Online retailers continue to grow in popularity and profitability, accounting for nearly 21% of retail sales worldwide. But that’s not to say physical retail stores are falling behind.
The National Retail Federation (NRF) found that retailers opened physical stores at a more rapid pace than expected after the pandemic. Brands like Target, DSW, and Macy's have seen success in opening smaller footprint stores, like showrooms and popups, as shoppers' return to brick-and-mortar in 2023.
Both retail and ecommerce businesses sell products or services to an individual consumer. But the way retail sales are made is quite different from the way ecommerce sales are done—and the advantages and limitations are different, too.
Table of contents
- What is difference between ecommerce and retail?
- How do retail sales work?
- How do ecommerce sales work?
- Retail vs. ecommerce for consumers
- The difference between retail and ecommerce
- What to consider when choosing between retail and ecommerce for your business
- The benefits of an omnichannel approach
- Get started with Shopify today
What is difference between ecommerce and retail?
Ecommerce is the buying and selling of goods and services online, while retail is the buying and selling of goods and services in physical stores. Ecommerce offers the convenience of shopping from home, while retail offers the experience of shopping in a physical store.
Additionally, ecommerce usually has lower overhead costs than retail stores, allowing for lower prices and more competitive prices.
How do retail sales work?
Retail sales are sales made in physical stores using a point of sale (POS) system. Brick-and-mortar retail includes everything from large retail chains—like shopping malls and grocery stores—to smaller, individual-led stores (think pop-up shops and farmers markets).
Retail stores use a business model that relies on a supply chain—and they’re the last link in that chain before the products or services reach customers. Goods go from manufacturer to wholesaler to distributor to brick-and-mortar store to, finally, consumer.
How do ecommerce sales work?
Ecommerce business sales are those made digitally. Purchases online can be made via ecommerce stores or social media.
Compared to their retail counterparts, ecommerce business models typically have less steps in their supply chain. That’s because online retailers have more options when it comes to stocking and shipping their goods.
Two of the most popular methods are dropshipping and direct to consumer (DTC). With dropshipping, an ecommerce business sells products that are stocked and shipped to consumers from a third party. By comparison, DTC is when goods are sold directly to consumers without the involvement of wholesalers or third-party retailers.
Retail vs. ecommerce for consumers
Shopping in a retail store means traveling to a dedicated brick-and-mortar location, browsing items, completing a purchase with the help of a salesperson, and then taking the goods home.
On the other hand, shopping online has many potential entry points. A consumer can navigate directly to a favorite online retailer, or find a new retail store online via a digital marketing campaign or a suggestion on social media. They then browse for the products they want, compare prices, make a purchase, and wait for those products to be shipped to their home.
Making the decision between which is the best fit comes down to the type of shopping experience the customer prefers, the level of customer service engagement desired, and which shopping experience is more convenient for a customer’s lifestyle.
The shopping experience
- How they’re similar: Both retail and ecommerce businesses rely on tactics like merchandising and curation to enhance the shopping experience and display products in an appealing way. Brand identity also plays an important role in both mediums as a way to establish familiarity and consistency.
- How they’re different: Online, shoppers have to rely on things like product descriptions, imagery, and reviews to make their decisions. They can also do a bit more research and compare prices for different items across different online retailers.
In a physical retail store, however, shoppers can physically touch and interact with products or services. For example, a customer can sit on a mattress to make sure it’s comfortable or try on shoes to ensure they’re true to size. Data suggests this tactical approach can make consumers feel more confident in their purchases: An estimated 20% of items purchased from online retailers are returned, compared to just 9% of items bought from physical stores.
- How they’re similar: Both retail sales and ecommerce sales leverage customer service to resolve issues for customers, answer questions, and provide help with returns and any post-purchase concerns.
- How they’re different: Physical stores offer proactive customer support via sales associates who greet customers, offer help while they’re perusing goods, and assist with checkout once they’re done.
Ecommerce customer service is more reactive: Customers don’t necessarily need to interact with customer service agents to complete their purchases. Still, a good customer support team will be easy to reach via multiple channels like email, live chat, and social media.
- How they’re similar: All online retailers and many brick-and-mortar stores offer shipping. The latter depends on the type of retail store—larger items like furniture are typically shipped, and some retail locations will also offer to ship items to you that are out of stock in-store.
- How they’re different: Shopping online is built around convenience—armed with a computer or smartphone, it’s possible to shop whenever from wherever, easily. And getting to a physical store can be more time consuming. The minutes or hours spent traveling and finding parking can be a time investment.
