Oops! Something went wrong while submitting the form.
Start a Free Trial
See your data in HubiFi < 2 days
Understand how "Rent is the New CAC" is reshaping retail strategies. Learn to balance digital and physical spaces for effective customer acquisition.
Acquiring customers online is getting pricey. Like, really pricey. Have you noticed how much you're shelling out for ads these days? It's starting to feel a lot like paying rent for a prime retail spot, right? Well, you're not alone. The idea that "rent is the new CAC" is taking hold, and it's changing how we think about online marketing. This isn't just some abstract concept; it's the reality retailers face as digital marketing costs climb. In this post, we'll break down why "rent is the new CAC" matters, how it impacts your business, and what you can do to adapt. We'll explore how to balance your online and offline strategies, leverage physical retail to your advantage, and ultimately, make every marketing dollar count.
"Rent is the new CAC" is a concept gaining traction in retail. It describes how the cost of acquiring customers online (customer acquisition cost, or CAC) is becoming as significant and unavoidable as paying rent for a physical store. Think about it: brick-and-mortar stores have always considered rent a fixed cost, a necessary expense to access customers. Now, digital marketing expenses are reaching similar levels, forcing brands to rethink their strategies. This shift underscores the increasing expense of reaching customers through digital channels like paid search and social media ads. As competition intensifies in ecommerce, these costs continue to rise. Shopify's article featuring insights from retail experts highlights how these digital costs are approaching the costs of physical retail spaces.
This doesn't mean digital marketing is ineffective, but it does mean businesses need to be smarter and more strategic with customer acquisition. Just as retailers carefully consider location and lease terms for a physical store, they now need to apply the same scrutiny to their digital marketing spend. One key takeaway from Better Everyday is the importance of an omnichannel approach, blending online and offline strategies to mitigate rising online customer acquisition costs. This means looking at physical retail not just as a cost center, but as a potential driver of customer acquisition and engagement, much like your digital marketing efforts. Industry experts suggest that the future of retail lies in integrating online and offline strategies, using physical stores as showrooms to enhance the online experience and viewing a physical presence as a strategic asset for customer acquisition, as discussed in this Digiday article.
The cost of acquiring new customers has changed dramatically. Calculating acquisition costs used to be straightforward for traditional retailers—factoring in advertising, marketing campaigns, and maybe some flyers. Now, it's become significantly more complex. For online businesses, the playing field is crowded, and grabbing attention is expensive. Competing for eyeballs on social media, search engine results, and online marketplaces requires serious investment. This increased online competition has pushed customer acquisition costs (CAC) way up, sometimes even rivaling the cost of renting a physical storefront, as noted in a Shopify article discussing how rent has become the new CAC. This shift has led many to rethink their strategies and explore new ways to connect with customers.
Several factors contribute to this rise in CAC. The sheer number of businesses vying for customer attention online is a major driver. As more companies move online, competition for ad space and visibility intensifies, naturally driving up prices. This makes it harder for newer businesses to gain traction and requires established brands to invest more to maintain their market share. Digitally native brands, in particular, are feeling the pressure, as highlighted by Better Everyday. The strategies that once gave them a cost advantage are becoming less effective, and the need for a more blended marketing approach—one that combines online and offline strategies—is becoming increasingly clear. The evolving media landscape also plays a role. With so many platforms and channels available, reaching the right audience with the right message is more challenging than ever. This fragmentation forces businesses to spread their budgets across multiple channels, often with diminishing returns.
The comparison between digital CAC and retail rent is becoming increasingly relevant. While the cost of physical retail space has always been a significant expense, the rising cost of digital customer acquisition is starting to look remarkably similar. As noted by Digiday, "rent is the new CAC." This means that the cost of acquiring a customer online is now comparable to, and in some cases even exceeding, the cost of renting a physical store. This realization has led many businesses to reconsider the role of physical retail in their overall strategy. Instead of viewing physical stores solely as a cost center, businesses now see them as a potential tool for customer acquisition and brand building. This shift in perspective is changing the retail landscape and creating new opportunities for businesses that can effectively integrate online and offline experiences. Think of a physical store as another touchpoint in the customer journey, a place to create memorable experiences and foster deeper relationships. This approach can lead to increased customer loyalty and, ultimately, a lower CAC in the long run.
While e-commerce continues to grow, physical retail locations still hold immense value. They offer unique opportunities to connect with customers, build brand loyalty, and even drive online sales. Think of your physical store as an extension of your brand identity, a tangible touchpoint that complements your online presence.
