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Market Myths: Dispelling the Distinction Between Online and Physical Retail

Retail is an innovative industry that offers a mix of in-person and online options to meet the needs of consumers. While some retail experts and news reports claimed that pandemic shopping trends would bring an end to brick-and-mortar stores, customers have actually shown that they still deeply value in-person shopping. In fact, 80% of all shopping still happens in physical stores. 

More importantly, the distinction between e-commerce and physical retail isn’t an accurate way to assess the retail market. These channels are interconnected and essential to foster a competitive, dynamic industry. 

Myth #1: E-commerce is separate from physical retail.

Truth: There are around 4.2 million retail establishments in the U.S. This includes traditional, brick-and-mortar shops, online stores and digital marketplaces, which together contribute to 7.7% of U.S. GDP.  Though online shopping experiences intrinsically differ from in-store ones, their distinguishing characteristics don’t negate the fact that the channels are linked as facets of the overall retail industry. These unique ways to shop allow customers to choose which channel best suits their needs at the moment.

Shoppers who prefer to see and evaluate items before purchasing may prefer to go to brick-and-mortar shops, while those with limited time may choose online shopping. Today’s multiple methods for shopping even allow consumers to blend the two, with options like buy-online-pick-up-in-store and curbside pick-up.

No matter the sales method or consumer preference, e-commerce and physical retail are unquestionably interconnected. A 2022 economic study by the Brattle Group of retail channels makes this clear. It found that when the price of a product changes on one channel, the other channel usually changes to match it quickly, demonstrating that online and physical retailers are subject to the same market forces and part of the same sector. Their prices are “identical 95% of the time for the same product, retailer, location and date.”

Myth #2: Physical retail stores can’t compete with online commerce.

Truth:  The spike in online shopping fed an ongoing misperception that the COVID-19 pandemic marked the end of physical retail. Some have gone so far as to declare a “retail apocalypse,” suggesting that many brick-and-mortar stores can’t compete with online retailers and are shutting down as a result.

In reality, physical retailers have found ways to stay competitive and thrive. Bookstores, for example, are making a strong comeback. Retailers like Barnes & Noble have been able to use strengths like their local feel and wide selection of books to attract consumers who are overloaded by digital media or missing the pleasantries of browsing bookstore shelves. Physical stores are also finding success through in-store fulfillment options, in-store-only promotions and strategic marketing of private labels

The study by the Brattle Group also revealed that online and in-person sales channels actually compete with each other. Thus, there’s a minimal dichotomy between digital and physical retail, and they can each successfully leverage pricing and other tools to attract customers.

Moreover, online and physical retail complement each other and often create a “halo effect.” Research from the International Council of Shopping Centers (ICSC) shows that when a retailer opens a new store, it increases traffic to its website by an average of 37%, and the share of web traffic within that market grows by 27%.

Myth #3: Third-party marketplaces dominate online shopping.

Truth: The average small and mid-sized seller uses five sales methods, mixing both online and offline channels, with brick-and-mortar and wholesale being the most popular. When it comes to online marketplaces, sellers are taking advantage of the many options available to them. For example, 83% of small- to medium-sized sellers on Amazon use an average of five or more sales channels and 87% use at least one other online marketplace. 

Large retail marketplaces such as Walmart, Amazon, eBay and Etsy are also empowering small and mid-sized businesses to reach more customers.

At the start of the pandemic, Etsy announced it would invest $5 million to help sellers sustain their businesses amid the economic uncertainty and pledged ongoing support to its small business sellers. Walmart has changed its third-party seller approval process, making it easier for sellers to go live on its marketplace. Amazon invested more than $30 billion between 2019 and 2020 in tools, services and programs to support sellers, and small business sellers on Amazon nearly 60% of items sold in its marketplace, outpacing Amazon’s first-party sales. The average eBay seller earns about $35,000 per year, and the company has committed $500,000 in funding and mentoring resources to support small business sellers via its Up & Running Grants program. 

A recent Connected Commerce Council survey also showed that 75% of small business owners believe digital tools — such as apps,  platforms and marketplaces — have played a “critical role in helping their business survive” over the last two years. 

These efforts and responses dispel the idea that online sales channels overpower the retail market. 

Myth #4: Most people shop online now, making it hard for brick-and-mortar stores to succeed.

Truth: According to a February 2023 survey by PwC, shopping in physical stores is still the most popular among consumers (43%), followed by shopping on mobile/smartphones (34%). And U.S. Census Bureau data show 2021 was one of the strongest years in retail history for physical stores, with sales totaling $6.6 trillion. 

Even with the popularity and convenience of online services, 80% of all shopping still happens in physical stores. And 55% of shoppers visit a physical store before making a purchase online. Many customers appreciate being able to physically see and touch/inspect an item before purchasing it, especially goods such as cosmetics, clothes or furniture. They also prefer getting their items the same day rather than waiting for shipping; having access to customer service in real-time; and the social aspect of shopping with friends and family.

Physical stores also play an important role in “brand impact,” as the lasting impression of in-store experiences can make customers feel more loyal to a brand.

The Bottom Line

The idea that e-commerce and physical retail are separate industries is inaccurate. While there are differences in the sales methods and experiences, both channels are critical and interconnected parts of the same market.

Online and physical retail sales are vital for retailers to meet customer needs, offer competitive prices and provide convenience and a wide selection of products. This also gives small and medium-sized businesses creative ways to expand and reach new audiences through various shopping and fulfillment options. And, as a whole, online and brick-and-mortar retailers highlight the innovative edge that is essential to a thriving retail market.