End of Pure Play? The traditional brick and mortar companies are facing competition with Pure Play online retailers as they emerged overnight…
The traditional brick and mortar companies are facing competition with Pure Play online retailers as they emerged overnight with the growing usage of internet. Moreover online retailers enjoy comparative advantage over labour cost, overheads, access to cheap capital and etc. Thereby online retailers are able to offer competitive prices which made it very challenging for the traditional businesses to compete on like for like products & service offerings.
However this has been changing over the recent past as traditional brick and mortar establishments have upgraded online infrastructure in order to overcome the challenges and to meet customer expectations. At present, most of the brick and mortar companies have online presence however it’s not the same vice versa. As a result, there’s a turnaround of events and currently Pure Plays are faced with competition in order to survive. However this was not the case few years back when brick and mortar companies did not have online presence. We have done some research and analysis to find out about the future of Pure Play.
Online retailers with in-store presence would have comparative advantage for customer loyalty, returns, refunds, pick-up options & etc. Moreover without a doubt there are many other options that brick and mortar businesses can offer to a customer where internet-only retailers may not be able to offer, such as physical presence, brand-building experience & etc.
Returns are costly, in terms of postage, processing at dedicated centers & etc. Moreover returned products may not be in a condition to be resold either because they’re out of season or damaged. When there is no choice of distributing through physical stores, there’s greater weight for pure plays to offer free delivery and returns, which adds extra costs to the business. Whereas store-based retailers have greater freedom to push customers toward in-store collection.
Looking at the customer shopping behaviour, the graph below provides reasons as to why shoppers buy in-store compared to online, which explains that Pure Play retailers should also consider options that an in-store retailer would provide.
The graph below shows data of some of the leading apparel retailers in the UK out of which boohoo.com and ASOS are pure plays. There is strong evidence that retailers with online presence only are having lower operating margins compared to brick and mortar businesses who now have online presence as well.
As a result, going forward investors may tend to get reluctant when investing in pure play businesses which in turn will result in difficulties for pure play businesses to get access to cheap capital. Therefore once the cheap capital dries up, Pure Plays will be forced to open stores in order to stay competitive.
Therefore going forward pure play businesses should think of strategies to overcome such situations, this possibly could mean having to think of omni-channels. Will physical presence help limit these costs? Possibly, giving customers greater opportunities to try on products, which results in fewer returns, options to collect and return orders in store & etc., Moreover it could help push operating margins for pure plays closer to those of stores.
Changes are already taking place such as pure plays are adjusting themselves in order to face the threat. Examples such as Home Depot where it’s blending online presence with brick and mortar store, similarly, recent eCommerce pure plays like Warby Parker are expanding into physical stores with great success and even online fashion brand such as Bonobos has guide shops where customers can make appointments to try on products before purchasing them online. Another online fashion retailer ZOOT is following a unique omni-channel concept taking the best of online and offline presence by allowing its customers to order their chosen item to any Try&Buy stores and purchase only after they have tried on.
Amazon, largest online retailer is facing challenges and now looking to expand into offline methods. One of its offline strategy was opening up their first ‘pick-up and drop off’ store on campus of Purdue University, in the U.S. moreover opening a real-life bookstore in Seattle in December 2015. If Amazon can’t make the pure play digital dream work, no-one can. Eventually most retailers will have to have both, therefore going forward in order to survive and with growing customer expectation, pure play businesses would benefit if they consider omni- channels, cost cutting methods, innovation and etc.
Pure play retailers are struggling to find methods to drive awareness, whereas developed retailers that have opened brick-and-mortar stores are reaping the dual benefits of both profitable new points of distribution as well as increased consumer awareness and online site traffic.
Pure play business model allows companies to experiment and grow in the initial stage without significant investments in retail without locations or branch offices. However, as traditional brick and mortar companies have begun its in-house web operations as versions of pure play it’s not easy for pure play businesses to retain the same level of competition as before. Future pure play businesses must consider the impact of an established brick-and-mortar competitor & moving into their position and unlocking its potentials.