What DTC brands’ growing focus on brick-and-mortar means for traditional retailers

For legacy companies, 2019 was a tough year for physical retail. But for direct-to-consumer brands looking to expand their customer base, there was a lot of movement into brick-and-mortar that looks to be carrying into 2020.

In 2018, Casper said it had plans to open 200 stores across North America. Currently, it has 60 retail stores and 18 retail partners. Allbirds is another that has been ramping up its brick-and-mortar presence, currently with 15 stores  across the globe. So far, we haven’t seen much in the way of DTC companies closing down stores, but companies that do focus on rapid expansion into physical retail (often as a customer acquisition tool) need to think carefully about the purpose of their stores to avoid mistakes previously made by legacy retailers, said Matt Alexander, founder and CEO of Neighborhood Goods.

Traditional retail stores began to fail due to the rise of e-commerce, mismanaged inventory and a lack of thought around the customer experience. As part of a new approach to retail, many DTC companies, like Lively or Universal Standard, are thinking more about curating the selection of products in stores and creating stores that feel like destinations or community spaces for customers.

Some have predicted a “retail apocalypse,” as more legacy retailers have shuttered stores or filed for bankruptcy. CB Insights named 81 major retail bankruptcies dating back to 2015. Just last year, 22 big retailers filed for bankruptcy, including Forever21, Barneys New York and Charming Charlie. Yet, with all of these store closures taking place, direct-to-consumer and digital native companies are still ramping up and finding success where incumbents have faltered.

Lunya, a luxury sleepwear company that began as online-only now has three permanent stores and one pop-up. Ashley Merrill, CEO and founder of Lunya, said the company has recently signed five more leases and will continue expanding into brick-and-mortar in areas where customers are already shopping the brand online. Lunya started its expansion into retail slowly by opening a store that was attached to the company’s headquarters in Santa Monica.

“Digital felt like the right place to start, especially amid a declining brick-and-mortar retail environment,” said Merrill. “We were never anti-physical retail like I know some people have been. We have a high-end product, and there is a value in trying it on. [Stores] just weren’t in the cards for us early on.”

Now that the company has a larger physical presence, Merrill said she makes sure each store has a cohesive feel, but that all the stores aren’t carbon copies of each other. Merrill does the interior decorating for each of the stores, called “bedrooms.” The Brooklyn store is designed to be neutral and minimal, mostly black and white, with a plush white couch and vintage chairs. The Soho space has more mid-century furnishings and modern light fixtures. All of the stores carry the brand’s staples items, but with not too much inventory on the floor to keep the space feeling open. Plus, while more than half of customers coming into the stores are online shoppers first, the goal isn’t necessarily to transact then and there.

Many DTC companies moving into physical retail have said the stores don’t necessarily equate to a big sales boom. Naadam founder Matt Scanlan has said that, when opening a physical store, online sales in that neighborhood tend to rise, not necessarily in-store sales.

“It has to be acknowledged that many customers are going into stores but end up purchasing online. There’s nothing wrong with that, and the burden falls on retailers to build a store that exists for more than just the transactional piece of the relationship. It’s almost like an insightful billboard,” said Alexander.

Perhaps one reason many newcomers have found success in physical retail is the rise of DTC-first multibrand retailers such as Re:store, Neighborhood Goods and Showfields as a way to test physical retail before committing to it on their own. Those multibrand retailers have made the barrier-to-entry lower for digital natives, giving brands a chance to rent space for a short-term period rather than investing in costly long-term leases. David Gore, head of retail at business consultancy BJSS, said the success of these companies and the adoption by DTC companies is just one more way new brands are challenging the struggling legacy companies.

“The new models coming in that are more customer-focused and data-driven are really driving a lot of change and forcing legacy retailers to up their game. I see the competition and the models as complementary, as well as being competitive. One is driving the other, but legacy needs to step up or they will quickly find themselves irrelevant,” said Gore.

Where a lot of brands in this new era of retail go wrong, though, is focusing too much on the pop-up mentality of creating a space worthy of some Instagram posts and not one that’s focused on building connections with customers, said Alexander.

“The crux or crucial part of relationships with the consumer hasn’t really changed, ever. It’s just been overcomplicated. Experiential retail conjures this idea of ball pits and Instagram walls. That’s a problematic direction for the industry, because it’s a flash in the pan and does not create a lasting experience with the consumer,” said Alexander.

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