Weighing the Costs: Should you Open a Physical Shop or Online Store?

Weighing the Costs: Should you Open a Physical Shop or Online Store?

Back in 2017, ecommerce generated an estimated $2.3 trillion in global sales, while this number is set to peak at a $4.5 trillion by 2021. In the U.S., ecommerce grew to account for 10% of retail sales last year, while this number is expected to increase by 15% each year. While ecommerce may be increasingly dominant in the world of retail, it’s interesting to note that around 92% of all retail purchases still take place offline.

This means that there’s still immense benefit to opening a physical storefront, although this will incur additional costs and overheads. Below, we’ll consider these in detail and ask which option is right for you.

1. The Cost of Rent and Utilities

If you operate a product-oriented venture, the chances are that you’ll need to invest in a fixed amount of warehouse space in which to store your inventory. However, your cost considerations increase considerably when you open a physical store, as you’ll need to factor in expenses such as rent, utilities and equipment hire (or procurement). Of course, there are ways in which you can reduce some of these costs over the course of the financial year.

One idea would be to partner with a service provider that can compare business electricity costs across a wide range of suppliers, as this will help you to access the best real-time deal and optimise your savings. However, there’s no doubt that a physical store is more costly to operate than an online outlet, and this is something that must be given careful consideration.

Comparing the cost of online vs brick and mortar stores

2. The Cost of Storage and Inventory

In the case of high end or luxury retailers, it may also be argued that selling from a physical storefront enables them to offer a greater experience to customers and place a premium on their products (increasingly profitability in the process). Having a physical storefront may also save money on inventory, as you’ll hold a relatively large amount of stock on site (both on the shop floor and in the backroom).

In contrast, online retailers are required to keep all of their stock offsite, while there’s also additional costs associated with logistics and the shipment of products. These costs must be measured against factors such as price point and the amount of products that you intend to sell, so that you can determine which channel offers the best value.

3. Marketing Costs

Whether you open an on or an offline business, you’ll need to study the market in details and appraise the qualities of your competition. You’ll then need to invest in integrated marketing campaigns that help you build brand awareness and drive recognition, while seeking a viable return on this investment.

However, you may be required to spend more on marketing when promoting an online business, as this represents a saturated space in which firms are often forced to compete for a relatively small market share. Not only that, but it’s arguably easier to build an iconic brand on main street with lots of traffic walking by, meaning that you’re likely to receive a higher return on your investment.

Weight the marketing cost of online and offline businesses first

Takeaway

Once again, you must measure the associated costs against a potential return, while appraising the level of competition in your market and the best place to position the business.

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