Retail vs. eCommerce: Which is Better for Aspiring Entrepreneurs?

Looking at the commercial landscape of the last 20 years or so, you might think the competition of physical retail vs. eCommerce is waning — that the digital marketplace seems to have taken over the consumer terrain. However, brick-and-mortar retail stores are still around, and many have proven adept at building physical and digital presences.

Which avenue provides the best opportunity for entrepreneurs? Let’s break down the differences and similarities.

What Is Retail?

Brick-and-mortar stores once ruled the retail world. Customers shopped in stores for merchandise stocked on shelves. Transactions took place on the spot. Customers had face-to-face interactions with employees and could examine the product before purchase.

Types of Retail Channels

There are two channels of distribution and promotion in traditional retail:

Direct Channels

With direct channels, the merchant sells the product they manufacture directly to their customers with no go-between. The company controls production, packaging, marketing and sales. Some direct-channel manufacturers offer their goods through catalogs or websites.

Retail Channels

This method involves selling through an intermediary. Manufacturers sell their products to retail outlets — supermarkets, department stores, and shops that then stock the products on their shelves. The manufacturer is relieved of selling their products directly to the customer, allowing them to focus on expansion and innovation.

Pros of Retail Business

From a business owner’s perspective, physical retail stores still hold many advantages for entrepreneurs. One such advantage is face-to-face interaction. Customers today still value the ability to ask shopkeepers questions and to hold products in their hands.

Retail stores also provide you with a public brand presence. A physical store allows you to build your brand in a concrete, material form that customers will remember. In addition, retail gives you options for streamlined shipping. Manufacturers ship their products to distribution centers and local shops, simplifying logistics and reducing costs.

Cons of Retail Business

There are a few drawbacks to physical retail storefronts from a manufacturer’s perspective. One is a lack of scalability. Physical retail outlets have limited customer reach — typically just the town or surrounding region. Retail stores are also only open for a few hours each day rather than 24-hour e-commerce channels.

Another disadvantage is the associated expenses and pricing. A physical store incurs more overhead costs than an e-commerce business does. The overage of these expenses can be passed down to a higher retail price.

With a retail store, you also need to contend with limited tracking and targeting. Product manufacturers can’t track customer data as easily with a physical store, making it harder to target specific demographics and niche markets.

What is eCommerce?

The concept of eCommerce, or electronic commerce, refers to buying and selling goods over the Internet. Customers browse or search for the products they want, customize their purchases if allowed, and initiate and complete payment online. The manufacturer receives orders electronically and fulfills them in a short time.

The main lure of eCommerce is its one-stop-shop nature. You can set up a website, design marketing tools, set up digital showcases or inventory lists, and complete transactions all in one central place.

Pros of eCommerce

Modern product makers can leverage several advantages by using eCommerce. For instance, it gives them access to global reach, availability, and scalability. With eCommerce,  you can get products to the entire world with no geographic limitations, 24 hours a day, seven days a week. This makes it easier to scale up as demand increases.

Lower expenses are another advantage of eCommerce. Overhead costs for an eCommerce outlet are lower than for physical outlets. Website upkeep and server maintenance are less expensive than the tangible elements of brick-and-mortar stores.

In addition, eCommerce offers simpler tracking and data collection. Electronic transactions are recorded immediately. This makes customer tracking, targeting, and data-driven decisions much easier. Throw in opportunities for flexible marketing and easy inventory management, and eCommerce is a powerful platform.

Cons of eCommerce

With all its functionality there are still some pitfalls to using eCommerce tools exclusively. Some of them are listed below:

  • Competition: In the competitive online marketplace, it’s hard to make your brand stand out among the rest of the digital landscape.
  • Less control, greater dependency: eCommerce merchants rely on third parties for servers, shipping logistics, payment processing, website maintenance, and more.
  • Security risks: Many eCommerce companies have recently fallen victim to digital fraud, hacking, identity theft, and data breaches.

While eCommerce continues to thrive, these limitations keep the digital economy in check.

Factors to Consider When Choosing Retail vs. eCommerce Business

With so many positives and negatives for both, entrepreneurs need to carefully think about retail vs. eCommerce. It’s important that you weigh the following factors in light of your goals.

