79% of millionaires are entrepreneurs who built their businesses from scratch. [1]
But before they got to millionaire status, they defined the basic aspects of running a business, such as the type of business they want to run, the target market, the product to be sold, the chain of supply, etc.
If you're aiming to sell physical products, one of the things you should consider before launching is whether you want to go the ecommerce way or the retail way.
In this article, we'll differentiate ecommerce vs retail, their benefits and disadvantages, and we'll also give you tips on how to quickly open your ecommerce business.
Key differences between retail and ecommerce
So, let’s start by exploring the 12 key differences between retail and ecommerce.
Differentiating factors | Retail | Ecommerce |
Location
| Retail stores have physical stores where they display their goods and interact with customers. | Ecommerce stores display images and descriptions of their products online. |
Cost
| It can be costly to open and run a retail store. You’ll need to pay rent, secure permits and licenses, renovate it to your taste, hire staff, etc.
| Opening and running an online store is less costly. You only need to invest in ecommerce software like Shopware, buy a domain, invest in digital marketing tools, etc. |
Operations and responsibilities
| This involves a lot ot manual work, such as:
Stocking shelves Managing inventory Setting up displays Assisting customers Handling transactions at the checkout counter Cleaning and maintaining the store Performing routine maintenance tasks like adjusting lighting or signage Processing orders, etc. | Here, most business operations and processes are handled automatically. This leaves very few human interventions to oversee tasks, such as:
Customer service Fulfilling orders Crafting marketing strategies and campaigns, etc. |
Risks
| These only look out for external theft in the form of shoplifting, break-ins, and some internal theft by employees, like pilfering, embezzlement, etc. | Ecommerce businesses are susceptible to internet-related threats like cybersecurity attacks and insider attacks from employees. |
Market size
| Retail stores have a limited market size because they are usually restricted by geography – unless they are a large retail brand. | These have a limitless market size because they are not restricted by geography and, therefore, can cater to customers from any part of the world. The only limiting factor is the business's shipping capabilities. |
Customer service
| Customers can speak face-to-face with employees to grasp the product's functionality.
| There’s no physical contact between the customer and the employees or business owner. They carry out customer service via online chat during work hours and with a chatbot after work hours. |
Convenience
| Retail stores don't offer a convenient method of shopping. The customer has to leave their house, transport themselves to the store, browse through the aisle to pick products and compare prices, walk to the checkout counter, and then begin the journey of going back home. | In ecommerce stores, customers can browse through different products and make a purchase from the comfort of their homes or anywhere else. |
Delay in distribution and return
| There's no distribution needed in a retail store. Instead, the customer makes payment and takes the product with them when leaving the store. They can also quickly return a product if they find it faulty and have it replaced within minutes. | It could take weeks or even months for a customer to get their purchased product. And it takes double that to return a product and have it replaced. |
Storage
| Retail stores store their products inside their physical stores and can sometimes have a warehouse if there are too many to enter the store. | DTC ecommerce stores keep their products in a warehouse from where they package and ship them to their customers. While dropshipping ecommerce stores leave the products in possession of the supplier (manufacturer or wholesaler) and only place an order to purchase products from the supplier after a customer makes a purchase. |
Time
| It can take between 3-6 months to open a retail store. | It takes less than three months to open an ecommerce store. |
What is a retail store and how does it work?
In business studies, we were taught that the production and distribution supply chain starts from the manufacturers to the wholesalers, then to the retailers, and finally to the consumers.
In the supply chain, a retailer is the final connection between a product and the end user – no matter the mode of distribution, but in business, a retail store is a “physical store” that sells goods to a customer.
A retail store is typically known as a brick-and-mortar store where customers interact physically with the business owners or employees while making a purchase. It ranges from large retail chains (like grocery stores or shopping malls) to smaller stores like pop-up stores, farmers markets, etc.
For a retail business model to work, you have to own a physical space, purchase your products from wholesalers, manufacturers or retailers, then display them in an appealing and easy-to-find manner. This product display often includes pricing, in-store promotions, etc. Afterward comes the actual sales translation process of exchanging the product for cash or credit card payments.
But it doesn't stop there; retail stores have to manage their inventory to make sure that the right products are stocked and replenished. And finally, there's the after-sales service, where retail store owners or employees provide post-purchase customer service like handling returns, exchanges, complaints, etc.
Benefits of owning a retail store
Direct customer interaction: A retail store allows you to have face-to-face interactions with your customers. It also enables you to foster relationships, build customer loyalty and give the customers the opportunity to provide immediate feedback to help you improve your business.
