Even as malls around the country see store after store closing, online retailers, both large and small, have started exploring opening brick-and-mortar stores. Amazon has opened a physical bookstore in Seattle's University Village and has plans to open 200 stores. Fabletics, an online athletic clothing retailer, opened six physical stores in the second half of 2016. Birchbox, an online beauty supply store, opened its first brick-and-mortar store in the trendy Soho District of New York City.

There are both potential benefits and pitfalls in opening these physical stores. These online firms are striving to grow the awareness of their brand and build their market position with these stores. They can leverage their customer databases to identify the markets with the greatest potential. Online retailers collect an enormous amount of data about their customers and can base their physical stores in areas where the local demographics suggest there is the greatest density of potential customers. Opening physical stores also offers them the potential to offer a richer experience to their customers. In stores, customers can try on or test the retailer's products and can be brought in for promotional events and seminars related to the firm's productsthings that are much more difficult in the online space. Some online retailers, such as Bonobos and Blue Nile, use their stores solely as showrooms where customers try on clothing or jewelry and then order whatever they want online for home delivery. Finally, opening physical stores allows the firm to attract a new set of customers, those who do not regularly shop online.

There are also new challenges in opening physical stores. First, having physical stores requires a significant financial investment. The cost to rent and physically set up store locations can be quite steep, especially in high traffic areas such as New York City and Chicagothe most common targets for initial locations. Second, it can reduce the flexibility of the firm. Store leases typically last several years. leaving firms stuck if the location turns out to be less successful than expected. Also, housing inventory in a range of locations requires longer planning and greater investment than having an online-only model. Third, online store operators have to learn new competencies to compete with physical stores. Online retailers typically have limited experience in predicting consumer demand months ahead of time, a foremost skill needed by brick-and-mortar retailers to be able to stock products in stores. They also don't have experience in staffing, training, and compensating the personnel needed in a physical store. In physical stores, the sales associate is a key asset, but online retailers are more adept at hiring and organizing work for IT, web-marketing, and logistics personnel. Fourth, the legal requirements for running physical stores are more complex. This can include taxation and permitting laws, but the most complex may be the myriad of employment and labor laws that retailers face when they operate in different cities or states.

Discussion Questions

1. Will online retailers, in general, experience a positive outcome in opening physical stores?

2. For what types of online retailers does opening stores make the most sense? Why?

3. Is it more challenging for traditional retailers to build an online space, or for online retailers to build a physical store presence?