What is Brick And Mortar

Brick and mortar refers to a traditional street-side business that offers their products and services to its customers face-to-face in an office or store that the business owns or rents. The local grocery store and the corner bank are examples of brick-and-mortar companies. Brick-and-mortar businesses have found it difficult to compete with mostly web-based businesses like Amazon.com Inc. (AMZN) because the latter usually have lower operating costs and greater flexibility.

Understanding Brick And Mortar

Many consumers still prefer to shop and browse in a physical store. In brick-and-mortar stores, consumers can speak with employees and ask questions about the products or services. Brick-and-mortar stores have the ability to offer experience shopping whereby consumers can test a product such as a video game or laptop at BestBuy or have lunch in Nordstrom's cafe while shopping at the store. Brick-and-mortar businesses also provide consumers with instant gratification when a purchase is made.

Some consumers are wary of using their credit cards online and often associate legitimacy with a brick-and-mortar business as a physical presence can foster a perception of trust. However, there can be disadvantages for corporations that run brick-and-mortar stores including the costs associated with leasing the building, employees to conduct transactions, and utility expenses such as electricity, heat, and water. 

Measuring the Performance of Brick and Mortars

On a per-store basis, publicly traded retailers typically report same-store sales, or comparable-store sales, in their quarterly and annual SEC-regulated earnings reports. These financial metrics provide a performance comparison for the established stores of a retail chain over a specified period of time. Brick and mortars that include restaurants, grocery stores, and general merchandise stores, use these figures to evaluate their financial performance to guide corporate decision-making regarding their stores.

On a macroeconomic level, the U.S. Census Bureau releases retail sales figures on a monthly basis and e-commerce retail sales figures on a quarterly basis. For all of 2018, retail & food services sales totaled over $714 billion for general merchandise stores, which include department stores, warehouse stores, and supercenters. The growth rate was 3.2% compared to 2017.

Non-store retailing, which takes place outside of traditional brick and mortars, such as direct (door-to-door) selling and e-commerce posted 2018 sales of almost $679 billion for the year. The growth rate from 2017 to 2018 came in at 9.6%.

[Important: Although many brick and mortar stores have found it difficult to compete with mostly web-based businesses like Amazon.com, companies like Costco are competing and thriving by offering its members services such as buy online and pick up in the store.]

Key Takeaways

  • Brick and mortar refers to a traditional street-side business that offers their products and services to its customers face-to-face in an office or store that the business owns or rents.
  • Brick and mortar stores have found it difficult to compete with mostly web-based businesses like Amazon.com Inc. (AMZN) because the latter usually have lower operating costs and greater flexibility.
  • However, the importance of the brick-and-mortar model has given credence by several large online e-commerce companies opening physical locations to realize the advantages of traditional retail.

Real World Example of a Successful Brick-and-Mortar

With all the negative press surrounding brick-and-mortar stores combined with the popularity of Amazon, one might think that the brick-and-mortar business model is dead. However, Costco is bucking the trend.

Costco Wholesale Corporation (COST) is a membership retailer that charges an annual fee ranging from $60 to $120 to each customer. Consumers receive cost savings and service benefits for being a member. Costco has almost 100 million members and a 90% renewal rate from those members.

Costco beat out Amazon at the top internet retailer in a consumer survey done by the American Customer Satisfaction Index. Costco sells 10,000 products on its website and offers consumers the option to buy online and pick in the store, which helps offer its members a compelling alternative to Amazon.

Future of Brick-and-Mortar Companies

The rise of electronic commerce (e-commerce) and online businesses has led many to contemplate the future of the brick-and-mortar business. It is increasingly common for brick-and-mortar businesses to also have an online presence in an attempt to reap the benefits of each particular business model. For example, some brick-and-mortar grocery stores, such as Safeway, allow customers to shop for groceries online and have them delivered to their doorstep in as little as a few hours. The increasing prevalence of these hybrid business models has spawned offshoot terms such as "click and mortars" and "bricks and clicks."

Despite fairly sustained growth in the broader brick-and-mortar landscape, many traditional retailers are closing stores nationwide including Gymboree, The Limited, Radio Shack, and Gamestop. Not only has Sears bankruptcy, but Payless Shoesource declared bankruptcy and is liquidating all of its 2,100 stores.

However, the importance of the brick-and-mortar model has given credence by several large online e-commerce companies opening physical locations to realize the advantages of traditional retail. For example, Amazon.com Inc. has opened brick-and-mortar stores to help market its products and strengthen customer relations. Aside from opening a cashier-less grocery store in Seattle and dozens of bookstores nationwide, Amazon also acquired grocer Whole Foods in 2017 for $13.7 billion — a move that many analysts said highlighted Amazon's urgent desire to strengthen its physical retail presence.

That said, some business types, such as those that operate in the service industry, are more appropriately suited to brick-and-mortar form, such as hair salons, veterinarians, gas stations, auto repair shops, restaurants, and accounting firms. It is crucial that marketing strategies for brick-and-mortar businesses highlight the advantages a consumer has when purchasing at a physical store.

It's clear the retail landscape has changed, and the brick-and-mortar stores will have to adapt to the ever-changing technological landscape to avoid becoming the next Sears or Payless.