Physical stores offer a chance to create memorable experiences that resonate with customers. Think immersive displays, personalized service, and a sense of community—elements that are difficult to replicate online. As Shopify notes in their article, "Is Rent the New CAC? 12 Retail Experts Weigh In," physical stores provide opportunities for unique experiences, brand storytelling, and community building, which are crucial for customer engagement. This direct interaction fosters stronger relationships and builds brand affinity, turning casual shoppers into loyal advocates. The same article highlights how digitally native brands are increasingly recognizing the value of physical retail to enhance customer experience. By offering a personalized and engaging in-store experience, you can differentiate your brand and create a lasting impression.
The cost of acquiring customers online has risen significantly, making it more challenging for businesses to achieve profitability. As competition intensifies online, businesses are finding that online customer acquisition costs (CAC) are becoming comparable to physical store rent, as discussed in Shopify's article "Is Rent the New CAC?." This shift in the cost landscape has led many to rethink their approach to customer acquisition. Better Everyday's article, "If CAC is the New Rent, How should You Operate Differently?," reinforces this point, highlighting how expensive digital channels are becoming for acquiring new customers. A physical store can act as a customer acquisition channel. Foot traffic, local events, and in-store promotions can all attract new customers without the escalating costs of online advertising. Furthermore, as Digiday points out in "Rent is the new CAC: Insights from the Digiday Retail Summit," stores are evolving beyond just sales points. They can serve as community hubs, fulfillment centers, and even drivers of online sales, further diversifying their value and contribution to lowering CAC.
Connecting your online and offline retail efforts is key to creating a cohesive brand experience and reaching a wider audience. Think of it as building bridges between your website and your physical location, allowing customers to move easily between the two. This omnichannel approach not only strengthens your brand presence but can also significantly impact your customer acquisition costs.
Creating a seamless experience across all your sales channels is crucial. Customers expect consistency whether they're browsing your website, visiting your store, or interacting with you on social media. Digitally native brands are increasingly recognizing this, opening physical stores to lower customer acquisition costs and improve the overall customer experience, as highlighted in a Shopify article on the evolving role of retail space. Integrating your online and offline presence creates a unified customer journey. For example, offering services like "buy online, pick up in store" (BOPIS) or allowing in-store returns of online purchases streamlines the shopping experience and builds customer loyalty. This integrated approach is essential for brands looking to thrive in today's competitive retail landscape.
Your physical store can be much more than just a point of sale. It can act as a community hub, a local fulfillment center, and even a driver of online sales. Think of your store as a tangible representation of your brand, offering customers a chance to experience your products firsthand. This can be particularly valuable for products with attributes that are difficult to convey online, as discussed in a Digiday article on the changing landscape of customer acquisition. Hosting in-store events, workshops, or even just offering personalized styling advice can create a memorable experience that translates into online engagement and sales. By leveraging your physical space strategically, you can reinforce key demographics, build stronger customer relationships, and ultimately drive growth across all your channels. The cost of physical retail space is becoming a significant factor in acquisition costs, making it essential to maximize its potential.
Smart retailers know that physical stores can be powerful marketing tools. Think of your retail space as a 3D advertisement for your brand, a place to build relationships, and a way to create memorable experiences. When you approach your store as a key part of your marketing strategy, you can significantly impact customer acquisition and retention.
Pop-up shops offer a fantastic way to test the waters before diving into a long-term lease. They let you explore different locations and demographics, experiment with store formats, and gather crucial data on customer preferences. Think of them as a real-world focus group for your retail concept. A pop-up allows you to validate your product-market fit and refine your approach before making a significant investment in a permanent location. This flexible approach minimizes risk and maximizes learning, making it ideal for businesses looking to expand their physical presence strategically. Plus, the temporary nature of a pop-up often generates buzz and excitement, drawing in curious customers and creating a sense of urgency.
Physical retail provides a unique opportunity to connect with your customers on a personal level. Hosting in-store events, workshops, or even just creating a welcoming atmosphere can foster a sense of community around your brand. When you offer engaging experiences, you're not just selling products; you're building relationships. These experiences create a memorable connection with your customers, turning a transaction into an interaction. This can translate into increased loyalty, positive word-of-mouth marketing, and ultimately, a lower customer acquisition cost. Consider offering personalized styling sessions, product demonstrations, or partnering with local businesses for joint events to create a unique and engaging in-store experience.
Integrating technology into your physical store can create a more seamless and personalized shopping experience. Think interactive displays, mobile point-of-sale systems, and personalized recommendations. Technology not only streamlines operations but also gathers valuable data about customer behavior. This data can inform your marketing efforts, allowing you to target specific customer segments with tailored promotions and offers. By blending the best of online and offline retail, you can create a truly omnichannel experience that resonates with today's tech-savvy consumers. For example, offering in-store Wi-Fi and allowing customers to browse your online catalog while in the store can bridge the gap between the digital and physical worlds.
