At Startup Launchpad, we emphasize distribution through brick-and-mortar retail channels because it is a critically important means of selling a product and building a brand that often gets overlooked in the digital age. According to A.T. Kearney, 90 percent of all retail sales happen in stores and 95 percent of sales go to retailers with some brick-and-mortar presence. This doesn’t mean e-commerce should go neglected, though. In fact, digital-first sales could be a startup’s ticket to distribution in stores.
Most people involved in hardware are probably familiar with the most common arguments in favor of online platforms. E-commerce is soaring. In the second quarter, e-commerce sales rose by nearly 15 percent, according to data from Salesforce. In 2016, online sales growth was closer to 20 percent each quarter.
Brick and mortar sales, on the other hand, haven’t seen a monthly increase in sales in years, according to RetailNext. Sales for August dropped by more than 9 percent.
As A.T. Kearney’s report on brick-and-mortar selling shows, though, retail stores work as a way of increasing online sales. This means having a solid strategy for multiple retail channels is an important means of building a brand. Different demographics have different preferences for how they discover and buy products. Catering to the largest possible consumer base means having a robust online platform in addition to a judicious brick-and-mortar strategy.
Brick-and-mortar stores are involved in most sales. No matter what the product, more than 70 percent of respondents in a K.T. Kearney survey preferred to try it in store. Consumers also have a high preference for stores when returning products.
The good news for tech startups is that there appears to be a low preference for using stores to discover electronics. So building a brand online can actually be a practical, low-cost solution if a company uses builds an excited fan base online.
The same survey also found that Millennials, now the largest generation, are the least likely to prefer in-store shopping. Even members of Generation Z are more likely to prefer brick-and-mortar shopping. Since Millennials are now working professionals, though, they have less time to spend going out shopping but more money. More than 70 percent of Millennials still prefer to try out products in a store, though.
While a lot of marketing and selling these days relies on the two-pronged approach of digital and brick-and-mortar retail, getting to this point requires more online sales upfront. VentureFace founder Peter Xie recommends selling online first to get some revenue and product buzz before going to third party distributors and retailers. He also recommends sales of about $500,000 to $1 million before seeking international distribution.
With the right marketing, a hardware startup may be able to generate enough excitement to make it a primary means of income. Chinese startups are most associated with this approach, which is achieved in part through flash sales that boost product awareness and keep costs down. This is how Xiaomi built its fan base and continues to be how the company launches new products.
Even Xiaomi has brick-and-mortar locations now, but it doesn’t keep a lot of stock there. It doesn’t have to. Anyone who likes a product they try can immediately order one on their smartphone, possibly for a cheaper price. So when launching a product or brand, make sure the online storefront provides a good user experience. It will continue to be an important part of selling those innovative widgets long after they first hit store shelves.
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