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The Omnichannel Dilemma: Will Pandemic-Era Investments Pay Off?

Physical retail is experiencing a glow-up.

E-commerce dominated consumer mindset and wallet share during the pandemic, with some experts saying boutiques and shopping centers were relics of a bygone era. But three years out from the onset of Covid, the proof is in the footfall. Shoppers are returning to stores, leaving brands and retailers to revamp strategies that have centered mostly on digital growth.

The path forward will be an omnichannel one, according to Marie Driscoll, senior beauty, luxury and fashion analyst at Coresight Research. Covid undoubtedly advanced online shopping, with U.S. Census data showing 43 percent year-over-year growth in 2020, but “we are entering a more normal, double-digit pace for e-commerce growth.” The third quarter of 2022 saw e-commerce grow by about 11 percent from the same period last year.

“The physical store is integral to retail,” Driscoll said, not just for discovery and brand-building, but the execution of recently adopted strategies like buy online, pick up in store, curbside pickup, and other hybridized consumer interactions. Omnichannel strategies will be “requisite for most retailers in 2023 and beyond,” she added, because, “the store of the future is more than the site of transactions.”

Retailers that have invested in building out these capabilities are ahead of the curve, as consumers have integrated them into their routines. “These are services the consumer has come to expect,” the analyst said. While she acknowledges that e-commerce will continue to capture a growing share of total retail sales, “the path to purchase frequently combines multiple consumer touchpoints.”

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“The final transaction, regardless where it occurs, is a product of the entire path,” she added.

Online’s influence was leveling off in 2019 and going into 2020, “and we’re seeing it right back at that level” today, said Stephanie Cegielski, vice president of research and public relations for ICSC, a global trade group for physical retail marketplaces. Meanwhile, shoppers are increasingly showing up at malls, shopping centers and other commerce hubs. The group’s data showed that 66 percent of the 201.5 million people who shopped during the Thanksgiving-through-Cyber-Monday period spent money at a brick-and-mortar location this year, up 5 percent from 2021.

“Human beings are social creatures—I think we wanted it before the pandemic, and we want it even more now,” she said. Consumers have also come to appreciate the sensory fulfillment inherent to the act of shopping—touching, seeing, and trying on products—after transacting through screens so often over the past few years.

Cegielski added that the logistical issues and package delays seen during the 2021 holiday season may have soured some shoppers on e-commerce going forward. Many are willing to browse and even buy online, but want to take fulfillment into their own hands. “A lot more consumers are doing buy online, pick up in store, because they found that it’s super convenient,” she said.

Retailers have also recognized benefits to their businesses. Some transitioned to using stores as regional distribution centers for online orders and hubs for BOPIS. “Once the supply chain started freeing up, suddenly they had this glut of inventory that hit the stores,” Cegielski said, and using those locations to fulfill online orders “was another way for them to bring those inventory levels down.”

“It was very cost effective because then they didn’t have to pull things from distribution centers, and they could get things to those local markets very quickly,” she added. It’s a strategy the analyst doesn’t see going away. “I think [retailers] are going to use those physical footprints on an ongoing basis,” she said. “It’s great for a retailer, because almost three-fourths of people who buy online end up making another purchase while they’re in the store picking up.”

Physical retail is on a trajectory toward moderate growth heading into the new year, Cegielski believes. “I don’t know if in 2023 If we’re going to see this huge boom of new stores opening, just because of the current economic situation, but I definitely think that we will continue to see opportunities” for brick-and-mortar, she said. Coresight Research reported 4,432 new store openings announced this year, compared to 1,954 store closures.

“We saw a significant jump in June of 2020 in Commercial Mortgage-Backed Security (CMBS) delinquencies, and those have returned to pre pandemic levels,” she added. “We’re not seeing those mortgages default.” ICSC has also seen occupancy rates in malls and open air centers returning to 2019 levels. “They were able to weather the storm very well, and I credit some of that to the fact that so many retailers did pivot” to omnichannel strategies. “And those centers accommodated those retailers.”

Physical expansion has become a priority even for digitally native brands. Santa Barbara, Calif.-based leather goods label Parker Clay has opened four stores across the Western U.S. since late 2021, “and we’re looking at other opportunities in some of our target cities this coming year as well,” said co-founder and chief creative officer Brittany Bentley.

