Brick-and-Mortar

What Is Brick-and-Mortar?

The term "brick-and-mortar" refers to a traditional street-side business that offers products and services to its customers face-to-face in an office or store that the business owns or rents. The local grocery store and the corner bank are examples of brick-and-mortar companies. Brick-and-mortar businesses have found it difficult to compete with mostly web-based businesses like Amazon.com Inc. (AMZN) because the latter usually have lower operating costs and greater flexibility.

Understanding Brick-and-Mortar

Many consumers still prefer to shop and browse in a physical store. In brick-and-mortar stores, consumers can speak with employees and ask questions about the products or services. Brick-and-mortar stores have the ability to offer experience shopping whereby consumers can test a product such as a video game or laptop at Best Buy or have lunch in Nordstrom's cafe while shopping at the store. Brick-and-mortar businesses also provide consumers with instant gratification when a purchase is made.

Some consumers are wary of using credit cards or other forms of payment online. These customers often associate legitimacy with a brick-and-mortar business, as a physical presence can foster a perception of trust. However, there can be disadvantages for corporations that run brick-and-mortar stores including the costs associated with leasing the building, employees to conduct transactions, and utility expenses such as electricity, heat, and water.

Brick-and-Mortar Store Sales

On a per-store basis, publicly-traded retailers typically report same-store sales, or comparable-store sales, in their quarterly and annual SEC-regulated earnings reports. These financial metrics provide a performance comparison for the established stores of a retail chain over a specified period of time. Brick-and-mortar businesses that include restaurants, grocery stores, and general merchandise stores use these figures to evaluate their financial performance to guide corporate decision-making regarding their stores.

On a macroeconomic level, the U.S. Census Bureau releases retail sales figures on a monthly basis and e-commerce retail sales figures on a quarterly basis.

Non-store retailing, which takes place outside of traditional brick-and-mortar businesses, such as direct (door-to-door) selling and e-commerce posted 2019 sales of over $746 billion for the year. Sales are expected to dip to just under $710 billion for 2020, due to the pandemic.

Many brick-and-mortar stores have found it difficult to compete with stores like Amazon.com, that are web-based; however, companies such as Costco thrive by offering its members services such as buy online and pick up in the store.

Successful Brick-and-Mortar Store Example

With all the negative press surrounding brick-and-mortar stores combined with the popularity of Amazon, one might think that the brick-and-mortar business model is dead. However, Costco is bucking the trend.

Costco Wholesale Corporation (COST) is a membership retailer that charges an annual fee of between $60 and $120 to each customer. Consumers receive cost savings and service benefits for being a member. Costco has almost 100 million members and a 90% renewal rate from those members.

Costco beat out Amazon as the top Internet retailer in a consumer survey done by the American Customer Satisfaction Index. Costco sells 10,000 products on its website and offers consumers the option to buy online and pick up in the store, which helps offer its members a compelling alternative to Amazon.

Special Considerations

The rise of electronic commerce (e-commerce) and online businesses has led many to contemplate the future of the brick-and-mortar business. It is increasingly common for brick-and-mortar businesses to also have an online presence in an attempt to reap the benefits of each particular business model.

For example, some brick-and-mortar grocery stores, such as Safeway, allow customers to shop for groceries online and have them delivered to their doorstep in as little as a few hours. The increasing prevalence of these hybrid business models has spawned offshoot terms such as "click and mortars" and "bricks and clicks."

Despite fairly sustained growth in the broader brick-and-mortar landscape, many traditional retailers are closing stores nationwide including Gymboree, The Limited, Radio Shack, and Gamestop. Meanwhile, other stores such as Sears and Payless ShoeSource have declared bankruptcy.

However, the importance of the brick-and-mortar model has been given credence by several large online e-commerce companies opening physical locations to realize the advantages of traditional retail. For example, Amazon.com Inc. has opened brick-and-mortar stores to help market its products and strengthen customer relations. Aside from opening a cashier-less grocery store in Seattle and dozens of bookstores nationwide, Amazon also acquired grocer Whole Foods in 2017 for $13.7 billion — a move that many analysts said highlighted Amazon's urgent desire to strengthen its physical retail presence.

That said, some business types, such as those that operate in the service industry, are more appropriately suited to brick-and-mortar forms, such as hair salons, veterinarians, gas stations, auto repair shops, restaurants, and accounting firms. It is crucial that marketing strategies for brick-and-mortar businesses highlight the advantages a consumer has when purchasing at a physical store.

It's clear that the retail landscape has changed, and the brick-and-mortar stores will have to adapt to the ever-changing technological landscape to avoid becoming the next Sears or Payless.