comparison of the retail chain’s performance over a specified time period. Brick-and-mortar businesses, including restaurants, grocers, and grocery stores, use the data to evaluate their financial performance to guide business decisions about their stores.

At the macroeconomic level, the U.S. Census Bureau releases retail sales data on a monthly basis and e-commerce retail sales data on a quarterly basis.

Non-store retail, which occurs outside of traditional brick-and-mortar businesses, such as direct (door-to-door) sales and e-commerce, generated more than $667 billion in full-year 2019 sales.

Many brick-and-mortar stores find it difficult to compete with web-based stores like Amazon. However, companies like Costco have thrived by offering their members services like buy online and pick up in store.

Examples of successful brick-and-mortar stores

With all the negative press surrounding brick-and-mortar stores coupled with Amazon’s popularity, one might think the brick-and-mortar business model is dead. Costco, however, bucked the trend.

Costco Wholesale Corporation (COST) is a membership retailer that charges an annual fee of $60 to $120 per customer. Consumers gain cost savings and service advantages by becoming a member. As of 2020, Costco has more than 100 million members who have a renewal rate of nearly 90%.

In a consumer survey conducted by Verint Systems, Inc., Costco beat Amazon to become the largest Internet retailer. Costco sells 10,000 products on its website and offers consumers the option to buy online and pick up in store, helping to offer its members a more attractive alternative to Amazon.

special attention items

The rise of electronic commerce (e-commerce) and online business has many people thinking about the future of brick-and-mortar business. It is also increasingly common for brick-and-mortar businesses to have an online presence in an attempt to benefit from each specific business model.

For example, some brick-and-mortar grocery stores, like Safeway, allow customers to buy groceries online and have them delivered to their door in just a few hours. The growing popularity of these hybrid business models has given rise to offshoot terms such as “clicks and mortars” and “bricks and clicks.”

Despite fairly consistent growth in the broader brick-and-mortar environment, many traditional retailers are closing stores across the country, including Gymboree, The Limited, Radio Shack and Gamestop. At the same time, other stores such as Sears and Payless ShoeSource also declared bankruptcy.

However, the importance of the brick-and-mortar model has been recognized by several large online e-commerce companies opening brick-and-mortar stores to realize the advantages of traditional retail. For example, Amazon.com Inc. opened brick-and-mortar stores to help market its products and strengthen customer relationships. In addition to opening a cashier-free grocery store in Seattle and dozens of bookstores across the country, Amazon bought grocer Whole Foods for $13.7 billion in 2017 — a move many analysts say underscores Amazon’s urgency to beef up its brick-and-mortar retail business desire.

That said, certain business types, such as those operating in the service industry, are more suitable for brick and mortar formats, such as hair salons, veterinarians, gas stations, auto repair shops, restaurants, and accounting firms. A brick-and-mortar business’ marketing strategy must highlight the advantages consumers have when buying in a brick-and-mortar store.

Clearly, the retail landscape has changed, and brick-and-mortar stores will have to adapt to the changing technology landscape to avoid becoming the next Sears or Payless.

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