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The post-pandemic landscape has been a challenging one for brick-and-mortar retailers. US Census Bureau data shows that internet sales have grown exponentially in the past 25 years, weighing in at 0.64% in 1999 to accounting for 15.9% of purchases in Q1 2024. 

This data shows that there’s a seismic chunk missing from brick-and-mortar’s retail dominance that post-pandemic digital transformation efforts are intent on eating further. So should investors look away from an industry that’s clearly facing unprecedented competition from the digital ether? Evidence suggests not. 

The Phygital Revolution
 

Despite long-standing predictions of the decline of brick-and-mortar, evidence suggests that physical retail stores are going nowhere fast. 2023 saw brick-and-mortar stores generate $6.22 trillion in the United States alone, and the lure of physical is actually driving more online-only retailers to consider opening up physical locations. 

According to an INFORMS journal study, physical stores can play a significant role in influencing consumer decisions online. As a result, opening a brick-and-mortar store could pave the way for a 29% increase in online sales within a specific geographic region for online retailers. 

Even online service firms like Netflix (NFLX) have embraced the persuasive power of phygital recently, opening up a Netflix Bites pop-up restaurant in Los Angeles using chefs from some of the platform’s most renowned shows to drive real-world engagement. 

Dominance Among Big Spenders
 

Brick-and-mortar also appears to have a significant hold on shoppers willing to spend more money compared to their digital counterparts. According to a recent First Insight report, 71% of shoppers spend $50 or more when shopping in-store, compared to just 54% of respondents who spend the same amount online. 

Additionally, customers are increasingly willing to make purchases when feeling more personal connections in-store. This offers a series of benefits for brick-and-mortar shopping that online retailers would simply be incapable of replicating in any meaningful way. 

This business case means that physical retail can still help brands achieve their commercial targets by prioritizing the experiences associated with making purchases. 

The quality of technology available to brick-and-mortar retailers is also helping to transform their ability to deliver seamless, personalized customer experiences. For instance, integrated retail POS systems can help businesses access rich customer profiles, paving the way for tailored interactions, personalized marketing campaigns, and more focused loyalty programs. 

Finding Value in Discount Retailer Stocks
 

While customers have become accustomed to competitive pricing online, low-cost goods that aren’t worth the added shipping costs or the effort of individually ordering online remain a key opportunity for discount retailers. 

There are many appeals for discount retailers in the US, particularly in the wake of historically high inflation rates and weak job market data. 

This has paved the way for renewed interest in stocks like Dollar General (DG), which operates as a $40 billion revenue chain with nearly 20,000 stores throughout 48 states, and Dollar Tree (DLTR), a slightly smaller 15,000 outlet chain. 

While both stocks have struggled in the wake of weaker consumer spending power in recent months, other stores that have operated a more competitive range of pricing structures, like Walmart (WMT) have rallied significantly. Between January and mid-September 2024, WMT has grown more than 50%, eating into the market share of its dollar-store rivals. 

As American consumers regain their spending power amid a more dovish monetary policy reversion for the Federal Reserve in late 2024, we’re likely to see spending power steadily return for discount retailers. This will help to maintain brick-and-mortar’s ability to sell volumes of items in a way that eCommerce has struggled to replicate. 

Unrivalled DIY Experiences
 

Home improvement stocks have also shown remarkable resilience in the face of growing eCommerce sales, with the North American DIY & Hardware Store market projected to generate revenues of $726 billion by 2024 and experiencing a CAGR of 2.59% over the next four years to 2028. 

As part of the unique in-store experiences brick-and-mortar provides customers, large-scale purchases and the necessity of buying the right materials means that home improvement retailers like The Home Depot (HD) are also well-positioned to overcome the challenges of eCommerce. 

Following the announcement of better-than-expected Q2 2024 financial results, Home Depot claimed earnings of $4.67 per share, with revenue reaching $42.58 billion. Both results beat Wall Street estimates and the firm’s ability to use digital tools to improve the in-store experience points to an innovative model that competitors could follow for success. 

The roll-out of a ‘search warehouse inventory’ tool on the firm’s mobile app can help to inform customers about whether items or materials are in stock locally for purchase. 

It’s these phygital combinations that can help to maintain the relevance of brick-and-mortar stores across different industries to match customer expectations. 

Brick-and-Mortar’s Metamorphosis
 

Brick-and-mortar is fundamentally changing across a number of industries due to the pressures of eCommerce. While use cases still exist, investors in retail stores must look to innovations surrounding the in-store experience. 

Building a more hybrid model between online and offline experiences, more retailers can futureproof their operations and continue to thrive at a time when investors are looking at more tech-focused portfolio additions. 

There are still many opportunities to be found for investors willing to invest in brick-and-mortar, but it’s worth keeping an eye on stores seeking to unite in-person experiences with technological innovation. It’s here where a true glimpse into a sustainable future for retailers can be found.

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