Why Customer Analytics is the Key to Success for Online Retailers Opening Brick-and-Mortar Stores

Why Customer Analytics is the Key to Success for Online Retailers Opening Brick-and-Mortar Stores

Once upon a time, everyone thought that online retailers represented the future of the retail industry. But as these brands have matured, they quickly discovered that physical stores have an important role to play in reaching new customers and driving sales. Couple that with increasing competition, rising online advertising costs and declining mall rents, and suddenly brick-and-mortar stores have become an attractive growth channel.

The once “pure play” online retailers are now rolling out aggressive strategies for brick-and-mortar expansion. According to Bloomberg, online brands are expanding beyond major metro areas on the coasts to reach suburban America. These retailers now operate more than 600 U.S. stores and are being courted by landlords looking for exciting new brands to reinvigorate their malls and shopping centers. Examples of online retailers who are opening stores include Amazon Books, Casper, Chubbies, Madison Reed, Warby Parker, UntuckIt, and Bonobos.

As online retailers build a real estate strategy from the ground up, it will be critical to lay the right foundation. Many of the woes facing traditional retailers today were caused in part by overexpansion and poor market planning. 

Online retailers are accustomed to using data to assess performance. This makes using customer analytics for real estate site selection a natural progression. 

If your brand is looking to make the leap from online retailing to brick-and-mortar retailing, here are three things to keep in mind:

1. Success Begins With Understanding Who Your Customers Are

Great retail brands build their entire operations around the customer, and real estate decisions are no exception. Stores with high concentrations of the right customers in the trade area are more likely to be successful than those that do not.

It’s important to define your customers not just in terms of demographics, but also in terms of lifestyles. Once you know who your best customers are, you can identify where all of the other consumers like them are located and calculate the value of each potential customer to a store location.

For online retailers, it makes sense to develop separate customer profiles for your online and brick-and-mortar customers. This allows you to identify differences in the types of customers each channel attracts. This also helps you understand how many customers in a potential trade area are likely to shop online versus in store.

2. Understand the Many Market Factors That Influence Store Performance

Store performance can be influenced by cotenants, area draw, competition, signage visibility, and much more. You need to understand the factors that influence performance so you make smart real estate investments.

As your brand continues to build history with brick-and-mortar stores, you can use the performance data from those stores to refine your site selection models. You can even calculate the cross-channel effects of having both brick-and-mortar and online sales in the same region. These insights allow you to continue to get smarter over time.

3. Avoid Overexpansion by Calculating Your Total Potential

It’s tempting to over expand, but the consequences can be disastrous. You can avoid this trap by conducting a market growth potential analysis to identify the number of stores each market can support and where those stores should be located. This gives you a roadmap for expansion based on the parameters you’ve determined to be essential for success.

The Bottom Line

Brick-and-mortar stores offer online retailers the potential to reach new customers and generate higher sales. As with any new distribution channel, it’s important to thoroughly analyze your options to avoid expensive mistakes. Customer analytics can play an important role in helping online retailers to make the right real estate decisions as they continue to grow.

Interested in learning more about how customer analytics can be used to grow your business? Explore our retail solutions for more information.