EntrepreneurInvestment Properties December 27, 2016

To Brick, Or Not To Brick?

As much as moving “To the Cloud” has been embraced in the past decade; so has moving “To the Street”. Online retailers, such as the eyeglass retailer Warby Parker, have seen significant gains in market share and penetration using physical brick and mortar stores.  The physical locations are used as marketing tools much more than they are used as a traditional retail outlet. The footprint is small. The tools and systems are light, mobile. There is/are no on-site inventory other than minimal display models. The purpose of the footprint is to engage with the customer, let them touch and feel the product, introduce them to the company culture, and build a relationship. E-Commerce retailers such as Warby Parker have found these tasks much easier to accomplish in the physical world as a supplement to their digital offering. They are not alone. 


Los Angeles-based clothing, shoes and accessories firm, Nasty Gal, has announced plans to debut a shop in the Southland. Birchbox, a beauty products company, opened its first store this month in New York. The men’s fashion brand Bonobos has recently brought its brand to La Brea Boulevard.  JustFab expanded to physical locations in September when it opened a flagship in Glendale, Az. Gap has followed suit with the introduction of physical store offerings featuring the brands of Athleta and Piperlime.  These retailers are capitalizing on the same marketing trend seen by Warby Parker. They are also facing some of the same question marks. 


The e-Commerce move to brick and mortar has been difficult for CEO’s and Managers to plan, track, and predict because it is primarily a marketing medium not a fulfillment, inventory, and payment-collection medium (compared to traditional retail).  Most companies who are moving from the cloud to the street lack definitive plans on just how many stores they wish to open. You hear a lot of discussion of “Sustainable Growth” and “Staying true to our Online Base”. As they should, since the majority of sales from these companies remains online.  Due to the nature of the marketing and relationship-building benefit of the brick and mortar location; it has proven difficult to mathematically calculate how many locations should be opened before the cannibalization of online order volume would be a real threat. 


It is difficult to get a grasp for how many stores to open partially because so many of the purchases (but not all) remain online. The physical stores are not pure retail outlets but are a blend of retail and E- Commerce that function more as an additional marketing tool than a retail hub or repeat destination. In fact, as seen with the men’s fashion outlet Bonobos, repeat business in this sector is often through digital means after the initial product is vetted and product lines are chosen (favorite clothes). The male shoppers of Bonobos go into the physical store to gain an understanding of their favorite products, and then typically order online from that point forward. 


A further complication of the matter stems from how sales are tracked through internal accounting. In the name of efficiency, the cloud-based retailers almost all use their pre-existing web portals to process in-store purchases. This would make it appear that the retailer is still, as always, completing all their sales online.  Often, ownership can be hesitant to steer any resources away from the online operations. That is where the money is made, yes? Well, not quite. Although the purchase transactions completed in the physical stores are recorded online, are they really an “Online Sale”? Did the sale truly originate online or would the customer have still purchased the product had they randomly wandered into the storefront and needed to use a cash register and swipe their credit card at the front counter? I see this issue of tracking the origination of orders as further complicating the investment decision surrounding how many locations to open. 

E-Commerce organizations who are successfully leveraging a physical presence (such as Warby Parker) seem to be doing so through culture, brand, and focus on their core-competency. They are holding that the return on investment, for opening a physical store, should be tracked based on a marketing investment, not necessarily the metrics that drive traditional retail.


Nick Schlekeway