When To Go From Ecommerce to Brick-and-Mortar
3. The Questions to Ask Before Opening a Physical Store
1. It’s About the Experience
I remember the day that my mom and I had “the talk.” I sat her down at the kitchen table, opened up the Best Buy website on my laptop and said the words I’d been thinking for so long: “Mom, it’s time to get you a new computer.”
Her device of choice was a 10-year-old desktop that — while still technically alive — would choose days when it didn’t want to move at all.
My mom uses a computer for three purposes: checking emails, printing coupons, and watching videos. I knew something basic would suffice, and the cheaper the better.
I showed her a Google Chromebook. “What do you think of this, mom?”
She looked unconvinced as she read over the specs. “Oh, I don’t know. Do you think it’s too small? I can’t really say.”
Fifteen minutes later we were in the car driving down to the local Best Buy.
When we found the Chromebook, the first thing my mom did was lift the slender, white device in one hand. As she did, the expression on her face changed. “I like it!” she said with a grin.
* * *
If Best Buy hadn’t had a brick-and-mortar shop down the street, my mom wouldn’t have bought a new computer. She’ll still be rebooting her old one every day.
What is it that led to the purchase? It would be easy to give all the credit to brick-and-mortar — after all, that’s where the purchase was made. But in reality, the ease of searching Best Buy’s website for the computer in the first place should deserve equal credit. It’s the omni-channel experience that is responsible.
We’ll discuss this distinction at greater detail when we get to the “Experience” section of “Part 2: Opening Shop.” But it’s worth thinking about the ways your eCommerce business and your soon to be brick-and-mortar business can work together as a single cohesive unit.
2. The Stats to Back It Up
Moms aren’t the only ones who still rely on brick-and-mortar to make their purchases. In fact, physical locations have the Staattention of one of the most powerful online retailers in the world: Amazon. Amazon has been making a stir by opening brick-and-mortar bookstore in major markets for the past few years. Now the big news is Amazon’s decision to buy Whole Foods for $13.7 Billion, and even sparking rumors of buying Target in 2018.
In spite of all the attention given to eCommerce, point-and-sale is still where the money’s at. According to a recent article by the New York Times, “Online sales in the United States will reach about $394 billion this year” a statistic that is much more impressive before they reveal that this represents “less than 12% of total retail sales.”
Many businesses still believe that going online is the way of the future. Forward-thinking companies, however, understand that the two channels work most effectively when they are not viewed in separate silos, but seen as two parts of a system that works together.
3. The Questions to Ask Before Opening a Physical Store
One question you might be asking is: how much revenue should my eCommerce business be making before opening a brick-and-mortar location? While we can’t provide you with an exact figure, here are a few questions to consider when making the decision:
- What is your average monthly revenue?
- How much capital do you have saved?
- What are the current monthly expenses?
- How much are you willing to spend on acquiring a brick-and-mortar space?
- What will be the total cost associated with this space: including rent, taxes, fees, and utilities?
- Will you need to hire additional staff, and if so, how much will you be spending each month after including employee pay?
Once you have a good sense of the financial state of your business, as well as the additional costs associated with this business move, it’s time for two very important questions:
What percentage does your overall revenue need to increase for your brick-and-mortar location to be viable, and how soon can you reach that mark?
We’re going to show you how this calculation works in a real-world scenario when we get to the “Expenses” section of this blog in “Part 3: The Numbers Game.”
But before we consider the stages, there are some critical first steps to take.
Part 1: Proving Your Concept
- You must know a lot about your eCommerce business
- You must prove that your idea is a viable business
Don’t allow this second point to cloud your judgement, however — you’re going to have to prove your business all over again when it comes to brick-and-mortar. This is a brand new business venture, and you can’t take for granted that what worked in the world of clicks will work in the world of bricks.
For the remainder of this post, let’s ground ourselves in a specific example, so you can see how this works in a real-world situation. Let’s imagine you run Shark Town Apparel, an online retailer that sells hip shark-style shoes.
Your online shop is doing great (because seriously, who wouldn’t want one of those?) and you’re thinking of bringing your shoes to the street.
4. Talk to Other Business Owners
There’s an interesting post on reddit by an individual who opened a Crossfit Gym that failed the next year. What does he claim to be one of his biggest mistakes?
“I didn’t speak with enough others who had opened their own gyms. And I didn’t listen to what they said.”
Other business owners, especially those who have opened businesses similar to yours, will be invaluable at this stage of planning. The sort of questions you are spending so much time on (How many employees do I need? Hope important is a high-traffic location? What’s a good rent for this neighborhood?) are the very same questions they asked themselves when they started.
Don’t let pride or competitiveness keep you from picking up some critical knowledge from those who know it best. Before opening Shark Town Apparel, invite the owner of Sharks ‘R’ Us out for lunch.