Immediate revenue and profit potential: Unlike some businesses that take time to generate income, retail stores can start making sales and generating revenue almost immediately after opening. Plus, with effective management and a solid business plan, you can make a good profit from a business store and not share this profit with franchises or corporate entities.
Flexibility: Owners can set their own hours and create a work schedule that suits their lifestyle.
Community inclusion: Retail sites can sometimes become an integral part of their communities. By engaging with the community members, you can build a solid customer base and rely on positive word-of-mouth advertising and referrals.
What is an ecommerce store and how does it work?
Alt text: A graphic featuring the question 'What is an ecommerce store and how does it work?' above an illustration of a computer monitor displaying a shopping cart icon.
An ecommerce store is an online version of a physical storefront. These stores purchase products from wholesalers or manufacturers and sell them to retailers or final consumers without any physical interaction between any of the parties involved.
They often store their products in warehouses and use pictures and descriptions to explain their products to their buyers. When a buyer makes a purchase, the ecommerce store ships it to the consumer either from the wholesaler/manufacturer (dropshipping) or from their warehouse (direct-to-customer).
They use personalization, automation and data analytics tools to customize their customers’ experience, automate business processes and track their customers’ behavior.
Benefits of owning an ecommerce store
Lower overheads and higher profit margins: Ecommerce stores have lower operating costs because they operate online. Running costs like rent, utilities, and in-store staff are minimized or eliminated.
Wider customer reach: As there are no geographical limitations, ecommerce stores can sell to customers in any part of the country. Which, in turn, leads to an increase in sales potential and market presence.
Convenience: Ecommerce stores can operate 24/7, thereby providing their customers the convenience of shopping at any time and from anywhere. This flexibility can, again, lead to higher sales as customers are not restricted by store hours.
Automation: Many aspects of an ecommerce business can be automated, from order processing to customer service. This automation improves efficiency and allows owners to focus on growth strategies and customer engagement.
Factors to consider when choosing between retail vs ecommerce for your business
When deciding between retail and ecommerce, businesses must weigh several key factors that can significantly impact their success.
Business model
When choosing between ecommerce vs physical retail, you have to consider how the business will create and deliver its products. You have to consider who your target audience is, how they prefer to shop online or interact with products, etc.
For instance, a retail store might be better if your product relies on physical interaction and immediate access, like a restaurant. In comparison, an ecommerce store is best for target audiences that will prioritize convenience and for products that cannot be restricted by geography.
Startup costs
Before you decide if you should open an ecommerce vs retail store, you have to consider how much it'll cost you to open and sustain either of them.
Retail stores are generally more expensive to manage than ecommerce stores. So, don't forget to consider where your startup cost is coming from and if you can sustain the business if it takes some time before you make a profit.
If you want to open an ecommerce store, don’t forget to take into account the ecommerce software you’ll be using. Will you go open-source or in-house? How much is the subscription fee, and how much will it cost to hire developers to customize this software if you decide to go open-source?
Market size
Before choosing between ecommerce vs retail, you need to write detailed demographics about your target audience. This will reveal the physical location of your target audience, the purchasing power, their pain points, etc.
If your customers are not in the same geographical territory as you, then you might consider opening an ecommerce store online. On the other hand, if your products are needed by passers-by or tailored to the culture of a particular region, then you should consider opening a retail store.
Note that some retail stores sell products that a global audience can use. For example, fashion stores, beauty stores, bookstores, department stores, and electronics retailers.
Timeline
You have to consider a launch date or month when choosing between retail and ecommerce businesses vs retail.
If you want to launch in, say, three to six months, then you can consider opening a retail store. This is because it takes time to find the right store location, secure permits and licenses, renovate the physical store to suit your taste, hire and train staff, etc.
On the other hand, opening an ecommerce store takes less than three months to start (depending on the scale of the business). This is because there are no physical stores that take up time. Instead, all you need is to choose an ecommerce platform, customize it to your brand's needs, upload your products and start marketing.
4 ways to quickly open an ecommerce store
Now that you know the difference between ecommerce sales vs physical retail, if you decide to open an ecommerce store, then here are four quick ways to open your ecommerce business in less than a month.
1. Choose what to sell
To open an ecommerce store, you need to know what products you want to sell to your customers. Here, you need to research good business opportunities, product ideas and trending ecommerce business ideas. You don't have to create a new product from scratch; you can improve an existing one to stand out from the competition.
