We’ve talked a lot on this blog about the power of direct-to-consumer (D2C) retail and fulfillment, and the success that brands have found by cutting out the middleman. There are significant advantages to being an e-commerce-only brand that relies on online sales, but the retail landscape is always shifting.
As consumers return to in-person shopping with gusto following two-years of pandemic restrictions, this leaves pure-play retailers in e-commerce in an uncertain position. Are consumers going to keep shopping online the way they did during the pandemic? If not, what does this mean for their business model as a whole?
In this blog, we’re going to dive into the current status of pure-play e-commerce – and whether the time has come to consider changing up your strategy.
A ‘pure play’ retailer is one whose sales and marketing strategy focuses exclusively on one market or channel to build market share. Therefore, a pure-play e-commerce brand maintains only an online storefront, marketing lists, or digital channels such as social media to market to consumers and build brand loyalty.
Thanks to the growing popularity of online shopping and the relative ease of setting up an online store, pure-play retail has undergone a serious transformation in the past decade.
Brands discovered that going “digitally native” and selling D2C has allowed them to leapfrog the time-consuming, expensive process of setting up physical stores. The birth of social commerce and the coming of age of Generation Z meant that brick and mortar retail was no longer necessary to increase brand awareness and build a loyal customer base.
If anything, the pure-play e-commerce philosophy maintains that physical retail is clumsy, inflexible, and unable to follow customers where they wanted to go. But after years of supply chain challenges and physical retail closures, do these ideas stack up in 2022?
With the onset of the COVID-19 pandemic, many commentators stated that the e-commerce industry was going to come into its own and become the preferred channel for consumers.
In some ways, they were right. E-commerce sales skyrocketed by $244.2 billion or 43% in 2020 as customers flocked online to seek out both specific niche products and everyday goods.
There’s no doubt that pure-plays within e-commerce had a serious edge when physical retail locations closed down during the pandemic. Pure play online retailers already had the infrastructure in place to offer a seamless customer experience. Yet brands such as Coca-Cola and Unilever, who relied on traditional retailers to shift the majority of their inventory, found themselves scrambling to build digital D2C sales channels.
But as the dust settles now that the acute stage of the pandemic is over, the picture is a little more complex. In March, sales within brick and mortar stores outstripped e-commerce for the first time since the pandemic began – a clear sign that online shopping has not become a fixed habit many had predicted.
Plus, there’s the all-important question of profitability. Even the most successful e-commerce companies have struggled to show investors that their pure-play model is sustainable. According to a study by Ipsos, pure-play retailers online are twice as likely as brick-and-mortar retailers to report issues with becoming profitable.
So, is being a pure-play company really the way to go these days? Or is putting all your eggs in one basket too big of a risk in a dynamic retail market?
Let’s take a look at a few reasons why pure-play retailers in e-commerce are struggling to stay relevant:
As we stated above, consumers have been quick to embrace the return of brick and mortar retail after a couple of uncertain years for the sector. Their reasons for doing so shouldn’t come as a surprise. According to a 2021 study by Raydiant, brick and mortar locations trump the online shopping experience in several key areas:
One of the reasons why online pure-play retailers are struggling with profitability is because the cost of running their operations keeps on rising.
Brands are now being confronted with a highly competitive online environment where it’s easy to be undercut on price. Operational costs like order management and shipping are only going up, as consumers come to expect faster delivery timeframes.
In addition, many merchants are finding the hard way that there’s a finite number of customers to be found online. As social channels become more crowded with brands targeting the same or similar audiences, the cost to acquire each customer is becoming unsustainable.
In sum, being a pure-play company might mean a lower barrier to entry into the marketplace but succeeding in the long term is proving to be a major challenge – even for the most successful pure-play companies.
It’s no secret that the benchmark for fast delivery is continuing to rise. Where two-day shipping was once considered the gold standard, next-day and even same-day delivery options are increasingly expected by consumers.
Even if they’re in a position to pay these escalated shipping costs, many brands simply don’t have the right order fulfillment operations to allow for such rapid delivery timeframes. Finding warehouse space in multiple locations close to your customers can be a major challenge, as is finding the right 3PL provider who has the infrastructure to meet your delivery needs.
So, if the era of pure-play e-commerce is over, what’s replacing it?
