Customer acquisition costs continue to increase in the industry. With shoppers consistently evolving, retailers need to meet their ever-changing needs to stay relevant. This often leads to growing costs; especially as digital integration becomes an apparent trend in brick-and-mortar retail.
Direct-to-consumer brands have found significant value in moving their brands offline due to a heavily saturated online market. Brands have moved their selling strategies to an omnichannel approach to scatter their products across shelves of big box retailers such as Walmart or Target. Digitally-native brands have also opened pop-up shops to venture into a physical setting.
“Having immediate access to the base of a retailer like Walmart [and] being able to have a store presence without having to lease your own stores could be pretty appetizing as the DTC space continues to become more crowded. That is why a lot of brands went to these retailers historically. Right now if you have an Instagram page you can have a brand — there’s a lot of clutter to cut through,” said Lauren Bitar, Head of Retail Consulting at RetailNext.
At first it may seem like e-commerce brands have lower startup costs, however, once these e-tailers want to attract a more diverse customer base, issues arise. Three key factors cause an increase in acquisition costs for online-only retailers:
- Marketing costs escalate
- As brands seek to gain exposure from a larger audience, they must pay for additional online ads through Facebook and Instagram. Acquisition costs can easily exceed over $100 per customer.
- More incentives, less attraction
- As e-tailers start to grow their business, they will need to offer incentives to reach new customers. In turn, these customers will expect a discount for future purchases, which can make them significantly less profitable than the brand’s initial core customer base.
- Questionable lifetime value
- It has become common for online brands to have a large numbers of customers, but a projected negative lifetime value.
So, what is the solution to these rising costs? Brick-and-mortar stores.
The brands that are investing in opening their own stores or partnering with retailers have become the winners here. When a new store opens it can increase local web traffic by nearly 84%. This suggests that the opening of physical stores sustained a positive impact on the digital interaction with a brand.
Research also found that a high number of shoppers who made purchases “touched a store” and online capabilities such as click-and-collect have helped to increase physical store sales. The key findings showed that 89% of all retail sales touch a store.
With rising acquisition costs and the need for a physical footprint, e-tailers cannot survive on their own. They will need to integrate brick-and-mortar into their mix to give the consumer the flexibility to use either channel.