2. Evaluate your product idea
Once you've decided on a product idea, think of how you will sell it. Is this product idea salable? Is there a ready target audience demographic that needs your product, or do you have to start from scratch to build an audience for it?
How will you have access to the product? Will you design and manufacture it yourself, or will you get them from a supplier? If it's the latter, how much will the supply sell it for you, and how much will you sell to your customers to ensure maximum gain and still be at a competitive price range?
Ask yourself these questions to really understand if your product will be a success or otherwise. Don't forget to do thorough market research on your competitors and try to discover what they're not doing right so you can make it better.
3. Brand your business
Now it's time to choose a logo, brand colors, font types, brand voice and messaging, brand story, packaging designs, etc. This will set you apart in the competitive online marketplaces and make it easier to attract and keep customers.
4. Choose an ecommerce platform
After you've evaluated your products, it's time to choose an ecommerce platform where you can launch your online store. There are different ecommerce stores available, but make sure that you choose one that allows you to customize your designs to match your company's branding and sales process.
Also, choose an ecommerce software that easily integrates with third-party software like payment gateways, shipping carriers, inventory management systems, and marketing platforms so you don't have to manually perform these tasks.
Launch your ecommerce business on Shopware
Shopware is an ecommerce platform that offers advanced customization, flexibility and third-party integrations to help you start and scale your ecommerce store.
It offers a no-code feature called Flow Builder that allows you to design business automation processes to make it easy to run your ecommerce store. This enables you to define tasks and trigger their execution according to predefined business events.
For instance, you can separate customers and orders into specific categories through tags, create individual emails based on these tags, generate invoices and other documents, manage order statuses and payment procedures, offer custom delivery options, etc.
Plus, you can send data to third-party systems via API integration, automate interactions with suppliers, and even set up event-based notifications to alert your staff to online transactions and purchases.
Shopware also offers features that will help you improve your customers' experience. An example is our spatial 3D and AR capabilities, which enable you to create an immersive shopping experience for your customers. With this feature, you can give your customers a realistic view of the product, which, in turn, increases customer satisfaction and trust and reduces the return rate.
Furthermore, Shopware offers a digital sales room to help you increase your sales conversions. This functionality enhances your customers' buying experience by establishing an interactive sales area where you can engage with them, address product inquiries, offer guidance, and make recommendations. It gives a human connection to your online sales process and helps you increase your conversion rates.
Shopware also offers:
A subscription feature that will help you retain customers.
Omnichannel sales to keep you connected with your customers on all channels.
An AI feature that helps you generate content.
Search engine optimization so you can be in front of your customers at all times.
Language translation so you can sell to a wider audience demographic, among other features.
Interested? So, why not take the next step and request a personal consultation with Shopware? Contact us today!
Conclusion
Both retail stores and ecommerce stores aim to sell products or services to customers and satisfy their needs, but what differentiates them is their mode of operation. Retail stores carry out sales transactions in physical stores, while ecommerce stores do theirs online.
Note that you can decide to open both online and brick-and-mortar stores if you have the budget, expertise and time. We advise that you start with an ecommerce store first, generate some revenue, and then gradually open retail stores.
Don't forget that good ecommerce software is paramount to the success of your ecommerce business, so contact us to discover how we can help you scale your new business.
Frequently Asked Questions
What is the difference between retail and ecommerce?
The main difference between retail and ecommerce is the purchasing environment. Retail involves selling goods through physical stores, while ecommerce involves selling goods and services through online stores.
Is ecommerce bigger than retail?
While retail still holds a large portion of total sales, ecommerce is becoming a dominant force – especially in certain product categories like electronics, fashion, books, and home goods. And among younger, tech-savvy consumers. Their size comparison can also vary by region and industry, but the trend shows ecommerce continually gaining ground on traditional retail businesses.
What is the difference between ecommerce and local business?
The main distinction between ecommerce and local businesses lies in their operational modes. Ecommerce involves the buying and selling of goods or services via online platforms, providing customers with the convenience of shopping anytime and access to a wider variety of products. Conversely, local businesses operate from physical locations and cater to customers within a specific geographic area, offering the advantage of immediate product availability and personalized, face-to-face customer service.
Is ecommerce considered retail?
Yes, ecommerce is considered a form of retail. Depending on the business model, it may involve selling goods and services directly to consumers, just like traditional retail, but through online platforms rather than physical storefronts.
