The New Normal: Online to Offline

The New Normal: Online to Offline

James Sandrini 4th February 2019

Location, location, location. A show on Channel 4 with 31 (!) series in the bag, apparently, and a mantra for commercially-minded business owners, operators and marketers since our minds were addled with commerce.

Digitisation has changed the landscape, but not the theory. Prime location was once defined by the physical address and shelf placements; a bricks & mortar store was often the sole entry point for the consumer.

Now, with the advent of the internet and the proliferation of mobile devices, there are many more ways for people to interact with brands and purchase their products. Yet chokepoints still exist.

51% start on Amazon (in the UK, it’s more in the US). Google isn’t far behind. That doesn’t give smaller operators much room to manoeuvre independently – none, really – so most accept that they need to pay a tax within one ecosystem or the other.

"Up to 95% of all retail sales will be made via an online channel by 2040"

For vendors that maintain a physical store, digital has long-supplemented their material presence. Search engines and social media are just channels of acquisition, like a print advert or an A-board. The ‘click & mortar‘ warriors.

And when there was sufficient demand – for those savvy enough to see it – businesses started pushing their inventory online, available direct from the warehouse to your door. Operators could save money on rent, rates and payroll; transferring their funds into logistics and digital advertising instead. More importantly, they followed where the audience was headed.

49.1% of all online retail spend in the states came via Amazon in 2018. That may only account for 5% of retail sales today, but some folks will have you believe that up to 95% of all retail sales will be made via an online channel by 2040.

48.1 - Online to Offline

The inexorable march towards online trade doesn’t start and end at the click of a button, and a new breed of enterprise – born in the internet era, rather than trying to adapt to it – are very well aware of it. They’re diverging from the now-well-worn path and are leading the advent of a new model: Online to offline.

The plan goes something like this:

1. Start selling a product online, ideally at a noticeably lower rate than a competitor that maintains physical locations

2. Focus on a local catchment area, offer free delivery and gain a following for the product

3. When the audience is strong enough, open a venue in a location that would otherwise be deemed suboptimal

4. Divert your online audience to the new location, within the defined catchment area

By doing so, the business will originally benefit from:

– Acquire users at a cheaper cost online

– Gain greater consumer insight from the data they capture

– Remain agile and pivot where necessary

– Maintain a very slim cost model with few employees and low overheads

Then, take advantage of cheaper real estate as the business matures (they’ll have to find space as they grow for their team in any event).

This model works particularly well for markets that are time sensitive and value independence (e.g. lunchtime food delivery) or if the audience wants more visibility of the product and perceives value in being able to pick up items early, or return them (e.g. fashion, furnishings).

"A startup could now consider developing bricks & mortar stores as part of their business model, without considering it a disadvantage to overcome"

‘O2O’ commerce isn’t entirely new. Here’s a post from 2010 championing the ‘trillion-dollar opportunity’ that online-to-offline has / had. Here’s Investopedia’s take. Once again, the difference doesn’t lie in the theory, but in the practice.

Two major shifts have boosted the allure of O2O; one directly and one indirectly related to technology:

Direct

– Stronger data infrastructure, enabling all manner of platforms and engines to better capture consumer’s behaviour between offline and online touchpoints.

Indirect

– Mobile adoption and the move to online purchasing prompting the decline of the high street.

Headline commercial rents might not be decreasing (or might be), but a jittery market is forcing a change in landlord relations: Shorter rental agreements, earlier and more regular break clauses and cash incentives, for example.

A startup could now consider developing bricks & mortar stores as part of their business model, without considering it a disadvantage to overcome.

And ultimately, brands that deliver products to consumers will always want to engage their audience to make an emotional, lasting connection. The likes of which will always need to move from online to offline.