Digital Brands want to get physical.
This story first appeared in the March 31, 2014 issue of WWD. Subscribe Today.
Brands that were born online are pushing into the brick-and-mortar space. Bonobos, Warby Parker and BaubleBar are all e-commerce-first companies that opened physical stores. Even the industry’s giants are eyeing brick and mortar: Amazon chief executive officer Jeff Bezos has said that he would “love to” open retail stores one day, while Google already has stores in Australia and Europe and is said to be eyeing opening units in the U.S.
The latest to expand its brick-and-mortar offering is accessories e-tailer BaubleBar, which will launch Nordstrom Loves BaubleBar pop-up shops in 35 Nordstrom doors and nordstrom.com starting today in cities like San Diego, Los Angeles, San Francisco, Tampa, Chicago, Austin, Dallas, Houston and Seattle. Located on the main floor adjacent to footwear, the 150- to 200-square-foot pop-ups will serve as an entry point into the jewelry section of each store. About 60 different styles of necklaces, bracelets, earrings and rings from the jewelry brand will retail from $24 to $68, with an additional 15 styles that will be online-only.
The brand, which launched online in 2011, has flirted with retail concepts for some time, but this is the first time that the company will embrace brick and mortar in a substantial way.
Nordstrom built custom fixtures to outfit the spaces, and the brand developed a packaging component different from what it offers online. Everything comes prepackaged, and there are displays that serve as tutorials for consumers.
“When you go to the section, you will see necklace spots that show you how to layer and bracelet bars that show stacks you can build. You will see prepackaged product in BaubleBar branded packages,” cofounder Amy Jain said.
In January, BaubleBar quietly became available at Anthropologie doors across the country and on anthropologie.com through a “BaubleBar x Anthropologie” collaboration. The pieces, which retail from $28 to $86, are available in the majority of the retailer’s 188 doors. Last June, a 4,000-square-foot temporary store opened at 131 Greene Street in Manhattan, while in February the company unveiled “BaubleBar Unwrapped” in New York’s Meatpacking District to celebrate its two-year anniversary. BaubleBar also opened a shoppable-by-appointment-only showroom, “The Bar,” next to its headquarters on Fifth Avenue in New York’s Flatiron District.
Cofounders Jain and Daniella Yacobovsky declined to reveal the company’s sales, but they said monthly traffic is growing “substantially” to more than 1 million visits currently — compared with just 340,000 monthly visitors last year. Off-line sales grew more than 475 percent last year as a result of initiatives like the Greene Street pop-up shop and partnership with Anthropologie, and physical retail now accounts from 20 percent of the overall business. Order volume growth has increased 20 percent month-for-month for the past year, and the business has more than 120 employees. The company has raised $6 million to date, fueled by firms like Accel Partners, Greycroft Partners and more.
“We had tested offline in a few different pop-up concepts, but that last summer we saw a couple of customer behaviors that made us realize we needed to move fast in terms of offering physical retail to customers. A lot of online-first brands have seen this happen,” Jain said, calling the Greene Street store the catalyst for the Nordstrom partnership.
The two founders deliberated about what the quickest way to deliver the physical experience to consumers would be — and opening retail doors on their own in the time frame they wanted to offer wasn’t realistic. “Could we do it? Yes. Is that the most effective way? Maybe not.”
A key lesson learned about the off-line world was that the average order value in-store is about three times what it is online.
Yacobovsky stressed there is a difference between a third-party retailer selling one’s product and building one’s own brand. In order to create a stand-alone brand, an e-tailer must have an in-person, off-line component to the business.
Sumit Chandra, a partner in the retail and consumer division and fulfillment lead at A.T. Kearney, said that the space has seen successful examples of e-tailers being sold at brick-and-mortar, third-party retailers. It’s taking that to the next level and opening branded stores (and supporting that infrastructure) that will determine exactly how successful these online players can become with respect to retail.
“The physical guys are moving towards online, and online towards physical. Where they meet is not necessarily in the middle — it’s going to be where the consumer finds it to be the most convenient for them,” Chandra said. That meeting point will differ by segment of retail, depending on whether the industry is fashion, consumer electronics or groceries, he said.
Bonobos, considered industrywide as a pioneer in the online-to-off-line space, launched its Web site in October 2007. It broke into brick-and-mortar retail in 2012 via Nordstrom, which also took a stake in the brand, and by this summer, in addition to strong growth year-on-year, the collection will be sold at all 117 Nordstrom doors.
In February, the company kicked off a retail partnership with Belk to bolster its presence in the South. The department store opened seven Bonobos shops-in-shop in cities like Charlotte, N.C.; Raleigh, N.C.; Atlanta; Birmingham, Ala.; Huntsville, Ala., and Nashville. Dallas will open next month.