5. Talk to the Community
While those in the same industry are useful for getting you on the right track, it’s as important to be talking to those in the community. In the case of Shark Town Apparel, do you know if there’s a large enough market to support your products? Sure, you can sell 500 units a month online, but how many of these are coming from your own backyard? If local numbers aren’t rising with the growth of your business, what factors could be at play?
The best way to find answers to these questions is to speak to the community where you plan to open your business. Best case scenario, you find out invaluable insights for opening your new business. Worst case scenario, you learn nothing but still generate some buzz around your business. Engaging with the community is a win-win.
6. Talk to Your Customers
Remember those loyal fans who have been supporting your business since day one? Those diehards who would walk to the edge of the Earth for the chance to buy one more of your shark shoes?
Your past customers are your biggest advocates when it comes to creating a buzz around your brick-and-mortar launch. Give them full access to this exciting next step in your journey!
Months before the launch date you should be implementing social media campaigns to get them excited about your grand opening. Share pictures of the new space being renovated. Show them the latest product line. Invite them to a kick-off party with giveaways and free food and drinks.
Show them that you are appreciative, and your customers will return the favor.
7. Open a Farmer’s Market or Pop-Up Shop
Where can you find business owners, the community, and your customers? A farmer’s market or pop up shop is a great place to start. There is nothing better than the real thing for testing your business, and a pop-up shop or farmer’s market offers the real thing at a fraction of the risk involved in opening your business outright.
The other benefit of this option is that with a market or pop-up shop, the expectation is built in that you will be “here one moment, gone the next.” This means there’s no need for overly fancy decorations or anything like that: you can let your product speak for itself.
Not only is this a great way to gain proof of concept as you move your business from the online world to a physical storefront, it’s another great way to engage with the local community. Use this technique to build excitement before your official launch date, and there could be a lineup of eager fans waiting for your business to open.
All you need is a POS like Square, and you can accept payments in person. If you are currently using Stripe or PayPal for online payments, Control combines all your data for you so you have one consolidated view. This makes quick physical store experiments super easy.
Part 2: Opening Your Physical Shop
You’ve built a successful eCommerce business. You’ve decided to move to brick-and-mortar. You’ve done all you can to prove your concept. You’ve come a long way, but now the real fun begins. It’s time to start making some important decisions.
8. Picking The Location
You’ve heard it before — location, location, location! But in the digital age, is location really as important as before? Or is this a relic of the past like buying a page in the phone book and midnight infomercials?
Not quite. Having a good location is still critical for your business. You don’t want to be selling clothes out an industrial park between two highways.
But it’s important not to simply go chasing any spot with the most shoppers. A mall might have a lot of foot traffic, but if your clothing store is located beside all the gadget stores, the people passing by won’t likely be there to enhance their wardrobe.
In the same way you don’t want any old traffic visiting your website (you want qualified traffic) you also want qualified visits to your storefront. This wonderful video by Ted Ed helps illustrate why we see so many stores selling similar items and services close to each other, such as coffee shops and gas stations.
But here’s the great news. The growth of your eCommerce business has already provided you with the necessary data to make a well-informed decision. Through Google Analytics and other marketing tools, you should be able to find precise information on the age, demographics, and interests of your customers. Does your target market live in the city core or are they scattered about the suburbs? Are they car owners and are happy to drive out to your store or will you need to accommodate by being near public transportation?
Use this information you have to reverse-engineer the perfect location for your business.
9. Building The Team
It’s possible that you already have a team working alongside you with your eCommerce business. You might have a business partner, a web designer, an inventory contact, an accountant, and a social media coordinator. But the reality of team-building is that it’s a never ending learning process that is always presenting you with new challenges.
Being able to articulate a clear vision of your business to new employees is a must. Once you’re bringing in customer service workers or cashiers, the stakes are higher than ever. You can’t be everywhere all the time to share your enthusiasm. But if you properly communicate your vision and core values to new employees, you won’t have to be.
Steve Jobs described leadership as “having a vision [and] being able to articulate that in a way that people around you can understand it.” Don’t take for granted that the team members around you think the same way as you do about the business. Never take the vision for granted.
10. Creating The Experience
What does it mean to create the perfect omnichannel experience?
In an episode of The Tim Ferriss Podcast called “The 10 Commandments of Startup Success,” Airbnb CEO, Brian Chesky introduces a concept called The 11-Star Experience. Basically, it’s a thought experiment meant to push you past your ingrained expectations of what the perfect customer experience can be.
In the case of Airbnb, a five-star experience according to Chesky is “you knock on the door, they open the door, they let you in. Great.” But a six-star experience could be:
You knock on the door, the host opens. “Hey, I’m Reid. Welcome to my house.” You’re the host in this case. You would show them around. On the table would be a welcome gift. It would be a bottle of wine or some candy. You’d open the fridge. There’s water. You go to the bathroom, there are toiletries. The whole thing is great.
The situations get more and more incredible, until an 11-star experience where Chesky says, “I would show up at the airport and you’d be there with Elon Musk and you’re saying, ‘You’re going to space.’”
Let’s apply this thought-experiment to Shark Town Apparel’s omnichannel experience.
