How to Decide if Your E-Commerce Business Should Open a Physical Location

While online shopping remains as popular as ever, there is still demand for in-person shopping experiences. Opening a physical retail store can provide a compelling growth opportunity for established e-commerce businesses. However, this next step comes with significant upfront and ongoing costs. 

Before you commit to a storefront, evaluate the following aspects of your business and consider these factors first.  

Weigh the pros and cons of opening a physical store

To help determine if a physical store is right for your business, consider the following pros and cons. 

Pros

• Customer service. In a physical store, sales associates can assist customers, answer questions, and guide shoppers to the right products.
• In-person experience. Customers who shop in person can directly feel and test products, easily browse everything in stock, and take their purchases home right away.
• Brand trust. Operating a physical store gives your brand more legitimacy and trustworthiness. You can also establish a strong brand identity through marketing, interior design and business signage, and product placement.

Cons

• Physical store costs. Some of the costs of opening a retail store include rent, employee wages, utilities, local advertising, insurance, inventory, maintenance, and point-of-sale (POS) technology.
• Hours of operation. A physical retail store cannot be open 24/7 like an e-commerce business, so consider whether your store will have enough business in its hours of operation to break even. 
• Geographical location and demand. If there’s not enough demand or need for your products in your local area or low potential for foot traffic, you may not see the kind of sales or growth you’re hoping for. 

[Read more: Considering Opening a Retail Store? The Pros and Cons of Brick-and-Mortar Locations]

Calculate the costs of opening a retail location

The costs of opening and operating a physical store can be one of the biggest hurdles for businesses looking to expand from e-commerce to in-person shopping. Before taking on this challenge, consider your potential upfront expenses that you might not currently have as an e-commerce retailer. 

• Rent and utilities. Varies by location, but the average retail space rent in the United States is $24.69 per square foot, according to TenantBase. You should have more than a month, or ideally up to two years, in accessible capital to afford your quoted rent price. You’ll also need to consider monthly utility expenses, including gas, water, electricity, and internet access.
• Buildout. Depending on the current state of the commercial space, you might spend tens of thousands of dollars in construction costs to build the space out to your specifications.
• Inventory. This cost will depend on your product and anticipated initial stock levels. It is typically recommended to have enough capital for four to six months of inventory. 
• Technology. You will need a retail point-of-sale (POS) system, which typically includes upfront hardware expenses and ongoing fees, whether it’s a monthly subscription or a cost-per-transaction fee.
• Permits and licenses. Physical storefronts typically require permits and/or licenses, depending on the location and business type.
• Staffing. The national median wage for U.S. retail associates is $16.19 per hour, according to Bureau of Labor Statistics data. If you’re planning to hire a store manager, you can expect to pay closer to $23 or more per hour.

Unexpected expenses and repairs often pop up when managing a physical location, so it’s important to budget extra to account for those costs. 

Assess your readiness for a physical store

Here are some steps to help determine if your business is well-suited to expand into a brick-and-mortar store.

Look for consistent customer demand

A physical store depends upon consistent demand. To determine if your business will be successful, conduct market research, engage with your target audience, and test immediate demand through item pre-orders. You could also create a minimum viable product, such as a prototype for an app, to collect feedback and assess user demand before developing a final product.    

[Read more: How to Conduct a Competitive Analysis] 

Determine the value of an in-person experience

Evaluate the customer journey for your business from browsing and purchasing to using the item and returning it. In-person shopping gives your audience the chance to interact with your product before buying, get customer service, and sample new items. All of these elements can set your business apart from your online store, so it’s critical to refine these experiences for customers shopping in your store. 

Evaluate your operational capacity

On the logistics side, make sure you can support the additional staffing, inventory, fulfillment, and management responsibilities before opening a physical location. Each of these factors will require you to consider costs, space limitations, and customer demand before you can establish your store.

Research potential markets and locations

Once you’re confident your business is ready for in-person shoppers,  research what location might make your store the most successful. Are there local markets with high foot traffic and retail openings? Can you balance the cost of rent with the type of location you want? Do you need a large physical space, or will your business be successful in a smaller store?

Not ready? Here are alternatives to opening a physical retail location 

For lower-commitment ways to test or establish a physical presence before you invest in a permanent store, there are many alternatives you can try.

Launch a pop-up shop

To sample what operating a retail store would require, you could rent a pop-up shop. These types of shops are often event-driven or have a strict time frame, letting you determine up front how long you want to operate. Pop-up shops offer a physical space with low overhead and allow you to test new markets or locations with low commitment. 

Partner with wholesale retailers or explore a shop-in-shop model

Forming a partnership with a wholesale retailer can be a great opportunity to get significant foot traffic and visibility within a larger, more established brand. If you want to expand your audience beyond your online presence, this type of partnership lets you meet offline customers where they are already shopping.

Similarly, you could establish a branded presence within another retailer to utilize their physical space and foot traffic. A shop-in-shop model enables more customers to become familiar with your brand and products while browsing at their usual stores. 

Strengthen your omnichannel strategy

Omnichannel marketing refers to creating a consistent, integrated, and seamless experience for your customers across all marketing channels. Maintaining a clear voice and focusing on user experience can help develop your audience and improve engagement. Offering options like local order pick-up, hosting in-person events, and finding ways to connect both online and in-person shopping can all help establish customer loyalty — supporting your current e-commerce business and setting the foundations for retail space success in the future.

[Read more: 5 Ways to Build Community Around Your Local Retail Business] 

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
 

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