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How Physical Retail Impacts Online — And Vice Versa

Posted by Amanda Nadile on Jul 31, 2019

Last updated on April 29th, 2020 at 05:02 pm

The reality of retail today is that physical stores are as financially-vital as ever – especially so in companies with a robust online presence to complement their local outlets. It’s why brick-and-mortar remains a critical component of omnichannel retailing.

Supporting this conclusion, the International Council of Shopping Centers (ICSC) conducted in-depth research on a fundamental benefit physical stores can offer, dubbed the “Halo Effect.” A consideration of this retail phenomenon and its far-reaching implications will no doubt prove advantageous to companies striving for a business model that is at once expansive and sustainable.

What is the Halo Effect?

According to the ICSC study, the Halo Effect is:

“…the direct impact of brick-and-mortar stores on digital engagement and consumer awareness of those brands in a given market.”

To make the Halo Effect more quantifiable, the ICSC study fragmented the overall phenomenon into smaller time measurements referred to as “halo events.” Therefore:

“This new analysis considers a halo event to be triggered when a purchase is made online and followed by another purchase in-store within 15 days…”

Or vice versa (a purchase is made in-store and followed by an online transaction). The basic conclusion the ICSC’s research leads us to argue is that a halo event yields a significantly greater net spend over a 15- to 30-day window than the total spend from the initial purchase. Perhaps some may wonder: How much greater customer spend?

ROI from Halo Events

The study finds that, on average, halo events that begin with a $100 online transaction yield a net spend of $231 within the 15-day period following the initial purchase. An “in-store to online” halo event yields an even higher net spend: An average total of $267 within the same time frame. 

While the major spike in net spend occurs within the 15-day window following the initial purchase, the study also finds that incremental spending continues to increase throughout a 30-day (one month) period subsequent to the first transaction. Thus, “online to in-store” halo events yield a net spend of $271 within a 30-day time frame, and “in-store to online” events yield $263.

These statistics clearly demonstrate the positive effect of utilizing multiple fulfillment channels in the customer journey. You can find one example of the massive ROI from such an omnichannel strategy in custom Italian shoemaker M.Gemi. Previously, M.Gemi was an online-only retailer; now, however, its two physical locations in New York City (a flagship store in Hudson Yards and a boutique within Bloomingdale’s) act as powerful drivers for the business. In fact, M.Gemi’s cross-channel customers spend up to 60% more than single-channel consumers.

Key Areas of Implementation

There are several key areas of implementation retailers must give attention to in order to successfully generate the Halo Effect. These include:

A heavy emphasis on personalization.
The ability to accurately gather and decipher relevant customer data.
A focus on consistency across all channels.

Key Insights

The ICSC study produced a few key insights with regards to the importance of physical stores in becoming an omnichannel organization

One of the biggest insights involves the new generation of shoppers: Gen Z. (Understand shoppers across generations here). An estimated 95% of Gen Z shoppers visit the local mall at least once every three months. Despite growing up as “digital natives,” young Gen Z shoppers are keenly interested in analog experiences. Tom Gillpatrick, Professor of Marketing at Portland State University in Oregon, says this about the Gen Z demographic:

“There is an increasing need among this group for high-touch experiences. They’re surrounded with digital. Real experience has become novel.”

Another key insight is the role physical stores play in winning customer trust. Apparel companies provide a salient example: The majority of consumers that buy online from clothing suppliers (62%) prefer to retrieve web purchases at the local outlet commonly referred to as buy online pickup in-store (BOPIS). This in-store visit often drives increased spending. 

Jonathan Reynolds, Associate Professor in Retail Marketing and Deputy Dean at the Saïd Business School at the University of Oxford, notes how physical stores contribute to increased brand equity in this way:

“Particularly in categories where customers want to check out a product in terms of quality, if they do that in-store, they’re a lot more confident about that purchase, and – having been reassured – they will subsequently spend more online.”

In Sum

The Halo Effect is a clear and quantifiable retail phenomenon that demonstrates the staying power of physical stores as an integral part of the buyer’s journey. Take this effect into account to increase revenue streams, build brand loyalty within your consumer base, and ultimately achieve financial sustainability. 

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