Why physical stores are a great customer acquisition strategy

As October drew to a close, The Business of Fashion published an article exploring ‘the evolving physical retail opportunity’, inviting readers to reimagine the role of physical stores. The article detailed several interesting insights from Brookfield Properties.

The first is that ‘A-rated retail continues to outperform digital channels in terms of conversion to purchase rates. Physical stores sit around 20 percent, whereas e-commerce is approximately 3 percent’. The second insight is that within the context of rapidly rising costs to acquire consumers digitally through advertising spend and marketing, a physical retail space is extremely cost-efficient in comparison to digital spend when it comes to customer acquisition strategy.

At the same time e-commerce faces its own set of challenges, including acquisition rates and advertising spend. Brookfield Properties quotes that ‘as of the end of 2018, digital cost-per-click advertising rates exploded 255% over a four year period’. 

The third insight is that physical retail’s value should be considered in terms of its marketing value. Whilst consumers may not buy a product directly in store, they could later buy a product after visiting a physical store and seeing a product directly. We therefore cannot understate the true marketing power stores hold. It is also interesting to note that, at the National Retail Federation’s (NRF) Big Show back in May 2020, the former CEO of Crate & Barrel, Neela Montgomery expressed the importance of physical stores, stating that by creating consumer awareness of a digital brand, and enabling customers to touch and interact with a product that was previously online-only, physical retails plays a significant role in the sales funnel for brands that e-commerce cannot mirror. 

What’s more, the Brookfield Properties report expresses that ‘increased spend and focus on digital advertising by retailers’ during the pandemic has not paid off. In store conversation rates still surpass sales online by a ‘magnitude of six’, nearly accounting for 80% of all retail sales.

The aforementioned stats regarding conversation rates, advertising spend and overall sales challenge the myth that digital commerce outranks physical retail. In fact, we could be bold enough to say that physical stores outweigh digital commerce.

Back in summer, we conducted a report that explored the opportunities for retail in a new era. Whilst our future is uncertain and we do not know whether we will be living with, or post COVID19, the pandemic has forced retail to adapt to new ways of living. Mediocracy is a thing of the past as consumers have greater expectations from their store experiences. 

So moving forward, we ask ourselves what constitutes as A-rated retail and how do brands work hard to ensure that their investment into their customer acquisition strategy within physical retail is successful?

2020 has taught us that both digital communication and physical brand moments have their own USPs and serve their own purpose. If we look at the previous stat already mentioned, showing a 20% customer acquisition rate for physical retail vs 3% of e-commerce, it is clear that brands must focus on elevating what physical retail can offer that online shopping cannot. Brands must work harder to enhance the design of their stores, focussing on the relationship between emotions and their environments, elevating the senses and giving consumers the opportunity to have conversations with staff. It is through these considerations that consumers can have a ‘human’ experience and if 2020 has taught us anything, it is that we are human and we crave human sensibilities like connection with others and seek comfort. Brands must therefore break down the touchpoint of their physical stores and reinvent them to create human-centric experiences.

COVID19 has seen greater investment in locality and forging deeper connections to what consumers consider to be home. We have witnessed a shift of consumer mindsets from global to hyper-local and this attitude will drive the future of physical retail experiences. Brands that can use their store to harness the power of the community will establish themselves as meaningful beacons within cities and neighbourhoods. 

When it comes to empathy, this should be at the heart of the store experience. We should design physical stores to answer questions like:

• How can my customers feel the space serves the community? How are we making the community better?
• How can our brand ensure that the physical experience is different from an online experience? How can our sales advisors offer the opportunity for connection and build long term loyalty?

Whilst the first three quarters of 2020 have seen the industry evolve dramatically, what is clear is that physical stores have a purpose and are an excellent tool for nurturing customer relationships and developing a customer acquisition strategy. If you would like to know more about the future of retail, download our report here.