Physical Stores vs. Online Stores: What's the Difference?

Ecommerce continues to influence the best business practices for retailers of all kinds. However, both physical stores and online stores remain important drivers of sales, each with unique strengths. If you're interested in learning about the key strategic differences between the two, you might benefit from reviewing the considerations retailers make when developing business models. In this article, we define physical and online stores and review how they differ.

Related: How To Start an Online Business in 5 Steps

What is a physical store?

A physical store, often referred to as a brick-and-mortar store, is a retail environment that requires physical space to display and sell products. Physical stores can be free-standing structures, tenants in a mall or shopping center or linked to venues such as museums, public attractions or residences. Physical stores employ retail employees who educate and assist shoppers while maintaining the store's appearance and inventory.

Some stores rely more on window-shopping when people pass by and become interested enough to browse products. Others serve clients with specialized needs and remain relatively unknown to the rest of the public. For instance, a candle store in a mall attracts shoppers with its displays and fragrances. A swimming pool supply store may not be in a visible location, but its customers reliably return for its niche products.

Physical stores could be independent businesses or franchises. Independent businesses target local customers, while franchises can rely on widespread brand recognition to drive business.

Related: What Is a Brick-and-Mortar Store?

What is an online store?

An online store is a shopping website where customers can browse and order products. Online stores can have dedicated web domains, or they can have web pages on social media sites or online marketplaces. Companies can run an online store as one aspect of their business model, or they might entirely rely on it. Online stores also allow individuals to operate businesses without having to rent space or deal with the overhead of physical retail. Online stores can serve a global population as long as they're willing to ship internationally and navigate other countries' regulations.

Physical stores vs. online stores

Here are key comparisons between physical stores and online stores:

Business benefits

Businesses make a strategic choice when deciding whether to use physical stores, online stores or both. The nature of products sold, clientele, business location and size of the company all affect which approach a business takes.

Benefits of physical stores can include:

• Customer service: Shoppers often value input from sales associates when shopping.

• Product clarity: Customers can touch and see products in person, resulting in less confusion or dissatisfaction with purchases.

• Adaptability: Some products, such as cars, are difficult to shop for online. Physical stores can sell large, complex and expensive goods, or they can sell small, straightforward and inexpensive items.

• No shipping: Consumers save the additional cost of shipping and take their products home right away.

• Simpler return process: Returning products bought online might require repackaging, printing labels, visiting a post office and waiting for money back. Physical stores make returns simpler and quicker.

The typical benefits of online stores are:

• Profitability: Because of the much lower overhead, online stores usually offer higher profit margins.

• Liability: Online business owners aren't liable for following a mall's operational guidelines or for sales associates' work environment.

• Reach: Online stores can reach an almost unlimited customer base.

• Customer info: Online stores can gather a large amount of information about shopper habits by reviewing most-visited pages and most-viewed items. They also receive email and residential addresses to use for further marketing.

• Simplicity: Online stores have the potential to be incredibly simple. Online business owners can sell items they keep in their home and do the shipping themselves, or they can rely on a third party to fill orders without having to do physical labor.

• Low barrier to entry: It's much easier and cheaper to purchase a website address than it is to open a physical store. If sales are slow, the business faces less risk because there's not necessarily rent or employee wages to pay.

Related: 10 Different Types of Stores

Marketing approaches

Physical stores' marketing approaches largely depend on whether they are independent businesses or franchises. Independent businesses often develop local advertising strategies, relying on local publications, radio stations, signage and word-of-mouth. They also might use loyalty rewards programs to gain a competitive edge after making an initial sale to a customer. Franchises, however, often have regional or national recognition that makes them the default choice for a certain product.

Online stores typically rely on a mix of social media, online publicity and paid advertisements to market to customers. Targeted ads allow online stores to advertise to their ideal demographic, making marketing easier. If an online store can gain recognition through a creative social media presence, it may spend substantially less on paid advertisements. Online publications that write product recommendations also seek unique online retailers to share with readers.

Related: How To Create and Improve Your Online Presence

Related costs

Physical stores often have greater overhead, raising the cost of doing business. Contributing factors include:

• Rent

• Employee wages, benefits and payroll taxes

• Utilities

• Maintaining inventory

• Local advertising

• Business licenses and permits

• Display fixtures and decorations

• Owning a web domain

• Cleaning and maintenance

• Insurance

• Computers and point of sale technologies

Businesses that own online stores might be large enough to require production and storage facilities staffed by a team of employees. If so, many costs overlap with those of physical stores. Assuming a business is relatively small, associated costs might include:

• Web domains or online marketplace fees

• Online advertising

• Web maintenance and design

• Third-party order fulfillment

• Inventories or the resources to complete orders

• Business licenses

• Payment processing services

Hours of operation

Physical stores typically have set hours of operation and might close during holidays or on certain days of the week. This limits when sales can occur and require communication between the store and the public. Customers can access and purchase from online stores at any time, enabling more sales and greater convenience.

Customer experience

Physical stores attempt to provide an enjoyable customer experience by educating sales staff, creating engaging displays and encouraging customer interaction with products through sampling or demonstrations. Talented sales associates help drive business by establishing strong customer bonds that lead to repeat business. A physical store might spend considerable money on seasonal or promotional decorations that attract window shoppers or on designs that make a store seem sleek and attractive.

Online stores create a customer experience with creative content posted on social media and uniquely designed web pages. Online stores must have an intuitive layout so visitors can find what they're looking for and clearly view the products they're considering. Online stores also have to plan for how to handle returns or customer questions. They usually offer customer service via email or phone.

Related: Learn About Being a Retail Store Manager

Operational flexibility

Typically, physical store owners have to commit to a space and make regular sales or face closure. Moving locations to cut costs can be a major challenge, as it risks losing business gained from a convenient or appealing location.

Online stores can adapt much more easily. Online businesses usually avoid interrupting their operations, but if a site owner wants to change domains or take time to redesign their website, the financial consequences are less severe.

Competition

Physical stores have to compete both with similar stores in their geographic area and, in many cases, with online retailers. Business models that rely on physical stores have to consider if their product sells better in person than online to ensure demand is sustainable.

Online stores have to compete with the major online marketplaces that can usually offer low prices and faster shipping. The online stores that can offer unique products sold nowhere else are therefore better suited to succeed.