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Stores’ Importance Rises in the Digital Age

Data analysis is key for evolving the bricks-and-mortar experience, said RetailNext’s Alexei Agratchev and 100% Pure’s Nic Kostick.

Alexei Agratchev cofounded Silicon Valley-based analytics firm RetailNext in 2007 with the premise that bricks-and-mortar stores wouldn’t disappear, but that for them to remain germane they need to evolve significantly.

“If you’re a store and you only compete based on your product selection and price, it’s going to be hard to stay relevant,” he said. “You have to compete on experience. And if you compete on experience, you have to constantly measure and improve it, and have to constantly invest in it.

“I actually feel that retail stores today are much more important than they were 10 years ago,” continued Agratchev, who serves as RetailNext’s chief executive officer. The executive maintains it’s hard for brands to truly differentiate themselves online and impossible to make money as pure digital players.

“It’s not easy to do it in a wholesale environment; there’s a lot of other brands,” he said. “If you can open your own store and can do it well, it’s actually a great opportunity to leave a lasting memory.”

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A case in point is 100% Pure. Agratchev began working with Ric Kostick, cofounder and ceo of the natural skin-care label, about two years ago. But his brand was started in 2004, in a farmhouse in Napa Valley, Calif., when natural beauty products were primarily carried in health-food stores.

Two years later, Kostick and his partner Susie Wang wondered what it would be like to open their own store. “We didn’t really know what we were doing,” said Kostick. “We went to Ikea and picked up shelves.”

Their business on QVC took off between 2006 and 2009, after 100% Pure took its cosmetics formulated with fruit pigments there. “Because that business was all-encompassing, we just let the store operate,” he explained.

That store was actually making money, so in time the 100% Pure team opted to try a second, more high-profile shop. “It was successful from day one,” said Kostick, who added that next the San Francisco Airport Authority asked the brand to open a boutique in its terminal.

“Then I went on sort of a binge,” he said. “I thought: ‘Wow, stores are magical.’ I thought we couldn’t lose.” So nine more locations were debuted in two years, primarily in California but also in Portland, Ore.; Seattle; Chicago, and Annapolis, Md.

“And I realized it’s not that easy,” said Kostick, adding once he was introduced to Agratchev, data analysis was used for the store strategy, and that was helpful.

The general trend today is that as brands increasingly go direct to consumer, most of them are starting online. But there are big pitfalls.

“It’s very difficult to be profitable in e-commerce because you’ve got these really high variable costs, and they don’t go down with volume. In fact, if you look a customer acquisition costs, they’ve been going up over the last few years,” said Agratchev. According to him, a lot of brands run into a wall and many don’t want to go into wholesale, for fear of losing control of pricing, among other issues.

The 100% Pure label opened, closed and reopened some boutique locations. “Stores are a strategic point for us for customer acquisition,” said Kostick, who noted the Web — where his strategy is now focused on content and SEO — is becoming increasingly competitive.

“Stores are a critical piece; we are really ominchannel,” he continued.

Kostick started measuring data and found that each new customer one of his stores acquired last year drove some 10 percent of incremental sales online.

“We really run our business on metrics, so everyone on our team has smart goals, and these smart goals are measurable” he said, adding data can help personalize customer service. “We’ve got great KPIs on conversion. We can coach our staff.”

Using RetailNext’s software, conversion rates went up from about 24 percent to more than 30 percent in some locations, while the average dollar transaction climbed from approximately $60 to $70.

Kostick is focusing on both the U.S. and China, where 100% Pure has formed a subsidiary. “Having retail stores in the U.S. actually gave us a lot of credibility with the Chinese consumer,” he said. “Our business is doing really well there.”

And more plans are afoot. On the docket next for 100% Pure is a pop-up in New York City with a yet-to-be named brand in a few months’ time.