Opening a brick-and-mortar store boosts a brand’s online sales within a 10-mile radius by an average of nearly 7 percent, while closing one cuts them by more than 11 percent.
That’s according to ICSC’s Halo Effect study showing the synergies between physical stores and e-commerce. In modern retail these channels have become inextricably linked, ICSC vice president of research Stephanie Cegielski told Sourcing Journal. “There is a significant increase in online sales—not just the traffic to websites, but the actual sales that take place—if a store opens in a trade area,” she said. “There’s also a decrease [in online sales] if a store closes in a trade area.”
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ICSC worked with strategy and research firm Alexander Babbage to examine $848.1 billion in in-store and online spending to quantify the impact of opening and closing stores, looking to the sales data from 69 retailers and 2,103 stores between 2019 and 2022. Compiled during the 13 weeks following a store launch, the insights excluded the two weeks before and after a store closing or opening to avoid skewing data with closeout sales or post-launch honeymoon periods.
“When we walked into 2020, most retailers had some sort of omnichannel business strategy in their five-year plan that they were going to roll out,” Cegielski said. Within weeks, that roadmap turned into a present-day imperative. “I think it really shows the strength of the physical store,” she added. “Not only did shoppers return to stores, they are really embracing the omnichannel world that so many became aware of during the pandemic.”
The positive online halo effect was especially pronounced when it came to digitally native direct-to-consumer (DTC) brands that opened new stores, the study showed. On average, they saw a near-14-percent e-commerce boost following an opening. Department stores such a much higher online spending increase, at 50.6 percent, when a new mall location opened. Apparel retailers more broadly saw an 11.6-percent rise in online sales in response to a store opening.
In evaluating total spending for both online and in-store sales, the impact of closing a physical store had even greater impacts. Home goods retailers that shuttered stores suffered a 59.3-percent drop in total spending, while department stores saw a near-49-percent decline. Discount department stores saw a 41.6-percent decrease in sales, while apparel retailers saw spending drop by over 37 percent.
Shoppers also spend more per e-commerce transaction following the opening of a nearby retail store. “We did see this increase of online basket size, impacting how much people are spending online,” Cegielski said. Among established retailers, the average online basket increased from $94 before opening a store to $104 after. Emerging retailers and DTCs saw this metric rise from $111 to $120.
ICSC and Alexander Babbage also analyzed the types of retail that benefited most from the halo effect. Big-box specialty retailers online basket sizes jump from $85 to $111 post-store launch. Retailers selling home goods saw carts increase from $194 to $243.
Cegielski believes stores do more than act as “billboards” for a brand—they offer a new way to engage and the promise of convenience. Shoppers don’t even need to see a physical store in person to be driven through its doors or to its website. “In this day and age of being able to do targeted and programmatic ads on social media, if a store is going to open in your trade area, you’re more likely to get ads pushed to you,” she said.
“I suspect a little bit of it has to do with the fact that it’s a lot easier to make a return when there’s a store in your trade area,” she said. Now that many retailers are ending free returns and charging shipping and restocking fees, consumers are likely looking to save money by bringing back unwanted goods in person. It’s a win-win for retailers, Cegielski said. “Free shipping and free returns is not a profitable business model for any retailer, so this is a way for them to recoup those costs.”
Notably, young shoppers are most likely to engage with physical retail, despite being raised with greater digital literacy than other generations. Shoppers ages 11-26 prefer shopping at stores more than almost all generations except Baby Boomers. ICSC’s recent reporting on Gen Z showed that 97 percent frequent brick-and-mortar because of the instant gratification and convenience.
“Everybody seems to think they’re living on their phones, but what we found is that they love going to physical spaces,” Cegielski said. “They like it because it is a social experience for them. And it’s also a digital experience, because when they’re with their friends they can post on Instagram or Snapchat.” Retailers are following their lead and creating features to entice Gen Z into stores. “We’re seeing retailers respond to that by making more experiential spaces, more Instagrammable experiences, from step-and-repeats to photo booths that will make a great TikTok background.”
Cegielski said retailers are bullish about expanding their footprints even in the face of inflation and mixed messages from consumers about discretionary spending. Heightened demand has been met with short supply, however, because development has slowed over the past decade. “There’s a very finite amount of space, so we’re seeing occupancy rates in the mid to upper 90s in a lot of centers,” and rents remain high, she said.
Still, Cegielski believes physical retail space will remain a priority for brands moving into 2024. At ICSC-hosted events in New York and Phoenix earlier this month that brought out property owners, developers and the construction industry, Cegielski said attitudes about expansion were “incredibly positive.”
“Despite economic conditions and the cost of borrowing money, retailers are in the market for physical space,” she said.