Understanding how your physical store contributes to customer acquisition cost (CAC) can be tricky. It's not as simple as tracking online ad clicks. However, with the right strategies, you can see the real value of your physical presence.
Brands are exploring channels beyond Facebook and Instagram ads, but measuring their effectiveness is challenging. A lack of uniform attribution models, combined with constantly evolving platform algorithms, makes it difficult to pinpoint the exact impact of physical retail on CAC. For example, a customer might discover your brand at a pop-up shop, browse your online store later, and finally purchase after receiving an email. How do you assign credit to each touchpoint? Exploring different attribution models, such as multi-touch attribution, provides a more complete view of the customer journey and reveals how your store contributes to conversions.
While calculating the immediate return on investment (ROI) of a physical store is important, the long-term impact on customer lifetime value (CLV) is crucial. Digitally native brands are opening physical locations, recognizing their ability to lower CAC and enhance customer experience. A positive in-store experience builds loyalty, leading to repeat purchases and higher CLV. A customer who has a personalized, engaging experience in your store is more likely to become a long-term customer than someone who only shops online. Physical retail also strengthens your presence in specific regions or demographics, focusing on brand experiences and product attributes difficult to replicate online. By analyzing customer purchase patterns and comparing the CLV of online-only customers versus those who interact with your physical store, you can quantify the long-term benefits and justify the investment in a physical presence.
Thinking about rent as a customer acquisition cost presents unique challenges. It requires a shift in mindset, viewing physical space not as a fixed expense, but as a dynamic investment in customer relationships. Let's explore how to address these challenges head-on.
One of the biggest hurdles is balancing the costs of physical retail with its potential benefits. Ecommerce competition has significantly increased online customer acquisition costs (CAC), sometimes rivaling the cost of physical store rent. This makes it crucial to strategically evaluate your spending. Think of rent as a variable cost, offering flexibility and responsiveness to market conditions, much like your digital marketing budget. This perspective allows you to adjust your physical footprint based on market trends and business performance. The current retail landscape, particularly with the shifts in commercial real estate, might offer opportunities for securing favorable lease terms, making physical retail a more viable option for digitally native brands. Retail experts are weighing in on this dynamic, offering valuable insights. Analyze your specific market, considering factors like local demographics, competition, and real estate prices, to determine the right balance for your business. A detailed cost-benefit analysis, factoring in potential foot traffic, sales conversions, and brand-building opportunities, will help you make informed decisions about your physical retail strategy.
Today's customers expect seamless experiences across all channels. Digitally native brands are increasingly incorporating physical stores into their strategies to lower CAC and enhance the customer experience. This omnichannel approach recognizes that customers may discover your brand online but prefer to make a purchase in person, or vice versa. Physical retail can be strategically used to reinforce key regions and demographics, focusing on brand experiences and product attributes that are difficult to convey digitally. Consider how you can operate differently in this new landscape. Think of your store as more than just a point of sale; it can serve as a community hub, a fulfillment center, and even a driver of online sales. Explore how stores are evolving to meet these new demands. By adapting to these evolving expectations and offering integrated online and offline experiences, you can create a stronger connection with your customers and maximize the impact of your physical retail presence.
As online customer acquisition costs (CAC) rise, sometimes exceeding the cost of physical store rent, retailers are exploring new technologies to stay competitive. This shift makes it crucial for brands to connect with customers in innovative ways and justify the expense of both online and offline operations. Digitally native brands, once solely focused on ecommerce, are increasingly adopting omnichannel strategies, recognizing the value of physical spaces. Think of stores not just as places to buy products, but as dynamic hubs for experiences, community building, and even order fulfillment. This evolution is highlighted in articles like Shopify's exploration of rent versus CAC, where retail experts weigh in on the changing landscape. The lines between online and offline are blurring, and technologies that bridge this gap are becoming essential.
The role of physical retail is transforming. Instead of solely focusing on sales, stores are evolving into showrooms for online experiences, offering customers a tangible way to connect with the brand and its products. This approach allows retailers to highlight specific product attributes and create immersive brand experiences that are difficult to replicate online, as discussed in Better Everyday's analysis of operating differently in a "rent as CAC" world. This shift also presents opportunities for online brands. The pandemic created an opening for digitally native brands to secure favorable lease terms and experiment with physical retail. As such, physical retail spaces are becoming more strategic, targeting key demographics and regions to maximize impact and complement online efforts. This blended approach allows retailers to leverage the strengths of both digital and physical channels, creating a more holistic and engaging customer journey. Insights from the Digiday Retail Summit further emphasize this trend, predicting an omnichannel future where physical stores play a vital role in driving online sales and shaping the overall brand narrative.
Thinking about dipping your toes into the world of brick-and-mortar? Treating rent as a customer acquisition cost (CAC) can be a smart move, but it's not a one-size-fits-all solution. This section helps you figure out if it's the right approach for your business.
