Interviews, insight & analysis on digital media & marketing

The rebirth of the high street – why do more than half of online retailers want to open stores?

By Alex Reddish, MD, Tribe Payments

Brick-and-mortar retailers did not have a good time during the pandemic, and if the headlines are to be believed, this misfortune is continuing. Footfall on London’s Oxford Street remains down 30% from pre-2019 levels, and the head of Marks & Spencer has described the shopping district as being “on its knees”, taken over by tacky candy stores. Citywide, things look even more bleak, with RSM UK reporting that footfall is down 68% in London, with other cities such as Newcastle and Glasgow (both down 67%) reporting similar numbers. BRC numbers show a decline across Europe, with footfall in Spain down 16% from 2020, and Germany down 43%.

So, it was surprising to learn that many online retailers plan to open a store in the next three years.

Tribe’s European Merchant Insight Report revealed that almost two-thirds of ecommerce businesses plan to open a store in the next three years, at least in the UK, Spain and Lithuania. That’s a lot of businesses returning to a model that was predicted by many in the last decade to be dying. Why would so many want to take this risk?

Why extend to offline?

It may seem a surprising move, but the other moves retailers plan to make in the next three years tell a more complete story. Many are looking to integrate new payment methods, and including Buy-Now-Pay-Later (BNPL) as part of the checkout process. Many are even looking to create their own dedicated app.

The common thread through all of these is that retailers want to have a closer relationship with their customers. They want to give their customers exactly what they want and increase loyalty. New payment options mean that there will be less friction and fewer abandoned baskets. BNPL gives customers flexibility, while a dedicated app means customers have a dedicated place to shop on their devices.

Opening a physical store takes this idea one step further. A tactile, real-world space means a whole new relationship with customers. Customers will browse more naturally, and consider purchases that they may not have done online – some studies estimate that up to half of all purchases are impulse buys, and more than 80% of shoppers admit to buying more than they planned to. People say that they want to see and feel a product before buying, and a retail space could make them more likely to buy.

Yet for all the benefits of high-street retail, it’s a huge investment to reach a much more limited potential audience, and a big risk to take in such a competitive market.

A closer (but not physical) relationship

The desire from retailers to want a closer relationship with their customers is a good one. Rushing to open a physical store, however, may not be the most prudent way to do this. Retailers have many options, and it’s worth exploring less riskier choices first.

Tribe’s survey of merchants across Europe found that there was a high level of satisfaction with their payments partner, with 84% saying that they were either very satisfied or quite satisfied. However, asked about how they perceived their payments partner, only a third said that they “helped deliver business success”. 30% of ecommerce providers said that they had limited access to data from their providers. There is a gap here, and filling it could help.

Retailers want to create a stronger relationship with their customers, but may not be aware of what their customers want when it comes to payments. If they are being asked to provide a way to pay in cryptocurrency, for instance, is this a genuine trend or a handful of enthusiasts? What about other payment methods, such as wallets, or using different currencies? Do consumers feel comfortable using BNPL, or is there some hesitancy? Are customers from other countries put off because they cannot pay using iDEAL or PayPal?

Payment providers are experts, and they should be providing counsel to retailers on this particular aspect of their business. If customers are given the options they want at checkout, it makes for a far better experience. Partners can help retailers understand the nuances of each market and customer segment. Payment method popularity varies significantly across customer demographics and between markets. If, for instance, a fashion retailer is trying to attract young customers to their website, BNPL options at the online checkout can offer a significant uplift in conversion rates. Ongoing dialogue with experts for insights like these means merchants have the right information to better connect with their customers.

Opening a store is a big deal, and it shows just how keen retailers are to offer a better experience and connection. It also creates an opportunity for payment partners to support retailers as they diversify, to help them build successful new revenue streams and innovative customer experiences.