Brick-and-Mortar Stores: Types, Advantages, and Disadvantages

What Is Brick-and-Mortar?

The term "brick-and-mortar" refers to a traditional street-side business that offers 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 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 can offer experience shopping whereby consumers can test a product such as a video game or laptop at Best Buy 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 credit cards or other forms of payment online. These customers 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.

Brick-and-Mortar Store Sales

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-mortar businesses 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 every month and e-commerce retail sales figures every quarter.

Global non-store retailing, such as direct (door-to-door) selling and e-commerce, posted sales of over $3,989 billion in 2023.

Successful Brick-and-Mortar Store Example

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 of between $60 and $120 to each customer. Consumers receive cost savings and service benefits for being a member. Costco had over 118 million members and a 93% renewal rate in the United States and Canada at the end of 2022.

Costco beat out Amazon as the top Internet retailer in a consumer survey done by Verint Systems, Inc. Costco sells 10,000 products on its website and offers consumers the option to buy goods online and pick them up in the store, which helps offer its members a compelling alternative to Amazon.

Types of Brick-and-Mortar Stores

There are several areas where brick-and-mortar stores still provide a resilient business model. These are typically situations where a face-to-face shopping experience provides more convenience than online shopping. For example:

• Convenience Stores: Convenience stores account for a large share of retail business locations. Because most of their revenue is from impulse purchases, online stores are unlikely to fill their niche.
• Groceries: Grocery stores allow customers to personally inspect their products and take them home immediately, another area where online stores are at a competitive disadvantage.
• Specialty Stores: These are stores that fill a specific customer need, such as hardware stores or bookstores. However, they do face competition from online sellers.
• Department Stores: Large stores with a variety of different products in different departments. These are most susceptible to losing money to online sales.

Advantages and Disadvantages of Brick-and-Mortar Stores

Brick-and-Mortar stores offer the advantage of an in-person shopping experience, which may be important when the product must be inspected by the shopper. They are also more convenient when the product cannot easily be delivered online, such as a haircut.

Some business types are more appropriately suited to brick-and-mortar forms, such as hair salons, veterinarians, gas stations, auto repair shops, restaurants, and accounting firms. Marketing strategies for brick-and-mortar businesses must highlight the advantages a consumer has when purchasing at a physical store.

On the other hand, brick-and-mortar stores tend to suffer higher overhead costs than online stores, and they can reach fewer customers. Commercial rental space tends to be more expensive than warehouse space, especially if the store relies on foot traffic or a downtown location. Moreover, they need to hire enough staff to keep the store open, as well as pay for cleaning, insurance, and office maintenance.

Adaptations for Brick-and-Mortar Stores

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. Meanwhile, other stores such as Sears and Payless ShoeSource have declared bankruptcy.

However, the importance of the brick-and-mortar model has been 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.

The Bottom Line

Brick-and-mortar is a colloquial term that refers to retail stores and offices that customers can visit in person, in comparison to online stores without a customer-facing storefront. Although they provide a more personal shopping experience, these stores are often being undercut by online stores with much lower overhead costs. However, some businesses such as hair salons and grocery stores are still largely done in person.