Before signing a lease, take a good look at your current business. Ask yourself some key questions: Do you have a strong online presence and established brand identity? Is your customer base looking for in-person experiences? A physical store can amplify a successful online brand, creating immersive experiences that build loyalty and potentially lower your overall customer acquisition costs. If your brand is still finding its footing online, however, it might be wise to focus on strengthening your digital strategy first. Think of your physical store as an extension of your online presence, not the other way around. As Shopify points out, digitally native brands are seeing the value of physical retail to enhance customer experience and lower CAC, creating more engaged and loyal customers.
Don't dive headfirst into a long-term lease. Start small and test the waters. Pop-up shops are a fantastic way to experiment with different locations and see how customers respond to your physical presence. They offer a low-risk way to gather valuable data about your target market and refine your retail strategy before committing to a permanent space. You can also use a physical presence to strengthen your reach in specific regions or demographics, focusing on brand experiences and product attributes that are hard to showcase online. This approach not only increases brand visibility but also creates a tangible touchpoint for customers. If your pop-up is a hit, consider a short-term lease before taking the plunge with a permanent location. This gradual approach allows you to scale strategically and minimize risk as you grow.
The retail landscape is constantly changing, and the relationship between online and offline channels is more intertwined than ever. One of the most significant shifts? The rising cost of acquiring customers online. Ecommerce competition has pushed online customer acquisition costs (CAC) to levels comparable to—and sometimes even surpassing—the cost of physical store rent. This financial pressure forces retailers to rethink their customer acquisition strategies and explore new avenues for growth. Physical stores are evolving beyond their traditional role as mere points of sale. They're transforming into community hubs, acting as fulfillment centers for online orders, and even directly driving online sales through in-store experiences and promotions. The lines between traditional and online retail are blurring, creating a hybrid model where success depends on leveraging the strengths of both.
This evolving landscape demands adaptability and a willingness to embrace new strategies. Digitally native brands, born and raised in the online world, are increasingly adopting tactics traditionally associated with legacy retailers, like wholesale partnerships and expanding into physical retail spaces. This highlights the importance of diversifying sales channels to reach a broader audience and build stronger brand visibility. A blended approach that incorporates both offline and online channels is no longer optional—it's essential for reaching a wider audience and maximizing marketing efficiency. Retailers need to create a unified customer journey that seamlessly integrates physical and digital experiences. This means providing a consistent brand experience, regardless of where a customer interacts with your brand, which is crucial for building long-term loyalty and driving sustainable growth in today's dynamic retail environment.
Is digital marketing still worth the investment if CAC is so high?
Absolutely. Digital marketing remains essential for reaching a broad audience. However, the key is to be strategic. Think about optimizing your campaigns, targeting specific customer segments, and exploring alternative channels to maximize your return on investment. It's about working smarter, not necessarily harder, with your marketing dollars. Consider it like choosing the right location for a store—you wouldn't just pick any spot; you'd carefully research demographics, foot traffic, and competition. Apply that same strategic thinking to your digital marketing efforts.
How can I determine the right balance between online and offline spending?
There's no magic formula, but a thorough analysis of your target audience, business goals, and market conditions is a great starting point. Consider factors like customer preferences, local competition, and the cost of physical retail space in your area. Think of it like balancing your personal budget—you allocate funds based on your needs and priorities. Do your customers prefer online shopping, or are they looking for in-person experiences? Answering these questions will help you determine the optimal allocation of your resources.
What are some practical steps to integrate my online and offline retail efforts?
Start by thinking about how you can create a seamless experience for your customers, regardless of how they interact with your brand. Offering services like "buy online, pick up in store" or enabling in-store returns of online purchases can create a more unified customer journey. Also, consider using your physical store to promote your online presence and vice versa. For example, you could offer exclusive discounts to online customers who visit your store or promote in-store events on your social media channels.
If I'm primarily an online business, why should I consider opening a physical store?
A physical store can be a powerful tool for building brand awareness, creating memorable customer experiences, and even driving online sales. Think of it as an extension of your online presence, a place where customers can interact with your brand in a tangible way. It can also serve as a local fulfillment center, potentially reducing shipping costs and delivery times. While online presence is crucial, a physical location can add a personal touch, fostering deeper connections with your customers.
How can I measure the impact of my physical store on customer acquisition cost?
This can be tricky, but it's definitely doable. Start by tracking foot traffic and in-store conversions. You can also use unique promotional codes or track online activity following in-store events to gauge the influence of your physical store on online sales. Consider implementing an attribution model that gives credit to both online and offline touchpoints in the customer journey. This will give you a more holistic view of how your physical store contributes to overall customer acquisition.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
Copyright © 2025 HubiFi | All rights reserved.
