Quick answer: The term “retail store” typically applies to a physical, or brick-and-mortar location, such as a supermarket, boutique, or individual offline store.
Ecommerce stores, on the other hand, are online platforms, where customers can purchase products using credit cards and other digital payment methods, and have them shipped to their homes, or a pickup location.
Both retail and ecommerce stores have their own distinctive pros and cons to consider for any entrepreneur. Today, we’re going to take a closer look at the two sales methodologies, to help you decide which strategy is best for your brand.
What is Retail?
To understand the difference between retail vs ecommerce, we need to take a closer look at both concepts. Let’s start with perhaps the most traditional form of selling: retail. The term “retail” refers to the sale of goods and services to consumers. In other words, retailers sell products to everyday people, rather than wholesales or institutional buyers.
How Does Retail Work?
Over the years, various forms of “retail” have emerged, from online retail (Ecommerce) to mobile and app-based retail sales. However, when most people talk about retail sales today, they’re often referring to transactions which take place in brick and mortar, or physical stores.
Retailers in the offline world can range all the way from individual-led market stalls and pop-up shops to family stores, grocery stores, and even shopping malls and chains. Retailers rely on a business model which leverages a supply chain filled with manufacturers, shipping and logistics experts, and other professional groups. Most retailers act as the final link in the chain that takes products from a creator to a customer.
Retail sales typically start with a manufacturer or designer producing a product, which is then delivered to a wholesaler, or directly to the retail company. The retailer then sells the finished product to the end consumer for a profit.
What is Ecommerce?
Similar to retail stores, ecommerce stores focus on delivering products or services to consumers in most cases. However, there are ecommerce companies who sell directly to other wholesalers and distributors too. The main difference between traditional retail and ecommerce is where transactions take place. In a brick-and-mortar retail store, transactions are processed in-person.
How Does Ecommerce Work?
An ecommerce store processes transactions online, using checkout and payment processing tools. Companies build ecommerce stores using platforms like Wix, WooCommerce, or Shopify, where they can list items for sale. Customers then search for and purchase these products online, before they’re delivered to their location, or to a pick-up destination.
Compared to retail stores, ecommerce stores can have fewer steps involved in the supply chain, depending on the exact business model chosen by the entrepreneur. For instance, an ecommerce store owner can choose to manufacture products themselves, or they can work with dropshipping or print-on-demand manufacturers to handle production and fulfilment on their behalf.
With a dropshipping or print on demand model, ecommerce businesses can sell products that are stocked, made, and manufactured by another company, without holding any inventory themselves. The third-party manufacturer also handles the process of packaging and shipping goods to consumers. The alternative strategy to this business model is “direct to consumer” or DTC selling.
With DTC selling, ecommerce companies follow a lot of the same steps as retail companies in creating their supply chains. They produce products and ship them to customers themselves, without using any third-party manufacturers or wholesalers.
The Pros and Cons of Retail Stores
Both retail and ecommerce stores have various pros and cons to consider. For instance, with a retail store, companies can often build closer emotional connections with their audience, through face-to-face interactions. Customers can pick up and examine products in person, and ask questions about solutions in the moment. However, running a brick and mortar store requires a lot more initial investment than an ecommerce store. It also takes more staff members to run a retail store.
The Benefits of Retail Stores:
- Natural exposure: Choose the right location for your brick and mortar store, and you’ll naturally gain access to potential customers. People will see your store when walking down the street, and you can capture their attention with product displays and sales.
- Credibility: People are more likely to trust the stability of a retail store. Consumers know it takes time and money to build a physical store, while virtually anyone can set up an ecommerce store. They may be more likely to trust you if you have your own physical location, particularly if your employees are well-trained in customer service.
- Competitive edge: Having a retail store can sometimes give sellers a competitive advantage over other companies who only have an online presence. You can offer customers an omnichannel selling experience which appeals to both their desire to in-person interactions, and their quest for convenient shopping experiences.
- Excellent customer experiences: Although it’s possible to develop a strong CX strategy for an ecommerce store, it’s much easier to provide consumers with a personalized, engaging experience in-person. The experiences retail stores can offer are more likely to stick with consumers for the long-term than those offered by ecommerce stores.
The Disadvantages of Retail Stores:
- Startup and Operating Costs: Running a retail store is a lot more expensive than starting an ecommerce store. Not only do you need to pay for supplies and products, but you also need to find money for physical real estate, taxes, employees, utilities, and more. The expenses can be overwhelming for some small business owners to handle.
- Inflexibility: While ecommerce stores can be managed and operated from anywhere, retail stores are limited to one location. You can’t just start working from home one day and continue to make a profit. It’s also extremely difficult to change your business location if you find you’re not getting enough foot traffic.
- Operational complexity: Retail stores come with a lot of additional operational complexity. You’ll need to handle the logistics of hiring, retaining, and training on-site employees. There You’ll also be responsible for keeping your real-estate in good condition, working on partnerships with suppliers, and managing inventory.
