In today's digital age, e-commerce has become the go-to platform for businesses to acquire customers. However, digitally-native brands are feeling the heat of rising customer acquisition costs. In 2013, brands spent approximately $9 to acquire new customers. Today, retailers lose $29 per new customer—a 222% increase.
With growing online competition and heightened privacy regulations, brands are looking for new ways to attract and retain high -value shoppers. That’s where physical retail comes into play. Stores are an integral part of an omnichannel commerce strategy.
Physical stores enable brands to expand their reach and better meet their customers’ needs. But brands can’t just open a store and expect to see success.
We will discuss various strategies brands can employ to acquire profitable customers to maximize the value of their stores.
Today, brands view storefronts as a new way to acquire valuable customers. Understanding how to acquire high-value customers can be the difference between success and failure for many brands.
One way to measure the effectiveness and efficiency of a brand’s ability to acquire customers is through a customer profitability ratio, more commonly known as a CLTV to CAC ratio. A CLTV:CAC ratio compares a brand's cost to acquire a customer with what that customer is expected to spend over their lifetime with a brand. Storefronts, and the fact that store shoppers are often net new to a brand, are a way brands can lower CAC and maximize CLTV.
Physical stores help increase customer lifetime value (CLTV). Today, omnichannel customers are more valuable than online-only shoppers, with customers spending significantly more time at a store than online. Additionally, 78% of shoppers will use multiple channels to start and complete a transaction.
Let’s look at the key variables that impact CLTV.
Stores must meet consumer expectations for speed, convenience, and experience. With services like buy online, pick up in-store, or curbside pickup, shoppers have more control over their shopping than ever before.
Physical retail provides customers with an experience that is impossible to replicate online. With store design and layout, brands can bring their brand story and values to life in an experiential way.
Brick-and-mortar locations also offer a forum to interact with your most valuable customers. Retailers can offer early access to new products, special services (e.g., free tailoring or personalization), or exclusive events to increase brand loyalty.
And loyal customers don’t just increase sales—they also act as ambassadors for the brand. Yotpo found that 60% of loyal customers refer their friends and family to the brands they love.
With effective merchandising and more personalized customer service, retailers can use stores to boost average order value (AOV). Merchandising refers to how retailers display and arrange products in their stores. Thoughtful merchandising enables customers to understand the value of products better and buy more of them.
Additionally, lower return rates also help the AOV metric. In 2022, the national return rate in the United States was 16.5%—representing over $816 billion in merchandise. Returns hurt profits, impact inventory management, and lead to excessive waste.
Historically, purchases made at physical stores have a lower return rate than online purchases. Data suggests that the average return rate for online orders is 20%, compared to 9% of items purchased at a brick-and-mortar location. Brands on the Leap platform benefit from a 50% lower refund rate, on average, compared to their online-only shoppers.
Physical stores can help mitigate these risks. Customers can try on and inspect items before taking them home. And associates can help customers find products that meet their needs.
By using stores to provide more seamless, convenient, and personalized experiences, retailers can encourage higher order values and repeat visits—across all channels to maximize customer lifetime value. The Leap platform has helped brands achieve a 45% higher AOV and 2X higher repeat rate, on average, compared to their online-only customers.
With physical retail, store operations are part of the cost of doing business, so brands must maximize operations. With access to customer insights, sales associates can drive upselling and cross-selling. And associates serve as product experts and brand ambassadors to help educate customers. All of this results in hyper-localized and personalized service that drives conversion rate (CVR) and units per transaction (UPT).
Brick-and-mortar locations act as billboards to reach new consumers. By placing stores in high-traffic areas, retailers can attract customers unfamiliar with the brand. A 2018 International Council of Shopping Centers (ICSC) study found that opening a physical store increased online traffic by 37% in the following quarter.
This continues to be true today. When Allbirds opened its Boston store, online traffic increased by 15%, and overall sales for the region jumped 77%. Stores allow customers to get to know the brand—building trust and credibility. Shoppers can experience the brand’s story and products first-hand.
Unfortunately, most retailers continue to separate their e-commerce and physical retail strategies. But maximizing store value requires retailers to consider how to optimize customer acquisition.
Here are six strategies to maximize high-value customer acquisition.
Finding the right location is critical. Brands should focus on high-traffic locations that meet the needs of customers. For example, parking will be essential if your target audience is parents with young children.
Retailers should also consider choosing like-minded co-tenants to drive cross-traffic (e.g., placing an athleisure boutique near a gym or health food store). And negotiating lease terms that minimize risk and provide flexibility is critical.
Store operations should center around supporting shoppers and deepening customer relationships. This goes beyond finding the right size or ringing up customers. Brands should focus on clienteling to offer a more personalized experience.
Stores are also a valuable opportunity to receive first-hand customer feedback and insights. Retailers should make it easy for employees to track and record feedback. For example, if a customer returns an item, associates can note the reason for the return.
Store design and layout should support the customer journey and drive customer interaction with the brand and products. Paint, furniture, fixtures, scent, and music convey your brand’s identity.
When designing a store, brands should also consider a store’s purpose. The store’s KPIs will change how you approach design and development. For example, is it a showroom, pop-up, or liquidation opportunity?
An effective merchandising strategy drives education and product interaction leading to a higher average order value (AOV). Retail stores allow you to highlight your products in a way you cannot do online. Here are a few ideas:
Companies should provide retail staff and customers with technology supporting the omnichannel journey in stores. For example, sales associates should have access to real-time inventory data. When an item isn’t in stock, retail staff can ship it to the customer’s home or find an alternative item.
Leveraging technology such as touchscreen displays encourages customers to browse a brand's entire portfolio and learn more about products building a deeper connection.
Stores are an asset to leverage in a brand’s marketing strategy. Physical stores convey a brand's personality and values and create an emotional connection with customers. Stores provide an opportunity for customer engagement and to connect with the local community through in-store events, product demonstrations, and personalized experiences. These experiences can help build customer loyalty and foster a sense of community around a brand.
Key levers to maximize high-value acquisition with physical retail
Today, customers have many options for how they interact with a brand. For retailers, stores are an essential tool to support the customer journey. But maximizing the value of your store fleet can be challenging. That’s where Leap comes in.
Leap enables modern retailers to launch and operate retail stores. With premium locations, design services, and world-class store operations, our platform ensures that brands create a seamless omnichannel experience. And a comprehensive reporting and analytics dashboard allows brands to make better decisions—online and offline.
Sign up today to see how the Leap platform helps brands power their physical retail strategies.
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