Target Market

A physical retailer’s “target market” is mainly locals and “regulars.” eCommerce platforms, in theory, can expose your products to the entire world. That global reach may not be necessary for your purposes. If you make a specialized product, you may want to focus on niche markets at first. 

Alternatively, you might want to think “hyper-locally” and sell directly to people in your area. Think about your primary customer base and align your strategies to it.

Costs

Brick-and-mortar outlets need to account for employee wages, utilities, insurance, security, property leases, and other common costs. eCommerce retailers need to pay for things like:

  • Domain hosting 
  • Digital marketing 
  • Shipping 
  • Payment processing 
  • Website development 
  • Technology

Overhead costs for both forms of business can add up quickly. What expenses are you more prepared to handle? Which ones could be prohibitively expensive?

Scalability

With eCommerce, you have the potential to grow your business exponentially. A website can reach most if not all corners of the world. If you’re seeking a global customer base, eCommerce should be attractive.

On the other hand, it’s possible to achieve scalability via physical outlets. If your business is going well, you can expand retail operations through franchising, partnerships, and community outreach. Think about your prospects for growth and market reach and which forum better suits your goals.

Competition

Most competition between physical retailers occurs on a regional basis. Your only competition is with local retailers offering the same general products that you do. These days, however, all retailers have to think about how they’ll compete in the digital landscape, where the marketplace is wide open and more challenging.

Retailers should find an edge that their competitors lack. Whether it’s offering a unique product, developing creative marketing strategies, or improving logistics, the drive to distinguish your company should inform the platform you use.

Convenience

Physical retail outlets are convenient if they’re in the vicinity. You can walk into the outlet, find the item you want, pay, and walk out the door with the product. There’s no need for expedited shipping or waiting for your product.

The convenience of eCommerce is just as compelling. Customers browse and place orders from the comfort of their own homes. They don’t have to travel to a physical outlet because the product comes to their doors. It’s convenient for customers who are frequently busy.

What model of convenience works best with your priorities and resources? Think about what you’re prepared to offer customers.

Seasonality

Most physical stores experience some kind of boon during end-of-year holidays. Specific kinds of retailers are more profitable at different times of the year. Garden supply stores, for instance, flourish in spring, whereas warm apparel stores peak in autumn and winter. A physical retailer needs to think about how they’ll maximize profits in “off-peak” times.

In most cases, eCommerce outlets aren’t driven by the same kind of seasonality since they’re open 24/7. They experience the same buying patterns that generalized department stores do (“Cyber Monday” notwithstanding). Seasonality may drive eCommerce marketing efforts, but overall it’s not as relevant as it is to brick-and-mortar stores.

Retail vs. eCommerce: Which Is Right for You?

Modern entrepreneurs have more choices than ever. That said, they also face stiffer competition. Whether they use physical outlets, eCommerce tools, or a combination of both, retailers need to balance their goals with their abilities and adapt as necessary.

doola helps up-and-coming businesses get off the ground. We provide a range of services for starting operations, managing finances, maintaining legal compliance, and planning for growth. To learn more, schedule a free consultation.

FAQs

Is eCommerce the same as online shopping?

Not exactly! “eCommerce” refers to the overall process of online sales, including payments, marketing, and shipping. “Online shopping” is a part of eCommerce, but it’s not synonymous with it.

Can retail and eCommerce co-exist?

They can and do. There will always be customers who want to visit physical retail stores, even as technology makes eCommerce more flexible and convenient. Most successful physical retailers have some sort of eCommerce presence.

How has eCommerce impacted the retail industry?

In recent years, eCommerce has opened up an entirely new, global marketplace for traditional retailers. It has shifted customer behavior, driven innovation in processing and shipping, and emphasized data-driven decisions.

Is it cheaper to shop in retail stores or online?

There isn’t a universal answer to this question. With eCommerce, customers face shipping charges and additional fees, but they might also have access to aggressive “rewards” for frequent customers. Physical retailers can offer steep discounts on in-store items and massive sales campaigns.

Can I return items purchased online to a retail store?

All major retailers have online sites, from chain supermarkets to department stores. If you buy a product from their website and need to return it, many allow you to return it to a physical location for a refund. Always check whether this is the case before you buy.

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