This article is the second in an ongoing series covering the reimagining of retail and its effects on valuation.
Every brand exists within its own ecosystem – a network of people and companies, mechanics and data, a great, radial system, spokes extending from the hub. At the center of all this magic is the old-faithful brick-and-mortar store. A physical store’s mere existence, or lack thereof, affects all its surroundings, the coordinating businesses, its immediate market, internal and external customers. A store’s physical presence can influence a consumer’s perception about that company’s health, desirability, and web-based business, thus defining its ultimate success – this is the “halo effect.”
The incredible power of the “halo effect” is often underestimated and shouldn’t be ignored. According to a recent study performed by the International Council of Shopping Centers (ICSC), 80% of companies that opened a new location during the study saw an increase in market share web traffic.
In fact, when a retailer opens a new store, it can increase overall website activity by nearly 40%. On average, established retailers see an increase in web traffic of 36%; emerging retailers (in-business for 10 years or less) see an increase of 45%. Of course, a retailer can’t just pop-up a store anywhere, that’s not the magic solution, but there is proof that a store’s physicality drives its online counterpart’s engagement. The physical presence of a store also increases brand awareness and consideration – statistically, consumers recognize a brand more and are inclined to consider trying that brand over A) another company or B) a company that lacks a location in the respective market (even one with a strong online presence).
The presence of a physical store also plays a huge role in marketing, acting as a billboard for both in-store and online shopping. The modern consumer participates in this hybrid type of shopping called omnichannel commerce. The act of purchasing does not happen at just one single point-of-sale; it is an entire process – one that is constantly revolving around us. Everyone is surrounded by ads and promotional materials – in print or online, social media, in movies – and that includes passing a store, seeing the monument or storefront sign, taking in a subconscious recognition of brand name.
Simultaneously, a store’s presence promotes the opportunity for consumers to act upon their human needs – interacting with others, seeing and testing out products, gaining a real shopping experience. Consumers like seeing products in person, trying them on or testing them out; people enjoy the social aspect of shopping, talking to employees in person, getting instant gratification and information. In fact, that need for fulfillment (not just the technical-distribution kind, but the human need) is so strong, that nearly 90% of a store’s customers, where a physical store is available in conjunction with an online store, will still shop either solely in-store or in a hybrid mode of online/in-store. At maximum, only 10-15% are shopping solely online.
Though it seems…heavenly, the “halo effect” is binary – a store’s physical location can promote online shopping, brand awareness, and overall company health, but its absence can transmit negativity and cause a brand to implode. In fact, when a store closes in a market, retailers, on average, see up to 16% of a decline in a website’s market share of traffic. One retailer in the study [name redacted in empathy] saw a terrifying 77% decrease.
Consumers feel less comfortable buying online when a webstore’s physical counterpart goes missing. Suddenly, the perception of their experience with the brand becomes overshadowed with impending obstacles – the option to click-and-collect disappears, perhaps returning an item is now going to be an ordeal (or impossible if the company is going under – implied by the closing of stores). The company with the absent store also becomes plagued with out-of-sight-out-of-mind syndrome (and all the subsequent symptoms).
Shane Investment Property Group uses research gathered from the US Census, International Council of Shopping Centers (ICSC), other articles and press releases. This article should not be assumed as investment advice.