Ecommerce vs. Retail: The Real Differences for Businesses and Customers

Ecommerce sales have bloomed over the last decade, jumping from around 4% of the total U.S. retail market to 15% — equalling a sales jump of nearly $1.4 trillion. However, even with the increasing move to online retail shopping and ecommerce, the presence of physical stores has not subsided.

In fact, one of the surprising trends of the post-pandemic world is the return of the brick-and-mortar retail location. To many customers, the physical store is an opportunity away from the house — and away from the computer.

As ecommerce continues to grow in relevance and size — and as traditional retail stores make their comeback — up-and-coming businesses find themselves in an exciting predicament.

Should they choose retail or ecommerce?

The primary difference between retail and ecommerce lies in their respective locations.

Retail generally refers to sales made within physical or brick-and-mortar stores. These stores are the more traditional option and can range from smaller mom-and-pop shops to larger retail chains like Walmart.

Ecommerce refers to sales made over the internet or through digital procurement. These sales typically derive from online marketplaces such as Amazon, eBay and Etsy, as well as various proprietary ecommerce platforms.

Market size.

Despite the effects of the 2020 pandemic, both the ecommerce and retail markets have been growing. From 2020 to 2021, ecommerce online sales increased by 14.2%, while total retail sales reached a similar 14% jump.

No matter which option you select, the potential for success is immense.

When choosing to pursue either an ecommerce or retail business, be sure to consider their differences, including:

Investment needed.

The initial investment will always be a concern when creating new businesses and there are things you must ask yourself.

What are the startup costs involved? How long will the takeoff process be? How connected are you to relevant supply chains? Are you interested in techniques such as dropshipping?

These questions must be answered before any business decision can be made — and they’re often difficult to parse.

Retail

For retail, the investments needed are more substantial than with an online enterprise.

It will likely become more expensive and laborious, as you will need to figure out real estate costs — including renting and leasing— as well as maintenance overhead and the price of marketing outside the store.

Ecommerce

On the other hand, one of the significant advantages of ecommerce is the relatively low costs involved for startup. Ecommerce requires a website, an ecommerce platform and marketing tools — all of which often come within a single package.

Operations complexity.

Establishing business operations is one of the first moves a business will need to undergo, from maintaining inventory to managing expenses.

Retail

Retail stores, regardless of size, typically require more operational complexity. Not only will you have to manage the business side of affairs, you will also need to consider the logistics of hiring and retaining on-site employees and handling the maintenance of your real estate.

Ecommerce

With ecommerce, much of the operational process can be automated through the use of ecommerce tools, simplifying the day-to-day operations of your business and freeing up time to devote to different profitable ventures.

Total cost of ownership.

The total cost of ownership (TCO) involves reviewing the often overlooked aspects of maintaining a business, from purchasing and implementation costs to maintaining a website or physical store.

Retail

With retail, much of the overlooked costs come from the maintenance of the physical store. These expenses can range from rental fees and business insurance to smaller items such as the cash register or POS terminal.

Ecommerce

For ecommerce businesses, calculating the TCO is primarily centered around the day-to-day operations of your website. This includes maintaining the domain name, subscription fees from an ecommerce provider or developer, as well as broader marketing efforts involving advertising campaigns and social media outreach.

Omnichannel selling.

In the modern shopping world, offering sales across multiple channels has become increasingly popular, coalescing to create the omnichannel approach.

Omnichannel selling involves offering products and services across disparate channels, from classic brick-and-mortar stores to online platforms.

Retail

Most medium-sized to larger retailers now offer omnichannel retailing, as collaboration between the online and offline world has rapidly become a necessity for businesses. Despite the benefits involved, omnichannel does add additional complexity to your business operations.

Ecommerce

For ecommerce businesses, omnichannel has become nearly the default business model. By offering options across channels beyond the online store itself — including social media and smartphone apps — ecommerce provides an all-in-one, inclusive business model.

Risks and limitations.

Of course, with any unique business model comes certain risk and limitations — and neither retail nor ecommerce is free from them.

Retail

With retail, the risk and limitations are far more known, with theft a historical example. However, even in the modern age, there are significant obstacles to retailing success, most of them centered around the idea of modernization.

As online and ecommerce businesses have taken off with the advent of new technologies, physical stores have been forced to keep up. Business owners must ensure that they can compete with ecommerce stores regarding product availability, shipping timelines and customer satisfaction.

