From Clicks to Bricks: How Physical Stores Can Amplify Your DTC Brand's Marketing Efforts
Stores are more than just a sales channel
Last week’s newsletter highlighted some of the uniquely terrible aspects of brick and mortar channels
This week I’m doing the opposite: I’ll highlight several of the amazing things about having an immersive, offline experience. I’ll list a few of the qualitative and quantitative benefits of stores, and for the latter I’ll also explain how to measure them at a high level.
Over the course of my career in offline expansion (primarily for digital brands), I’ve had to “make the case” for brick and mortar a frustrating amount of times. There was always a battle for budget: should e-commerce and marketing get more dollars, or should retail and store development? And naturally, these types of conversations typically turned into a “battle for budget,” resulting in pitting the channels against each other. However:
These aren’t competing investments; they serve different purposes and actually complement each other
As a consequence of #1 above, the primary metrics that measure effectiveness between the two are different; brands are often comparing different success metrics between the channels, often resulting in teams speaking past each other
With that context in mind, I wanted to share some of the “benefits of stores for digital brands” that I’ve found most compelling — as a general business case and in terms that your e-commerce counterparts can understand.
Stores’ most unique asset is their IRL presence
E-commerce’s digital experience has numerous advantages. But it simply can’t compete with brick and mortar in a number of ways:
Targeted geographical reach: While you can geographically target potential customers digitally, hyper-focused geofences tend to be expensive; so naturally the typical default is a national peanut butter spread campaign (not necessarily intentionally, but as a result of not targeting specific geos). Additionally, geo-specific “out of home” (OOH) marketing investments like billboards, subway ads, etc. don’t give you a way of capturing those eyeballs or customers’ information for retargeting later. Even Digital OOH has a number of challenges — the biggest one being its cost, and another major factor being “Unproven ROI or value of investment:”
In contrast, the default reach for stores is naturally a geo-targeted area. In my experience, CBSAs are a great geographic grain of measurement: they average 3,000 square miles, relative to 14.5k square miles for DMAs and 90 square miles for zip codes — they’re a very manageable geography. Stores enable very surgical customer acquisition and in such a way that also allows you to capture the customer’s information (eg when they check in or check out). While the reach can feel limited relative to performance marketers’ nationwide campaigns, a single store is also not intended to be nationwide growth engine. And for many brands, nationwide digital performance marketing spend ends up targeting a lot of unqualified traffic: e-commerce conversion rates tend to average 2.5-3%, versus retail stores averaging 20-40%.
IRL human interaction: Chatbots and simplified online checkout processes make shopping online easy, but there’s still something about (1) talking to a human, and (2) in person (vs over chat or email) that makes IRL shopping a much better experience. With so much of online experiences being the same these days (powered by Shopify, Shop Pay, Amazon’s checkout, etc.), the human connection you can offer is an easy way to differentiate your brand and experience.
Sensory experiences: While there are technologies that are trying to simulate the feel of physical product with your iPhones and other surfaces, they certainly haven’t gotten to the point of replacing your actual sense of touch. Particularly for industries like furniture and other textiles/materials-driven products, offering a means to touching the product will undoubtedly boost sales.
The UC Berkeley Innovation X collaboration with lululemon created the haptic technology team which was tasked with creating a product that invokes “wow” moments that will put lululemon in the forefront of athletic wear retail. Additionally, scent marketing has been integrated with many store experiences, with studies revealing consumers who shopped in the presence of a scent spent an average of 20% more.
Brand validation: According to a survey conducted by the National Retail Federation, 61% of consumers said they prefer to shop at stores with a physical location over online-only retailers. It’s so easy to start an e-commerce brand these days — many with questionable quality or customer service — so when a brand has a storefront, it acts as a means of validation; to the consumer, a storefront implies (1) someone invested some serious capital into the brand, (2) the brand invested significant capital into the location, and (3) the brand hired real employees — in other words, its mere existence instills a higher default level of trust.
Omnichannel integration: Consumer no longer shop a single channel, and, where possible, they want the benefits of all channels at the same time. As a couple examples:
Online shoppers want immediate access to sales associates via chat, or get as close as they can to instant gratification with 1-2 day shipping options.
In-store shoppers expect associates to be armed with technology that can tell them if an item is out of stock, and to be prepared to tell them all the technical details about a product that would ordinarily be listed on a website’s PDP.
BOPIS: Stores also enable a relatively new way of shopping that consumers are doing more commonly: Buy Online Pick Up In Store, which is a huge unlock for a variety of reasons, not the least of which is topping off e-commerce’s customer journey with the instant gratification only a store can provide.
And here’s an obvious but powerful point: you can offer an e-commerce experience in a physical store (see below), but you can’t offer a physical experience in a website.Physical expression: Last but certainly not least, physical stores allow you to physically express your brand in a much more immersive environment than you possibly could elsewhere. This gives the brand another way to engage with the customer, and portray a more localized feel across markets (as opposed to a universal e-commerce experience for people in all geographies).
To understand the benefit of stores, you have to look beyond traditional 4-wall metrics
When quantifying the ROI of stores, most retailers will look to traditional capital planning metrics: payback, IRR or NPV. However, when examining the ROI of performance marketing spend, the metrics are entirely different:
ROAS: Return On Ad Spend = Sales / Ad Spend
CAC: Customer Acquisition Cost = Ad Spend / New Customers Acquire
CPM: Cost Per Mille = Ad Spend / Impressions x 1000
CLV: Customer Lifetime Value = Customer’s AOV x Avg Purchases Per Year x Length of Customer Relationship
This is important to recognize because, in my experience, DTC brands are typically run by leaders with e-com and performance marketing backgrounds. Which means bragging about your 24 month payback or 40% IRR store model is meaningless in their world of ROAS and CACs; the success metrics of store investments are not apples to apples to those of performance marketing investments.
So instead of outlining the benefits of stores from a typical capital ROI lens (which I’ve done before), I’m going to show how to frame up and measure stores from the lens of a marketer:
Stores lower your CAC
Stores are unique as a customer acquisition engine in that they’re largely a fixed cost. Meaning, whether 100 or 1,000 customers walk through the door, your rent is the same (percentage rent — which is a partial rev-share structure — can dilute that, but even then it’s unlikely to be more variable than fixed). In this way, stores create leverage when you’re scaling. Consider the below simplified graphic:
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