One of Parker Clay's California locations.
Parker Clay Parker Clay

“I think a couple years ago during the pandemic, a lot of people were going ‘Why would you ever go into retail, I thought it was dying?’ But turns out it’s not. It’s been around forever, it’s going to be around forever,” echoed co-founder and CEO Ian Bentley. “If anything, it’s just the consumer behavior has changed.” Shoppers are craving more “experiential” retail—activations, collaborations with other local businesses, pop-ups in unexpected places, or simply inviting and pleasant in-store experiences, he said. “I think there’s just there’s something to buying a product physically, touching it, the smell of the store, the music,” Bentley added. “It’s ingrained in us to enjoy that experience—like going out to eat versus eating at home.”

The brand has also seen a “huge increase” in BOPIS transactions, according to Brittany Bentley. “There’s a variety of reasons” that consumers are engaging, from wanting to cut their carbon impact by forgoing shipping to their homes, to wanting to get their hands on a product faster. Some just want to check out the store in person. Bentley said the company is “still diving into” these interactions with the hope of better understanding consumer motivations.

The direct-to-consumer brand was solely web-based just over a year ago, but decided to branch out because the Bentleys found the space becoming too crowded and noisy. “I think being digitally native, when the changes in iOS and Facebook advertising happened, just got really expensive to do—and really inefficient,” Ian Bentley said. The cost of acquiring a consumer online has skyrocketed, and with so many brands vying for clicks, telling a story and inspiring long-term loyalty is something he believes the brand can better do in person. “It’s about bringing community into that experience, and into the stores as well.”

Forrester vice president and principal analyst Sucharita Kodali said that brands aren’t necessarily shifting away from the web, “It’s more that e-commerce had artificially high demand during the pandemic, and things have returned to the pre-pandemic trend.”

“If they over-invested thinking e-commerce would be like 80 percent of their business, that would be problematic,” she said. “But people are shopping more online now than in 2019, and reasonable investments in an e-commerce platform or inventory visibility across channels should have a good ROI,” she added. “Overall, I don’t see declines in e-commerce,” or omnichannel services that have come to complement it, Kodali said.

Canada-based custom suiting brand Indochino, which has long conducted the bulk of its business through dozens of retail showrooms across North America, took a middle-of-the-road approach over the past three years, investing in building out its e-commerce capabilities while continuing to grow its physical retail footprint.

“During the early days of the pandemic when our retail network shut down, we shifted to an online-only business,” CEO and president Drew Green told Sourcing Journal. It was a significant evolution for the company, which crafts made-to-measure suits for men and women out of its network of showrooms.

“We invested in our e-commerce infrastructure, features and experience to ensure that online conversion continually improved,” the executive said. In order to prompt sales growth online, the brand had to find a way to replicate the personalized approach it deploys at its brick-and-mortar locations. “We focused our IT and e-commerce efforts to enable virtual consultations and help customers learn how to measure themselves, allowing the customer to get the same level of service that they have come to expect in stores from the comfort of their own home,” he added.

One of Indochino's many showrooms across North America.

Indochino launched a new content management system and worked to enhance the web browsing experience by revamping its user interface. It also made improvements to its tech infrastructure on the back end, increasing its server count to support growing demands on its system, and working to strengthen compliance and cybersecurity.

“Our retail network has restarted and now is growing even faster than in 2019, and it continues to be complimented by our online network which has grown more than 80 percent since 2020,” Green said. During the pandemic, the retailer opened 35 additional showrooms, bringing its total number of locations to 86. Indochino plans to open more locations in the new year.

The CEO said that 65 percent of the company’s business stems from physical retail, and the remainder originates on its website. “We know that the journey to our showrooms is a circuitous one that typically starts online, where prospects learn about us and then book an appointment,” he said. The ratio between physical and digital sales has remained consistent post-pandemic.

Green’s objective now is to streamline interactions between the web and the store so consumers can architect their own experience with the brand. “For example, the measurements that you take when you visit our retail location are instantly available to you when you log into your account online,” he said. This enables shoppers to add shirts, pants, or another suit to their order, all built to their specifications, without returning to a showroom for a fitting. 

Indochino’s omnichannel capabilities will deepen in sophistication as it leans on AI to analyze and anticipate consumer demands, he believes. “We are excited about the future of how these two channels will continue to work together to meet the changing patterns of our customers,” Green said.