Physical outlets boost revenue of online retailers

Even as the increasing popularity of online shopping appears to pose a threat to the conventional brick-and-mortar stores, researchers have found that introducing physical outlets can increase revenue of online retailers by about 20 percent.

"The 'availability effect' produces a net increase in purchase frequency across channels. This more than compensates for increased returns, producing a net increase in revenues of 20 percent by adding the store channel," the study noted.

The study by marketing professors Koen Pauwels of Istanbul's Ozyegin University and Scott Neslin of the Tuck School of Business, Dartmouth College could offer valuable insights on the interplay among the various channels.

The researchers analysed data from a well-known catalog and online apparel and durables retailer over a period of almost six years, during which the retailer added three physical stores.

The transactions of those known customers who lived within 48 km of any of the new stores were scrutinised for orders, returns, and exchanges through all the retailer's channels.

When brick-and-mortar stores were added, consumers made more frequent purchases overall, for a net revenue increase of 20 percent, the findings showed.

And there was a benefit from a customer-management perspective: adding the new channel led to more frequent customer/firm contacts and thus better customer retention.

The study is forthcoming in the Journal of Retailing.