A Definition of Brick and Mortar
The term “Brick and Mortar” refers to traditional businesses that have a physical presence in the form of storefronts, warehouses, factories, etc. Grocery stores, dentists, gas stations, and walk-in banks are all examples of “Brick and Mortar” businesses. Virtual companies, on the other hand, conduct their business online and do not interact with customers face-to-face.
Perhaps the largest example of a traditional Brick and Mortar business is Wal-Mart, a multinational retailer with over 4000 stores in 28 countries. A typical Wal-Mart Supercenter occupies almost 200,000 square feet of retail space. Wal-Mart has over 2 million employees worldwide and over $400 billion in annual sales. In addition to being the largest retailer in the world, in the U.S. Wal-Mart is the largest grocery retailer, the second largest optical vendor, and the third largest in pharmaceutical sales.
The Demise of Shopping Malls
Shopping malls are the most visible of “brick and mortar” retail. With the construction of the interstate highway system in the 1950’s, large malls became retail meccas to millions of middle-class consumers in the United States.
In the beginning, large department stores and national chains anchored the malls, later specialty stores such as Home Depot, Best Buy, etc. Walk-in retail space eventually reached the saturation point in the early 2000’s in the U.S., with approximately 46 square feet of retail space per person – the next highest was the UK, with 9 square feet per person. Retail consultant Howard Davidowitz predicts that as many as half of America’s 1200 shopping malls will close within 15 to 20 years.
The Rise of Amazon
In addition to the oversupply of walk-in retail, the advent of internet virtual retailers have made huge inroads into many traditional brick and mortar businesses, such as banking, electronics, book-selling, and general dry-goods retail.
The most well-known example is Amazon, which began as an online book retailer in 1994 and as of 2015 has approximately 75% market share of ebook sales and 50% of all books sold online. The big bookstore chains have been the most affected by Amazon’s dominance – Borders filed for bankruptcy in 2011 leaving Barnes & Noble as the sole remaining large retail bookseller in the United States. Amazon competes heavily in many retail segments with brick and mortar businesses such as Wal-Mart, Target, and Best Buy, and is expected to hit $100 billion in sales in 2015.
It should be noted that while Amazon is a virtual retailer it maintains a huge brick and mortar infrastructure, including over 150 distribution center facilities around the world, to handle sorting, delivery, and returns of products sold online. In 2015, Amazon opened its walk-in retail storefront for pickups and drop-offs on the campus of Purdue University.
Not Every Business Can Go Virtual
Virtual businesses have also had their share of spectacular failures when attempting to penetrate certain traditional retail markets. Online grocery shopping is a prime example – during the dot-com boom of the 1990’s, there were a number of attempts by startups to penetrate the grocery market via online retailing. The most famous of these was Webvan, which went bankrupt in 2001 after being valued at more than $4.8 billion dollars at the time of its initial public offering (IPO) in 1999.
In retrospect, the non-success of online grocery sales was unsurprising and highlights the biggest drawback of virtual sales – the need to examine the product in person before making a purchase. Most people prefer to examine their produce, meat, etc. for freshness and cut before making a purchase.
For other goods such as clothing or electronics savvy consumers often examine the product in a retail store before ordering it online (showrooming) and taking advantage of the lower prices offered by vendors such as Amazon who do not have the overhead costs of maintaining retail space.
While having a significant and growing online presence most large retailers such as Wal-Mart, Target, Home Depot, etc. still make the vast majority of their sales from their brick and mortar outlets. In 2014 online sales accounted for only 2.5% of Wal-Mart’s total sales of $482 billion.
In other industries such as banking, most consumers prefer to conduct their business online. However, many types of transactions such as loan applications and financial advice benefit from face-to-face interaction and are still often conducted through branch outlets.