When Clicks Aren’t Enough, Online Retailers Become Old-Fashioned Stores

Balsam Hill has enjoyed seven years as a booming online retailer and one of Silicon Valley’s fastest-growing internet companies.

But in August, the high-end artificial holiday tree manufacturer opened a brick-and-mortar store just off the highway in Burlingame, Calif. In this part-warehouse, part-showroom, part-discount outlet space within earshot of San Francisco International Airport, Balsam Hill will display its trees, which have until now mostly been confined to cyberspace.

Redwood City, Calif.-based Balsam Hill becomes the latest successful online retailer – it has been profitable since its inception, growing more than 200 percent some years – to venture offline and into the physical retail world, in a role reversal that seems to defy the booming e-commerce industry. While traditional brick-and-mortar merchants struggle to capture consumers, who are increasingly shopping from their smartphones and tablets, some online-only retailers are adding physical stores, to improve sales and attract new customers who may discover the street address before the web address, say retail industry experts.

“You can’t just stick an ad on Google and hope that you’re showing up first in search results,” said Kelly Pedersen, retail and consumer director with global consulting firm PwC. “They need to differentiate themselves.”

From eyeglass designer Warby Parker to baby-gear retailer Our Baby Our World, fashion site BaubleBar and Gap subsidiary Piperlime, online companies are expanding their businesses through brick-and-mortar stores. These are not your average strip mall stores – they are, in most cases, ornate showrooms or intimate retail sites to try on clothes and test out tech gadgets before making the purchase online.

Other online stores have moved to brick and mortar as well. Bonobos, a New York-based men’s fashion retailer, existed only on the web until the company opened its first of eight stores last year. The “guide shops,” as the company calls them, carry only one size of each clothing article and are tended by personal shoppers, who sometimes spend an hour outfitting a customer with a new wardrobe.

Guide shop customers spend, on average, twice as much as customers who shop on the website only, according to the company. The most expensive items – which can run more than $600 – sell better in the stores, and the company has started selling bathing suits now that customers have somewhere to try them on, said Erin Ersenkal, vice president of guide shops for Bonobos.

Seasonal pop-up stores aren’t unusual – Microsoft and eBay have put up temporary locations to attract customers during the year-end shopping season, and Balsam Hill set up a temporary showroom its first year at Stanford Shopping Center in Palo Alto, Calif. But this expansion into permanent stores suggests that the occasional pop-up won’t suffice for some luxury and niche internet retailers.

“Shoppers increasingly expect to be able to interact with the retailers and brands they care about anywhere, anytime, any platform, which argues for a … presence in both the physical and virtual worlds,” said Mary Brett Whitfield, senior vice president with consulting business Kantar Retail.

Venturing offline comes with risks. Stores offer the first face-to-face interaction between the company and customers, and a bad customer-service experience could send a new customer running, Pedersen of PwC said. And, he said, it only works for online companies that can sell an experience – like a holiday – or an investment, such as a suit that will last decades. For most other purchases, shoppers will stick to the website.

Retailers also could wind up burdened with real estate costs, cautions Sucharita Mulpuru, a retail analyst with Forrester Research.

“It’s too expensive for online retailers to do this in a big way,” she said.