At a time when more and more retailers are moving online, some online only retailers are heading the opposite direction, opening brick and mortar retail stores to grow their businesses.
Karen’s Premium Toffee, a Sturtevant, WI based toffee confectioner opened its first physical retail store after nine years of online and wholesale business last week. Adore Me, a lingerie startup conceived of as an e-commerce site, recently opened it’s first permanent physical store, too. Bonobos, a menswear brand, Harry’s, a shave products company, Birchbox, a cosmetics brand, and Faherty Brand, an eco-friendly clothing company have also taken to the streets since launching exclusively online.
It isn’t that they are reverting to an old model, or that ecommerce shops aren’t profitable – indeed they are. Brick and mortar retail stores are still indispensable, but they are starting to take a different form, and serve a different purpose.
The founders of Bonobos, a menswear brand that launched online, never intended to open any brick and mortar stores. But since its inception, in response to customer feedback, it’s opened what the brand calls “Guideshops”, where guys can go to try pants, suits and more before they buy.
“We had no initial plans to open stores when Bonobos.com began, but we had tons of inquiries from customers asking if they could come in and try on the product. The obvious conclusion was people still like to touch and try on items before they buy,” said Erin Ersenkal, Chief Revenue Officer at Bonobos.
At its heart the company is still digital though, and all orders are submitted through Bonobos.com. Product purchased at “Guideshops” is delivered, too. And unlike traditional brick and mortar stores, “Guideshops” don’t stock inventory in sizes, only samples. “This way we can showcase our assortment in a way that’s not overwhelming to shoppers and it’s easier to find product as you’re not thumbing through multiple sizes,” said Ersenkal.
Less inventory means less square footage. “Ultimately, the “Guideshops” and Bonobos.com act as brand awareness tools for each other,” said Ersenkal.
Some successful online only brands are opening up shop to tap into hyper local communities. Others say their stores act as marketing tools, rather than profit generating centers. They’re strategically located and designed to drive traffic to companies’ ecommerce sites. Businesspeople in the retail sector agree that despite the associated costs and responsibilities of running a brick and mortar store, it’s worth it.
“There’s no replacement for seeing a new customer pick up your product and discuss it with you. That’s what happens in a physical store and it is difficult to recreate in an online experience,” said John Gillis, chief product developer at Harry’s Razors, a men’s shaving product company that launched online first, before opening a Manhattan barbershop in 2013.
The trend back to brick-and-mortar comes as retail sales as a whole are shifting online. In 1999, ecommerce retail sales made up 0.6 percent of all retail sales, according to seasonally adjusted economic data from the Federal Reserve. That number has risen or remained steady every year since, as more consumers turn to and rely on the internet for purchases across diverse categories of consumption. By the end of 2010, online sales made up 4.6 percent of total retail sales. The Fed’s most recent data, from October of 2015, shows that online sales account for 7.5 percent of total retail sales.
Economists say that this trend is unlikely to lose steam. “When you see company reports you see Amazon’s revenue growing 20 percent plus and a store like Macy’s is seeing revenues decline a lot. That shows a shift in terms of the venue for spending,” said Jim O’Sullivan, chief US economist at High Frequency Economics.
New companies are launching online for a number of reasons. Ecommerce allows fledgling brands to test a marketplace before committing substantial resources to a product they’re not sure will succeed. “There is more flexibility to change the digital product and experience versus a physical product and in store experience,” said Gillis. The online platform makes it easy to quickly roll out new iterations of products to consumers, he said.
But even those retailers that have entered the retail market online agree that web stores are not substitutes for brick and mortar. More and more retailers are realizing that the online experience has not, and is not likely to ever replace the experience of shopping in a physical store.
Faherty Brand, an eco-friendly clothing company, launched online before opening its first store in Soho because when it started, it didn’t yet have a full collection. “We started just with swim and if we had started with a store we wouldn’t have had enough merchandise to showcase,” said Kerry Faherty, one of the company’s co-founders.
Most people assume physical stores are much more expensive, but e-commerce has substantial costs attached as well. “The cost of acquisition of customers in a web-based only model is quite significant,” said Tom McGee, CEO of The International Council of Shopping Centers.
On the other hand, brick and mortar stores are valued for their unparalleled ability to convert shoppers into repeat customers. To draw customers to stores can drive additional sales. “Someone buys something online and collects it within a store and often times end up buying more,” said McGee. “Growth and profitability are really what are driving web retailers to grow their physical retail space,” he said.
Consumers have come to expect it all from retailers. They want to be able to browse and buy online, or go see and try on clothing before making purchases. And so retailers are adapting. Older existing brands are working to develop robust web presences while newer digital brands open up brick and mortar shops to build brand loyalty that’s developed through physical, in-store experiences.
Retail rents aren’t expected to drop anytime soon, either. Occupancy rates are at a pre-crisis high of 94 percent. “There is a legitimacy that exists by having a store that doesn’t exist online,” said McGee.