Report: Online-only strategy ultimately unsustainable for most retailers

A new study links retailers' success to an omnichannel strategy that includes physical stores.

According to the report, by L2 and titled "Death of Pureplay Retail," online-only retailers are at a disadvantage due to high costs for marketing and shipping, making their business model challenging and ultimately unsustainable in the long-term. The report was sponsored by Simon Property Group.

By contrast, the study found, online retailers leveraging physical store locations drive higher organic site traffic and lower customer acquisition costs while elevating brand awareness across multiple channels.

“If you want to increase the traffic to your website, open stores," said Scott Galloway, founder of L2 and professor of marketing at NYU Stern. "High-end malls continue to experience growth in sales per square foot, making them an attractive option for evolved retailers looking for brick-and-mortar spaces."

Pureplay retailers also struggle in an ever expensive game of trying to drive awareness. By contrast, online retailers that also have opened brick-and-mortar stores can reap the dual benefits of both profitable new points of distribution as well as increased consumer awareness and online site traffic, according to the report.

"The L2 report highlights the inherent limitations of an online-only channel strategy and the synergistic benefits of omnichannel retailing," said Mikael Thygesen, chief marketing officer at Simon. "Online retailers are increasingly recognizing the advantage of opening stores in improving the underlying economics of their business and accelerating their growth, and we're seeing this trend reflected in our leasing activity."

In other findings:

• Pureplay e-tailer orders typically net 77 cents on the dollar (due to costly returns that average 23% of order value). Retailers that offer both in-store pick-up and returns enjoy an accretive effect – whereby shoppers walk out of the store with 107% of their original basket size after exchanging merchandise and making incremental purchases.

• Digital shoppers report that traditional in-store experiences are the most important touch-point for purchase consideration, according to the report. Nearly two-thirds of digital consumers cite the ability to see, touch, and try merchandise as a main factor for preferring in-store purchases, while over half appreciate the ability to get products immediately, and one-third turn to stores to be certain about the fit and suitability of items as well as in-person advice on fit and style.

Download the research here.