The point of this exercise is to get you thinking bigger about the possibilities of your omnichannel experience. If you limit yourself to a 5-star experience, you will never be able to achieve the truly remarkable experience that make people tell their friends and exponentially increase the growth of your business.
Do the higher star experiences sound impossible to you? Consider this. The magic mirror that switches between colors is not fantasy at all. It’s a real experience that has already been used by UNIQLO since 2012.
And who knows, maybe an 11-star experience is not so absurd after all. You might not be able to bring them actual bars of gold, but if you know your customer’s interests and shopping habits, what’s to stop you from filling the bag with their favorite treat or tickets to the concert they were thinking of going to? You could create a customer experience that’s as good as gold.
That is what it means to embrace the omnichannel shopping experience.
Part 3: The Numbers Game
Did that last thought-experiment get you excited to build your brick-and-mortar business? Are you ready to create the best omnichannel business you can? Great.
But as you know from your eCommerce experience, it’s a lot easier to talk about starting a business than to actually start a business. So hold onto that enthusiasm while we take a look at some of the financial implications of this decision.
11. The Legal Side of Things
Depending on the stage of your business as well as your business type, you may have already dealt with the legal implications of running your own business. But as your business begins to scale, there will be new challenges and it will be more important that you are doing everything by the books.
If you haven’t already, now would be a good time to make sure you:
- Register your name and incorporate your business
- Receive Employer Identification Numbers from the IRS (for American businesses)
- Account for any local taxes, fees, or licences that may be associated with your specific brick-and-mortar business.
- Consult an attorney or legal expert to make sure everything is in order.
12. Managing Expenses
“Owning a business doesn’t make you independent — not needing money makes you independent. As long as you need money, you can’t be independent.” – Tim Berry, Hurdle: The Book on Business Planning
Expenses, much like the legal side of things, can vary based on factors such as: the location, the industry, the business size, and other factors. But there are two questions that any business owner expanding from eCommerce to brick-and-mortar should be asking:
What percentage does my overall revenue need to increase for my brick-and-mortar location to be viable?
How soon can I reach that mark?
These questions should be your “north star.” It will help you frame what sort of expenses you are willing to undertake, while staying focused on the long-term success of your business.
With our Shark Town Apparel example, let’s say the Monthly Average Revenue of your eCommerce business was $5,000. All total expenses were $1,200, meaning you earned $3,800 a month.
But your brick-and-mortar business needs $1,200 monthly rent and $2,800 a month for employee payroll. This means it cost you an additional $4,000 a month.
With no additional sales you’ve gone from earning $3,800 a month to losing $200 a month.
This means you need to now earn $7,800 a month ($3800 + $4000) to get to where you were before. This is an increase of $3,800; that’s over 105%!
And this is to say nothing of the $5,000 you invested in the new space. A brick-and-mortar store inherently has more overhead costs.
It can be scary to look up at the mountain you have to climb. This section of the article isn’t to scare you off the new business venture, but only to give you a level-headed look at the climb that awaits.
13. Raising Capital
If the “north star” question raised in the Expenses section of this post has led to some doubts, you may wish to consider raising capital.
The higher the risk involved in your business venture, the more difficult it will be to find a favorable agreement. The good news is that your eCommerce business should once again be able to provide some degree of proof that you are financially responsible.
Give careful consideration to not only the question of how much capital you need to borrow but what the timing will be surrounding the return.
Another way to get your business into the physical space may be to have a co-operative business model. Giving up equity (partial ownership of your company) may be a stipulation of gathering investment in your business idea. Give careful thought to whether this is the right choice for your business, as more stakeholders can mean different viewpoints for what the company can end up becoming.
14. Acquiring Analytics
If you’re going to succeed with your omnichannel business, you need to keep track of your key metrics in an efficient and effective manner. Manually compiling spreadsheets in Excel is the old way of doing things — harnessing the power of a transaction analytics app like Control is the new way.
When you started your eCommerce business, you’ve most likely opted for using Stripe or PayPal to facilitate your payments. These two payment platforms have been dominating the online retail world for many years now. If you are a savvy eCommerce operator, you might even be using both PayPal and Stripe in your check-out system.
Moving to offline might mean you need to find another solution to payments, such as Square. Control is the only analytics app that can combine Stripe, PayPal, and Square data onto one dashboard, so you won’t have to do the manual calculations yourself.
If you’re serious about running an omnichannel business, it will take a powerful analytics tool to keep you on track. With our Web, iOS, and Android app, Control will provide you with access to KPIs, such as Average Order Value, Customer Lifetime Value, and New vs Repeat Customer wherever you happen to be.
Whatever planning stage you are on the move from eCommerce to brick-and-mortar, we want to help you with your journey. Sign up for a free trial today, and see how Control can help grow your business.
Thank you for joining us on this look at transitioning from an eCommerce business to brick-and-mortar. Do you know another business-owner who could benefit from this post? Share it with them today!