Physical retail 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 environmental impact, according to new research published by CBRE Investment Management.
With the online retailing space becoming more crowded, customer acquisition costs have risen significantly in recent years – with this trend expected to continue – making 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.
A physical presence offers further advantages too. A 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 (predominantly delivery costs) being too high. A further 19% do so because the delivery times are too long. A physical location functioning as a service point or logistics facility can enable more fulfilment options and faster delivery times; it can also cut costs associated with returns by allowing customers to see and try on products before they buy them and return unwanted purchases to stores, where they can quickly be prepared for resale, rather than shipping them back to the retailer (often at the retailer’s cost).
Modern consumers’ growing desire to behave sustainably, coupled with increasing legislation, could also provide a boost to physical retail. A 2020 report by the European Commission found that additional demand of almost 1.5 million tons of cardboard and around 26,000 tons of light density polyethylene foil are generated by e-commerce in Europe, equating to 490,000 tons of extra CO2 released during the production of these materials. This additional packaging, coupled with the carbon footprint of deliveries and the fact that many returned products end up in landfill because of being uneconomical to prepare for resale, points to physical retail as a more sustainable option compared to buying online.
Darya Frolova, associate, European Real Assets Research at CBRE Investment Management, said: 'The covid-19 pandemic has accelerated the rise of e-commerce. Yet while 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, we also believe that physical stores can help operators navigate the risks associated with a fast-changing retailing environment. As digital retail becomes saturated with competition, other well-established direct-to-consumer e-commerce players are increasingly considering physical retail to complement their offer as they gain scale. As e-commerce reaches a saturation point, omnichannel operators and larger online-only retailers will increasingly look to assets that are experiential and can serve as advertising platforms and fulfilment centres.'
The full research paper is available here.