- Increased risk: Retail stores are exposed to more risk than ecommerce stores. There are more obstacles to success when you’re running a physical store. Something could go wrong which stops you from opening your store one day, which means you can’t make a profit. There’s also a risk rent, and other prices will go up over time.
The Pros and Cons of Ecommerce Stores
For most business owners, running an ecommerce store can be an excellent alternative to dealing with the complexity of a physical brick and mortar store. Ecommerce sales have increased drastically in the last decade, and demand for online shopping continues to grow. However, while ecommerce stores have less cost and risk associated with them, there are still challenges business leaders will need to consider before they launch their own venture.
The Benefits of Ecommerce stores:
- Lower costs: It’s much less expensive to set up and run an ecommerce store, particularly if you’re using a model like dropshipping or print on demand selling, which doesn’t require you to pay for any inventory up-front. You can get your business up and running quickly, with less initial capital investment. Plus, you won’t need to pay for things like real-estate, and you can minimize your investment in staff members too.
- Reach: With a physical store, you’re often limited to attracting customers in a specific location or area. With ecommerce stores, you’re free to appeal to as many consumers as you like, all over the world. You can sell across multiple online channels, including your own ecommerce store, and marketplaces like Amazon, eBay and Etsy. Plus, you can work with logistics and fulfilment providers to ship and complete orders.
- Flexibility: It’s possible to run an ecommerce store from anywhere, even the comfort of your own home. You don’t need to travel to a physical location every day to keep track of inventory in some cases. You can also manage everything using your desktop or mobile device with access to the right ecommerce platform.
- Growing market: While interest in offline retail has dwindled in recent years, demand for convenient online stores has continued to grow. Consumers are becoming increasingly accustomed to shopping online, which means there are excellent opportunities out there for ecommerce sellers to scale and grow.
- Reduced complexity: Running an ecommerce store is much easier than running a retail brick and mortar store. You can delegate a number of tasks by investing in dropshipping or print on demand selling. Plus, there are various tools and apps available which can allow you to automate everything from inventory tracking, to fulfilling orders and managing customer service. The overall effort involved is a lot lower.
The Disadvantages of Ecommerce Stores:
- Challenges in finding customers: While people in a real-world environment will constantly be exposed to a physical store, you’re not guaranteed any attention from customers with an ecommerce store. You’ll need to work on constantly building your presence with marketing strategies, SEO, and promotional campaigns.
- High levels of competition: Because it’s so easy to start an ecommerce store these days, you’re likely to have a lot of competition in virtually any niche. This means you’ll need to work hard at finding ways to differentiate yourself from other brands. You’ll need to commit to selling excellent products and delivering amazing customer experience.
- Reduced personalization: It’s harder to provide customers with a personalized experience when they’re shopping on an ecommerce store. Even with apps and tools to help you deliver more relevant ad campaigns and use personalized sales strategies, the experience often can’t compare with shopping in-store at a brick and mortar location.
- Security risks: While brick and mortar stores have more risks connected to physical disasters and costs, ecommerce stores face their own challenges. You’ll need to be aware of cybersecurity breaches, and ensure you have strategies in place to keep customer data secure. Regulations are becoming stricter for ecommerce store owners, so it’s important to ensure you’re following the right guidelines for compliance and privacy.
Retail vs Ecommerce: How Do they Compare for Businesses?
For business owners, there are a number of core differences between running an online ecommerce store, and starting a physical, brick-and-mortar retail store. One of the first things you’ll need to consider is how much reach you want to access for your store. With a brick-and-mortar store, you’ll be limited to selling products in one physical location, until you branch out into other destinations.
With an online store, you can potentially sell to a global audience, provided you have the right partnerships in place with logistics providers. Additionally, both retail and ecommerce stores have risks and limitations to consider, though they fall in slightly different areas. The main risks facing ecommerce stores are connected to cybersecurity and data breaches, while retailers deal with threats like physical disasters, and changing environments.
Other core components to think about include:
Investment level and cost
The initial investment required to start either an online or retail store can vary depending on a number of factors, including your business model, the product portfolio you want to produce, and the partners you’ll be working with. Similarly, long-term costs can vary depending on the number of employees you’re going to be hiring, and your logistics strategy.
However, getting an online store up and running is often much less expensive than investing in a physical store. With an ecommerce store, you can get started with just an ecommerce platform, domain hosting, and a few digital marketing tools.
You don’t necessarily need to pay for inventory if you’re using a dropshipping or POD strategy. With a retail store you need to pay for manufacturing and inventory management, employees, utilities, and real estate. There can be other costs to consider too, such as insurance, marketing costs, and leasing costs for vehicles.
Both an online and retail store can be difficult to run in its own way. However, it’s generally a lot more complicated to run a retail store than it is to set up an ecommerce business. Retail brick-and-mortar stores require business owners to manage the business side of affairs, as well as the logistics of hiring and retaining staff, and managing real estate.
Online stores are often much more straightforward. You can automate various processes using ecommerce tools, such as marketing, order tracking, and inventory management. You can also choose business models which delegate specific tasks to other companies, such as dropshipping.
