Why Retailers Close Online Stores

As consumers shift their retail shopping habits towards e-commerce (though online shopping represents only about 10 percent of total retail sales), local retailers wonder if and how to add an e-commerce channel to their own operation. This is the topic of a presentation I’m giving at BERNINA University next month. My goal is to help these independent specialty retailers decide where their online marketing dollars are best spent.

It’s enlightening to look at the retailers who have not succeeded with e-commerce, or who have chosen to focus on their brick-and-mortar locations instead.

A recent notable example is Starbucks, which closed its online store last fall to focus on in-person experiences and mobile technology. The digital store stocked coffee as well as branded mugs and tumblers, along with other brewing machines and accessories. Most, but not all, of those items are also available in their physical locations.

Another retailer who chose to close their online store last year is Martin Patrick 3 (MP3), an extremely successful, award-winning men’s lifestyle retailer in the Minneapolis-Saint Paul Twin Cities area.

These stores exemplify a shift in thinking about the intersection of retail and online buying, a shift that’s not in the obvious direction. Many successful retailers are concluding that the way to compete with online behemoths, such as Amazon (which is opening its own brick-and-mortar stores, and which paid $14 billion to acquire Whole Foods) is to focus on the in-store experience, not the online one.

MP3 owner Greg Walsh said “We used to do e-commerce and about nine months ago just shut it all down. Our store is about being here, the experience and the staff we have that are highly educated about the product and the personal service and attention to it.”

Starbucks chief executive, Kevin Johnson, speaks of a “seismic shift” in retailing and says that “merchants need to create unique and immersive in-store experiences” to survive. Executive Chairman Howard Schultz echoed the need to get shoppers into stores and told investors that “Your product and services, for the most part, cannot be available online and cannot be available on Amazon.”

While the addition of e-commerce can be very profitable, it’s a misconception that e-commerce is inherently more profitable or less expensive than brick-and-mortar retail. The economic pressures affecting both are changing.

Consider what retailers pay for their location. As some physical retailers fail, vacancy rates increase and rents fall, which benefits the more successful business owners, especially those who can snag cheaper, well-located retail property.

And while you don’t pay rent in the same way when you run an e-commerce store, you still need buyers. Your location on Main Street can’t bring them to you, so you must pay ever-increasing advertising costs on Google or Facebook instead.

The rising cost of shipping also plagues e-commerce firms, which is one of the reasons Amazon chose to raise its Prime membership fee. Combine that with consumer expectations for free delivery, and it’s not surprising that shipping costs have become unsustainable for growing numbers of e-commerce merchants.

The huge rate of returns, and associated costs, are a big factor too, especially when you consider that some buyers deliberately over-purchase (e.g. buy multiple sizes) with the expectation of returning them. Those items cannot always be resold at full price.

Does this mean that e-commerce is a bad idea for every local retailer? Definitely not.

I recently spoke with Millie Kaiser (Owner) and Wendy Rothermich (Manager) from Appletree Quilting. Their large e-commerce store has shown slow, but steady, sales growth. Their significant online presence helps consumers find their website, and many site visitors decide to check out their products in person. Despite the time it takes to manage, their online store has been an asset to their business.

The local retailers who succeed with e-commerce (and with online marketing in general) understand that consumer expectations and buying habits have changed in recent years. They adapt their stores and processes to suit.

Today’s consumers go online to research, even if they ultimately wind up buying at a local store. They have high expectations of both online and offline channels and expect a professional, seamless and complementary multi-channel experience. They prefer to shop locally but need good reasons to do so, notably the ability to find unique products and the customer service they can experience.

Retailers who understand what today’s consumers want, and how they prefer to buy, can and do prosper, as they have always done.

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This article originally appeared on 5/24/18 in the Columbia Daily Tribune newspaper.

I'd love the opportunity to speak to your group or organization - topics include online customer acquisition strategies, ecommerce readiness, and LinkedIn lead generation. Please connect and contact me!