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Brick-and-Mortar/E-Commerce Marriages Are Forging Retail's Future Success

Richard Brinegar 78 April 27, 2017

The wall between established brick-and-mortar retailers and e-commerce startups has diminished with the omnichannel retail trend, but not all e-tailers are ready to be acquired. 

INDOCHINO Storefront
Indochino showroom in Edmonton, Canada

“We grew by 54% last year,” Indochino CEO Drew Green said. “We’ve explored partnerships with department stores and might look again in the future, but we aren’t there yet. We’re focused on our own set of plans.”

Green’s custom menswear company originated online and has since opened 13 physical showrooms in major cities like Vancouver (its corporate hometown), San Francisco and New York. It will have eight new brick-and-mortar locations by the end of August 2017 and has plans to open 100 more over the next five years. Its showroom model with no on-site inventory is key to keeping costs low and to Indochino’s overall success. 

“By holding all that supply, traditional retailers have a massive amount of inventory risk,” Green said. “Ours is virtual inventory. Nothing is made until it is purchased.”

Indochino is not the only clicks-to-bricks success story. The trend of brick-and-mortar behemoths buying out e-commerce competitors to strengthen their online presence and expand their customer base is rapidly growing. Just this month PetSmart announced a $3.35B deal to acquire pet food provider Chewy.com in what could be the largest e-commerce acquisition in history. Walmart too is joining the trend. The world's largest retailer, long chided for its slow embrace of e-commerce technology, acquired Jet.com in 2016 for $3.3B (the previous record holder for biggest online acquisition). As part of the deal, Jet’s founder and CEO Marc Lore transitioned to head up the retailer’s growing e-commerce division in September 2016, and has since been busy executing his vision.

Walmart, Wal-Mart, walmart stores

The Arkansas-based retail giant has also acquired women’s vintage-style apparel e-tailer ModCloth, ShoeBuy.com, and outdoor gear and apparel e-commerce site MooseJaw. Recent reports suggest Bonobos is next in the company’s crosshairs, as it is exploring a possible $300M takeover bid to attract more affluent shoppers. Lore is also closing the gap between in-store experiences and online shopping by offering shoppers discounts on more than 10,000 online-only items if they pick the purchases up in a Walmart store. By June, the number will rise to over a million items. 

“You’re not seeing retailers give a preference to either side of the spectrum. What you’re seeing is companies pushing omnichannel,” Morningstar senior equity analyst Bridget Weishaar said. 

The interconnected sales approach known as omnichannel combines brick-and-mortar retail with e-commerce and is rapidly identified as a vital business strategy to survive and succeed in the current retail environment. It recognizes customers still prefer shopping in physical stores, but it provides more cost-efficient distribution with the e-commerce model. 

“Over the last two to three years, both e-tailers and brick-and-mortar retailers have realized that [they] can’t swim in one lane. They have to do both,” CBRE head of retail research Melina Cordero said. 

The best retail path forward is merging and combining the two areas of expertise. Profitability tends to be higher with in-store purchases, but brick-and-mortar retailers are not set up for e-commerce sales and distribution while online brands have grown up in that arena, Cordero said. Despite the acquisitions, customers should not expect to see mini Walmarts taking over former Bonobos guideshops in their city. Instead, the larger company in these e-commerce unions tends to handle back-of-house operations like production while maintaining the smaller brands' identity. Cordero points to Nordstrom’s Trunk Club acquisition and Unilever’s $1B purchase of Dollar Shave Club as examples.

“You can’t dilute the cool, small image to associate with the larger brand,” Cordero said.