Both retail and ecommerce store owners can enhance their chances of profits and revenue by selling across multiple channels. Omnichannel sales have become increasingly popular for all types of companies, but they can be more expensive and complex to manage with a brick-and-mortar store.
Most retailers with an offline store will also need to build their own online store to improve their chances of attracting customers and increasing sales. However, it can be difficult to manage logistics and inventory across a range of locations and platforms.
For ecommerce sellers, it’s much easier to create an omnichannel experience. You can link your ecommerce platform to marketplaces like Amazon, create smartphone apps for customers, and even sell on social media channels like Facebook and Instagram with relative ease.
Retail vs Ecommerce: How Do they Compare for Customers
Today’s customers are increasingly looking for a multitude of different shopping experiences. Some consumers prefer to shop in-person, so they can connect with sales professionals, view products in-person, and get assistance as soon as they need it. Others prefer the convenience that online shopping offers, and take advantage of the opportunity to shop from any device.
Ecommerce has grown to be a particularly popular solution for a lot of consumers in recent years, particularly since the pandemic pushed more people away from in-person shopping. However, there’s still a demand for traditional retail experiences in some landscapes.
Here are some points worth considering when exploring how retail and ecommerce compare for customers and consumers.
The Shopping Experience
Both retail and ecommerce companies rely on a variety of strategies, such as merchandising and curation to enhance the shopping experience for customers. Brand identity and marketing strategies can also play an important role in delivering an exceptional experience.
The retail shopping experience is usually considered to be more personalized and intimate than shopping online. Shoppers can physically interact with services and products, trying on clothes and testing out items in-person. This reduces the risk of customers changing their mind and returning a product they don’t like. On the other hand, around 20% of items bought from online retailers are returned.
While shopping online doesn’t offer a highly personalized experience, it can provide a more convenient shopping interaction for customers. Increasingly, companies are also experiment with new dynamic and personalized marketing and sales campaigns, to make the shopping experience feel more unique to each potential customer.
Both retail and ecommerce companies rely heavily on their ability to deliver exceptional customer experiences, to ensure customers want to continue purchasing from the brand for as long as possible. Both types of company can offer a range of service options, and some even have their own contact centers for dealing with calls and queries.
Retail stores can offer proactive customer support via sales associates and representatives who can help customers choose the perfect product for their needs. These individuals can also solve issues in real-time, in-person, when customers need them. While ecommerce doesn’t have the benefit of human interaction, companies can still invest in various tools to offer fantastic service. Many ecommerce stores use multiple channels for service, including email, live chat, and social media.
Most shoppers in any environment are looking for a convenient purchasing experience. When it comes to convenience, retail simply can’t compare with ecommerce. While local customers might benefit from having access to a nearby store where they can access goods straight away, the majority of customers prefer being able to access a range of products online.
Ecommerce shopping is built around providing customers with a straightforward way to shop for what they need and get it delivered straight to their door. Some companies can even ship products to physical locations where they can be picked up the same day.
With ecommerce stores, customers don’t have to worry as much about traveling to a specific location to access goods. They can buy anything they need with a couple of clicks.
What to Consider When Choosing Between Ecommerce and Retail
There’s no one-size-fits-all strategy for building a store. Whether you’re developing a consumer to consumer venture, business to business company, or business to consumer store, it’s worth considering all of your selling options carefully.
Looking at the advantages of ecommerce and retail comprehensively might even convince you the best option is to create a multichannel or omnichannel retail business, which involves using both online and offline sales methods.
When making your choice, the most important things to consider include:
- Your business model: Certain business models may be better suited to retail businesses, while others are ideal for an ecommerce site or online business. For instance, if you’re selling products directly to customers, with no middle man, you might benefit from creating a basic offline storefront, to minimize shipping costs. If you’re using a distributor, you might consider selling through department stores and supermarkets. Alternatively, if you’re opting for a dropshipping mode, an ecommerce website makes the most sense.
- Start up costs: Ecommerce is definitely the most cost-effective solution for starting a new business. Although there are still costs to consider with an online business, you’ll be able to cut down on a lot of expenses using an ecommerce platform. If you have a relatively low budget to work with, you can start to generate online sales in almost no time. However, do remember the cost of building your storefront, mobile app, and ecommerce business models can sometimes vary.
- Size and scope: Scaling an offline store can be difficult, even if you have a lot of customers. You’ll need to purchase new real-estate, hire additional professionals, and consider partnering with other third parties. Alternatively, scaling with ecommerce is usually quite straightforward. With the right e-commerce marketing strategy, you can even start advertising your products to customers around the world straight away.
It’s also worth thinking about the experience you want to give your customers. In the fashion industry, for instance, customers might benefit from being able to try on your garments, so they know exactly what size and style they need.
Though retail and ecommerce have a lot in common, they do provide very different experiences to both business owners and their customers. Finding the right strategy for your store will mean thinking carefully about your business model, plan for growth, and the exact experience you want to deliver to your target audience. Hopefully, the guidance above has given you an insight into what you can expect from each type of business.
Remember, you’re not limited to choosing one option or the other. Combining online and offline selling can be a great way to boost your total retail sales too.