Retail businesses are changing dramatically. Some companies operate solely online, others only in brick-and-mortar locations, and many combine the two. As an investor, it's important to understand why brick-and-mortar retailing matters and what makes it different from e-commerce.
What does brick-and-mortar mean?
What does brick-and-mortar mean?
Brick-and-mortar refers to any business that's in a physical location, as opposed to living strictly online. The name comes from the fact that traditional retail shops on main streets or town squares were largely housed in brick buildings. So, when you conjure up the thought of a traditional store, you might think of a shop in a commercial district instead of thinking of a big-box store.
It's the opposite of an e-commerce store where everything is online, shipped out of warehouses, and sent through multiple logistics hubs. Brick-and-mortar stores operate very differently than e-commerce establishments, with a focus more on customer service than efficiency.
Types of brick-and-mortar businesses
What types of businesses are brick-and-mortar?
Any business can be a brick-and-mortar business if it's in a physical location. Although we often think of commercial retailers when we think of brick-and-mortar businesses, really anything from banks to restaurants can be considered brick-and-mortar these days. Here are a few examples of brick-and-mortar operations:
- Banks: We don't generally think of retail banks as brick-and-mortar businesses, but since they have a digital opposite, it's pretty safe to say that in-person banking is a brick-and-mortar business. You might get a loan, apply for a checking account, or buy a certificate of deposit to help increase your savings yield at a brick-and-mortar bank.
- Pharmacies: The rise of online pharmacies has driven home the idea that pharmacies are also members of the brick-and-mortar squad. Like other brick-and-mortar retailers, pharmacies provide very customized services that are difficult to duplicate online.
- Retailers: E-commerce was where the phrase brick-and-mortar really originated, meant as a way to distinguish physical shops from purely online businesses. Brick-and-mortar retailers are still a great place to see items in person, especially items that require trying out before you take them home, like sofas, clothing, or shoes.
- Restaurants: As ghost kitchens continue to catch on, it's important to differentiate restaurants that serve diners from places that operate on a delivery-only basis. Their business models are very different, and aside from both serving food, ghost kitchens have little in common with brick-and-mortar restaurants.
- Veterinary clinics: Medical care is increasingly going online, but you can still get an old-fashioned hands-on assessment at a brick-and-mortar vet clinic. Although it's often faster to get your pet's issues dealt with online, an online vet can't always see the whole picture.
Why they matter to investors
Why does brick-and-mortar matter to me as an investor?
As an investor, knowing if you're investing in companies that are brick-and-mortar, e-commerce, or a hybrid of the two makes a huge difference in how you look at financial statements, among other things.
For example, same-store sales isn't really a metric you can use with e-commerce in any effective way. For a brick-and-mortar retailer, however, it's a really important metric that can indicate which locations are doing great and which are in need of a tune-up or should be closed due to a lack of interest.
But you may also be interested in companies that have brick-and-mortar locations because you want to buy companies that are more focused on customer care rather than sales efficiency. It seems to take both to make the diverse world of retail really go 'round, but you still get to choose which you find most effective and important.
Related investing topics
Brick-and-mortar vs. e-commerce
Brick-and-mortar versus e-commerce
It's rare to see brick-and-mortar used as a term when e-commerce isn't somewhere lurking in the shadows. The two are closely related but entirely different. Both have their advantages and disadvantages for consumers, as well as owners.
Brick-and-mortar shops, for example, are great places for customers to try out products before they buy them. Even so, they can be costly to operate since they require more in-stock inventory, physical space in which to display it, multiple employees who may only be able to cater to one or two customers at once, and have limited hours for customers to browse.
E-commerce locations, on the other hand, are extremely efficient, relying on descriptions of products to help the customer choose what they're looking for, and are open 24/7 for customers to buy things whenever they want.
For customers, being able to take a product home immediately is a great advantage to brick-and-mortar stores, so they may be willing to pay more for the item than they would if purchased online. Most brick-and-mortar retail stores now have some amount of e-commerce hybridization, allowing them to serve customers all day and night and offer an expanded catalog of products that complement the ones in the shop.