We only have to look at the direction taken by many of the big-name e-commerce pure-plays to see how the road to profitability points in one direction – toward physical storefronts.
Glossier, Allbirds, Warby Parker, and Casper are just some of the influential brands in pure-play retail who have taken steps towards going offline, opening physical stores, or launching offline wholesale partnerships.
It’s clear that an omnichannel approach to retail is not only a path toward more sales; it’s become essential for online brands to prevent stagnating and getting lost in the marketplace.
As pure-play retailers make the move to become omnichannel retailers, this requires a significant shift in mindset to get the best of both worlds:
It’s relatively simple for businesses to get an online direct selling operation off the ground. All you need is an online selling platform and somewhere to store your inventory. This is why e-commerce abounds with stories of people who found success after setting up a business out of their spare room or garage.
While most e-commerce brands won’t become overnight successes, the fact remains that pure-play e-commerce is far more accessible than setting up brick and mortar stores. High overheads and the risk of tying your business to one location have made D2C e-commerce a lower-risk option than traditional pure-play retail.
It’s much easier to manage inventory and orders when they are all bound for the same destination – namely, your customer’s front door. Optimizing your order fulfillment and storage operation for residential delivery and your business’s precise needs is only possible when you are selling direct and able to make the rules.
When large corporations like Amazon or Walmart are added into the mix as seeking channels or wholesale partners, your brand has no choice but to manage services like packaging and labeling according to their specifications, which significantly complicates your order fulfillment strategy.
There’s a key reason why online pure-plays have been able to build massive followings that department stores can only envy – and it’s not because of convenience or cheaper prices.
Being able to focus on only one shopping channel has allowed digitally-native brands to dedicate immense resources to refining the customer experience and understanding what their target customer wants.
In particular, using social media as a communication and customer support channel in addition to marketing has allowed pure play brands to develop a powerful two-way relationship with customers. Forums, review sections, and social media comments are all valuable sources of data on the quality of the shopping experience, customer engagement, and even ideas for a new product line.
The more selling channels you have, the more complex it is to identify trends in shopping behavior and understand how customers interact with different channels.
It was during the pandemic that the true value of hybrid, online-to-offline retail came to light. With delivery timeframes ballooning due overstretched parcel networks, omnichannel retailers turned to services like Buy Online, Pick-Up In-Store, and curbside pick-up to save on shipping costs and get orders into customers’ hands faster. Likewise, in-store return capabilities meant that shoppers didn’t have to spend weeks waiting for refunds.
Customers being able to interact with retailers across multiple channels means more flexible shopping journeys and the ability to solve issues faster, a massive advantage in our always-on retail marketplace. While a pure-play retailer can make use of partner locations for services like in-store returns, they don’t have the same resources as an omnichannel retailer.
In addition to the hybrid retail services described above, physical stores provide a space for all kinds of brand-building initiatives, from exclusive events and product launches to giveaways and tutorials.
Even with advances in Augmented Reality technology and the creation of dedicated try-on programs, e-commerce at large is struggling to deliver the immersive, memorable customer experience that shoppers crave. After years of going without in-person sales services and the instant gratification of bringing goods home from the store, shoppers are enjoying the immediacy that a physical storefront offers.
Unlike omnichannel retailers, online pure-plays don’t have the same ability to use multiple channels to coordinate brand awareness initiatives. This means that in the current environment, they are more vulnerable to competition.
While it’s easy for digitally-native brands to scale quickly at the beginning due to minimal overheads, most pure-play retailers will ultimately find themselves running out of runway to keep expanding. Once your acquisition opportunities online have been maxed out, brands have no choice but to pursue initiatives offline to brand awareness.
At this point, switching to an omnichannel approach is a no-brainer – but it doesn’t have to mean opening physical stores. Wholesale partnerships with larger retailers or limited-time pop-up stores are excellent expansion options that boost visibility and conversion opportunities.
So, what do pure-plays in e-commerce need to think about as move into an era of hybridized retail experiences?
There’s doubt that online D2C sales are a profitable channel for merchants, especially with the rise of social commerce. But as consumers begin to augment their digital shopping journeys with more in-person activations and store visits, now is the time to consider how your brand can leverage the power of omnichannel to grow your audience and spread brand awareness.