Ecommerce

For ecommerce, the central risk surrounds security. Data breaches have been a recurring issue for online platforms in recent years, as hackers and ill-doers have grown more capable of hacks and security attacks.

When establishing an ecommerce business, it is critical that maintaining data integrity and fidelity is of the utmost priority. If not, the customers you have won’t remain for long.

While the rise of ecommerce and online shopping as an alternative option has proven to be wildly successful, that doesn’t mean that retailers have ended as a viable option for consumers. In fact, there are still many benefits solely associated with the physical process of going in-store to purchase products yourself.

When deciding whether to pursue ecommerce or retail, consider the following:

The shopping experience.

The shopping experience is the defining obstacle between a successful and a failed business venture. How simple is shopping, how easy is making a purchase and how likely are shoppers to return?

Among other things, merchandising, curation and marketing strategies are used to improve the shopping experience through the use of product displays, advertisements and even demonstrations.

Retail

With the physical retail store, the shopping experience is the primary separator and where these businesses can make their name. Here, shoppers can physically interact with products and services, offering an in-person glimpse into the capabilities of your business and hopefully enticing them to purchase.

Physical stores can best compete with online platforms by offering an exceptional shopping experience.

Ecommerce

For ecommerce, crafting a positive shopping experience can be more difficult since, unlike the retail store, customers cannot physically interact with products.

However, through the use of digital marketing techniques such as email marketing, product descriptions, images, videos and even customer reviews, ecommerce businesses can offer a glut of information to make the experience as close as possible to the real thing.

Customer service.

Providing excellent customer service is another defining feature of a successful business, whether offering real-time support, resolving customer issues or delivering help with returns and other problems that may arise.

Retail

Due to the nature of the business model, retail stores are able to set themselves apart through quality customer service and direct interactions with customers.

The benefits of actual human interaction can’t be understated. Instead of dealing with the potential issues of a chat platform or even support over the phone, any questions you have can generally be answered by a real-life sales associate.

Ecommerce

While retail has the benefit of human interaction, ecommerce can set itself apart with more extensive support options. Instead of being limited by store-hours, many ecommerce sites provide 24/7 customer support through multiple channels, including email, social media and live chat.

Convenience.

At the end of the day, what many shoppers are looking for is simple convenience: how can the shopping experience be easier, faster and more successful?

Retail

Retailers find themselves at a disadvantage when it comes to convenience — but that doesn't mean there are options available to help.

Through the assistance of sales associates, as well as conveniently placed advertisements, retailers can make shopping a much more pleasant customer experience, combined with the human touch.

Ecommerce

Ecommerce shopping is built around the convenience model — whatever you want to purchase, and whenever you want to do it. By providing an easy-to-use ecommerce website and a streamlined mobile app, businesses can make the shopping experience as simple as pressing a button.

When making the final decision whether or not to expand into retail — even after all of these considerations above — there are a few primary things you must consider, including:

Size of your business.

Make sure to consider the size and scope of your business before making any substantial changes.

If you are a smaller company whose products aren’t best suited for an online model, then perhaps ecommerce isn’t the right path for you. However, if you are a growing company that already has a significant presence online or plans to, then an ecommerce model could be advantageous for your growth.

Ultimately, it all comes down to the scale you hope to reach. If there’s a path ahead, the decision becomes that much easier.

Cost.

As with any significant business decision, you must ensure that the potential costs aren’t prohibitive. Any ecommerce platform you plan to use — whether in-house, open source or SaaS — will come with various costs, from startup expenses to subscription fees.

Before undertaking such an ecommerce project, make sure that you have the budget capable of handling it and any associated costs.

Business model.

When deciding to transition from retail to ecommerce, consider if your current business model is suitable for the task.

Are you a business-to-business (B2B) or consumer-to-consumer (C2C) company? If so, the different types of ecommerce might be right up your alley. What about business-to-consumer (B2C)? Again, it could certainly work well.

However, if your business is predicated on ideals surrounding customer service, then ecommerce may eventually end up hurting your business if it cannot adapt.

When choosing between ecommerce and retail, the good news is that there are advantages to both avenues of business and the answer to which one is best ultimately depends on what your business is hoping to accomplish.

By understanding your business model and aspirations, you can take the first action toward deciding the best plan of action. Remember, this is a golden opportunity — it’s just up to you to determine what step to take first.