There’s a monetary investment too—whether paying for transportation by subway to get to a shop or paying for the gas to get there. Still, physical stores offer a sense of instant gratification, since there’s usually no wait for your items to ship—you typically get them then and there.
Retail vs. ecommerce for businesses
For business owners, choosing between a retail business and ecommerce sales depends on what they’re selling and who they’re selling to. There’s a big difference between an individual selling a few products on their own and a larger, more established business selling hundreds of products to an established base.
Deciding between a retail business and an ecommerce business comes down to understanding specific factors for your business: the initial cost of investment, scope of business operations, and the ability to sell products via multiple channels.
Investment level and cost
- How they’re similar: The investment level for both retail and ecommerce businesses relies on a variety of factors such as the initial startup costs and the scope of products or services—namely, whether you’re selling a handful of items or hundreds.
- How they’re different: Getting an online store up and running is typically less costly than investing in a physical store. The former requires investing in an ecommerce platform, domain hosting, and digital marketing tools, among other things. A brick-and-mortar retail business, however, is a lot more costly and labor intensive. Among the considerations for these new business owners are rental or leasing costs, annual insurance, marketing costs, and more.
- How they’re similar: Both physical stores and online stores rely on business operations to keep an eye on inventory and track costs.
- How they’re different: Brick-and-mortar stores can require a lot of manual work. And that work adds up: costs include hiring employees, maintaining inventory and space, and contending with changes in supply and demand.
On the other hand, ecommerce business retail operations can largely be automated with a variety of ecommerce tools. These tools help streamline tasks, from day-to-day inventory management to season-long digital marketing campaigns.
Manage your inventory with confidence
Only Shopify POS helps you manage warehouse and retail store inventory from the same back office. Compare inventory costs to revenue, see which items are selling out or sitting on shelves, forecast demand, and more.
Risks and limitations
- How they’re similar: All online retailers and many brick-and-mortar stores open themselves up to the risk of liability associated with the use of their products. Theft and return fraud are also a risk for both.
- How they’re different: While theft can happen to both physical and online businesses, it can take different forms. Retail stores need to look out for external theft in the form of shoplifting in particular, while ecommerce businesses might be more on the lookout for internal threats. Online businesses tend to be more at-risk for data breaches, though physical retailers aren’t immune to this threat.
Retail and ecommerce business models each have their own set of risks and limitations. However, both need to be on the lookout for theft, data breaches, and fraud.
What to consider when choosing between retail and ecommerce for your business
Ultimately, business owners choosing between retail and ecommerce businesses have three main considerations:
Certain business models are better suited to retail, while others are better suited to ecommerce. So it’s important to ask questions to help make that determination upfront: Will you be using a wholesaler and distributor? Selling directly to consumers without a third party? Selling products you’ve made on your own?
Starting any business can be expensive. After figuring out the budget, calculate the overhead and other costs of leasing and running a physical store versus that of using an ecommerce platform like Shopify. Remember: You can always scale up in the future.
Size and scope
Speaking of scaling, consider the business’s size and the number of goods and services being offered. Depending on that answer, you may choose retail, ecommerce, or some combination of both. Think about it this way: You could start a small ecommerce shop for your handmade candles and also offer them at a one-off neighborhood pop-up.
The benefits of an omnichannel approach
In 2023, it’s less about separating retail and ecommerce business and more about integrating the different channels into a single, omnichannel customer experience. Omnichannel is essentially a fancy way of saying consumers can find products both in-store and on a dedicated version of that store online. Today’s shoppers don’t shop online or in-store only, most use a variety of digital and in-person channels to complete their purchase.
Nearly 50% of brands say unifying online and in-store operations and data will be their biggest challenge over the next year. But businesses that successfully adapt with a unified commerce strategy set themselves up for success.
Both retail sales and ecommerce sales improve when products are offered across multiple channels. This means giving consumers multiple touchpoints—whether engaging through social media, customer reviews, or email marketing—so they can find and purchase products with ease.
In fact, almost all major brick-and-mortar stores offer omnichannel retailing. Most ecommerce stores offer multichannel retailing, meaning they sell products across a dedicated ecommerce site via social media and mobile app.
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Although retail sales and ecommerce sales have a lot in common, they ultimately make for very different experiences—both for customers and business owners. Finding the best fit for the products or services being offered will depend significantly on the business model chosen, start-up costs budgeted for, and the size and scope of the business.