Currently, Bonobos has eight Guideshops, in New York (in SoHo and the Flatiron District); Boston; Chicago; Washington’s Georgetown neighborhood; Bethesda, Md.; San Francisco, and Austin — with leases for two additional locations signed in Los Angeles and Brookfield Place in New York, set to open this summer and in spring 2015, respectively. Each space allows consumers to see the range of product, try items on and place orders. To maximize space and production efficiency, Guideshops aren’t stocked with inventory; orders are shipped to the consumer’s home.
Founder and ceo Andy Dunn said that the jump to retail took place when he was having a discussion with someone about not being able to try on Bonobos’ pants before purchasing. Dunn acknowledged that the site had superior customer service — a 365-day no-questions-asked return policy, “ninjas” that can live chat with consumers and free shipping and returns — but shoppers lacked the ability to touch and feel what they were buying. He personally started to feel like the company wasn’t offering a great experience if shoppers couldn’t try on the product.
“I had this great debate at a board meeting: Is Bonobos an e-commerce company or a brand? The debate was that if we’re an e-commerce company, then we need to be like Asos — e-commerce to the moon. But if we’re a brand, we can think about e-commerce as our core and primary point of distribution but not be limited to e-commerce,” Dunn explained.
In 2011, Bonobos set up two fitting rooms with two salespeople in the lobby of its space in the Flatiron District — and within 90 days, they were doing $90,000 in sales a month (or $1 million of annualized revenue).
Dunn learned that people like to touch and feel the clothing — and the key was the “try-it-on” moment. Even though people don’t walk out with the product after placing an order at a Guideshop, Dunn said this doesn’t matter. He was warned that instant gratification was paramount to the retail equation, but he found something fundamentally different.
“Great product and great service far overwhelm instant gratification,” Dunn said of the “aha” moment when he realized that a brand can maintain clothing retail stores without having to stock inventory.
“We weren’t smart enough to envision this. It was something we discovered. Innovation is funny; sometimes you have brilliant people who can see the future and create something. I’m not one of those people, but I do like to experiment and like to learn,” Dunn said. “I realized we hadn’t innovated a thing. It was all Apple.”
Warby Parker, the eyewear brand that celebrated four years in business in February, saw business take off from the get-go. Its e-commerce site at warbyparker.com, hit its first year’s sales target within three weeks, and after 48 hours, cofounder and ceo Neil Blumenthal said that the at-home, try-on program had to be suspended because the company ran out of samples. It now operates five freestanding doors nationwide.
When the brand moved to its first office in summer 2010, the team deliberately chose a space with characteristics that would lend itself to doubling as a showroom. This included being a loft with high ceilings that was also centrally located near Union Square in downtown Manhattan.
“It was an actual store because we weren’t doing any wholesale sales. We ended up getting kicked out of that office because we got so much traffic,” he recalled of the office located on the sixth floor of a “non-retail” block. From there, Warby Parker relocated to the Puck Building, where it was soon doing several million dollars of sales out of a 300-square-foot space in the office.
Even though Warby Parker has executed several innovative pop-up concepts — like the Holiday Spectacle in December 2011 or the “Warby Parker Class Trip,” where the company transformed a yellow school bus into a mobile store that visited 15 U.S. cities from October 2012 to December 2013 — it was while at the Puck Building that the company started looking for a “proper store” in SoHo.
In April 2013, the brand’s flagship opened on Greene Street in SoHo, and it now has doors on Washington Street in New York’s Meatpacking District and on Lexington Avenue and 82nd Street on the Upper East Side, as well as Los Angeles and Boston.
The brand revealed a $60 million round of funding in December, and has raised $100 million to date. Blumenthal said that the company has more than doubled in size every year since inception and expects the same growth trajectory for 2014.
Blumenthal maintains that the “vast majority” of sales come from online. He believes “that the opportunity online is synergistic with our retail strategy, and that creating beautiful, profitable freestanding stores just complements our Web business in several ways.”
Birchbox, a monthly subscription service dedicated to beauty, will open its first store on West Broadway in SoHo. Nasty Gal’s founder and ceo Sophia Amoruso also has been vocal about wanting to venture into the physical retail space. She said she plans to open her first brick-and-mortar store later this year. Nastygal.com saw about $130 million in retail sales in 2013, according to industry experts.
For Amoruso, a benefit to being an online technology company first is that once the brand ventures into retail, it won’t be burdened with the legacy systems that big department stores have to contend with. She wants to provide a “next-generation retail experience” for the brand’s active online community.
The e-tailers are finding exactly what brick-and-mortar companies are discovering as they in turn push into the digital space: Consumers today want to buy a product where they want to and when they want to. As Blumenthal of Warby Parker said, “When we think about what we do, we’re not just eyewear designers; we design experience. We’re medium agnostic — we just want you to have whichever medium you prefer to shop with us at. That’s what we’re going to provide, whether in-store or online, and we design these experiences holistically.”