Custom-made menswear retailer Indochino Apparel Inc. has seen its sales double or better annually since it began selling on the web in 2007. CEO Kyle Vucko says the support and service it has provided face to face in the last few years has played a significant role in that growth.
That’s because Indochino in 2011 was among the first wave of web-only retailers to test what having a physical storefront could do for an Internet-based business. Indochino that November opened a “pop-up” store in its Vancouver, B.C. hometown. Open for four days, the shop provided men the opportunity to be measured by a professional tailor and to see and feel Indochino’s apparel choices. Shoppers could place orders on the web site then and there using the measurements they’d just gotten, or take the measurements to go, the idea being they’d use them whenever they decided to make their next suit purchase, presumably on Indochino.com.
Since opening that first pop-up, Indochino has taken the “traveling tailor” store concept to cities around the world while also extending the duration from four days to as long as six weeks. In 2013, it ran 15 pop-up shop events.
The stores’ sales more than cover their costs, Vucko says, and consumers who meet with a tailor in person are more likely to become repeat buyers, and to place larger orders, than consumers who’ve never visited a shop. The pop-ups also boost the brand’s visibility. “We get a huge lift in exposure and reach, which helps build our brand and ultimately gets more guys supporting us,” Vucko says. “The online gains help make a case for the pop-ups.”
The gains have compelled Indochino to take on more permanent space. In August it opened its first permanent storefront in Toronto and in September it opened a store in New York. Vucko says the e-retailer is also exploring other U.S. locations.
A number of other previously online-only retailers are also experimenting with physical stores, including men’s apparel e-retailers Bonobos Inc. and Ministry of Supply, custom jewelry retailer Gemvara Inc. and beauty products e-retailer Birchbox Inc. Further, web-only champion Amazon.com Inc. confirmed last month it will open pop-up shops in San Francisco and Sacramento, Calif., during the holiday season to showcase its line of Kindle devices. Amazon would not confirm media reports it plans to open a permanent storefront in midtown Manhattan that would enable consumers to see a selection of products and pick up web orders.
Having carved out a business on the web, what do e-retailers expect to gain from opening stores? Brand exposure, increased credibility, more loyal customers and, in the end, greater sales, they say. But while a few have figured out how to attribute web sales to store visits and like what they see, others are still testing and learning.
Among the e-retailers betting on bricks and mortar is Country Club Prep, which has sold preppy apparel and accessories online since 2012. The retailer projects it will generate $5.5 million in revenue online this year, up about 200% from $1.83 million in 2013. Despite its rapid growth online, it believes stores will accelerate that growth.
“Could this money be used more efficiently online? Probably,” says Stephen Glasgow, co-founder, co-owner and co-CEO alongside Matt Watson. But Glasgow and Watson are convinced that the physical stores will give them exposure and credibility they can’t get online.
Country Club Prep opened a 2,000-square-foot store, its first, this July in Charlottesville, Va., near the University of Virginia campus. With preppy students and college alums its target audience, the e-retailer is currently scouting other college towns for store opportunities. It expects to open a store near the University of Kentucky in time for the holiday shopping season and plans to open two stores next year.
“As we target these university towns, it’s an opportunity to introduce ourselves and train customers who will shop there for four years at school and then continue to be a customer for life,” Watson says.
Moreover, the store communicates that “this is a legitimate business,” Glasgow says. “It’s anchored somewhere.” However, because the Charlottesville store is so new the e-retailer cannot yet measure its impact.
While Glasgow and Watson are bullish on stores, jewelry e-retailer Gemvara, which has tried out several different store concepts, is still not fully convinced of their value. The 4-year-old e-retailer sells design-your-own jewelry on the web, and its online sales grew more than 27% last year to top $23.5 million, according to Internet Retailer 2014 Top 500 Guide estimates. The retailer’s average ticket is about $1,000, and that makes it important for Gemvara to provide consumers with the kind of information they want to close the sale. That’s what has led Gemvara to continue experimenting with different store concepts to learn more about its customers and what leads them to make a purchase, says CEO Janet Holian.
But the stores haven’t clicked with shoppers. “We feel like sometimes people have a hard time understanding our unique value proposition [online],” Holian says. However, a pop-up shop experiment that failed to meet the merchant’s expectations taught Gemvara that “people have a hard time understanding it in the store, too.”
Holian is referring to the pop-up shop Gemvara opened on Boston’s tony Newbury Street last November and closed in mid-February. In the three and a half months the shop was open—covering the key jewelry-giving holidays of Christmas and Valentine’s Day—the store attracted fewer shoppers than the more than 18,000 visitors Gemvara.com sees in a typical day, Holian says.
But while the store failed to drive much foot traffic, Holian says it did help Gemvara learn about its customers. The retailer kept a diary in the store where visitors could sign up for Gemvara e-mails and asked them to indicate how they heard about the shop, what they were looking for and who they were shopping for. Many consumers said they’d seen the billboards promoting the store that Gemvara had placed around Boston, and half said they came just to see the shop itself. The retailer also gave away stud earrings in Gemvara shopping bags customers could carry walking up and down Newbury Street, which Holian says raised the brand’s visibility.
Although Gemvara didn’t see the immediate direct lift in sales from the Christmas and Valentine’s Day holidays that it expected from the shop, Holian says the store’s impact may take awhile to register because jewelry has a longer sales cycle than most other products. “I believe in my heart there’s value we brought to the brand in the Boston area” from the pop-up, Holian says. “It’s just hard to measure.”
That half of visitors to Newbury Street location came specifically to see the shop encouraged Gemvara to recently test another shop concept. It opened two by-appointment-only showrooms this year, one in Boston and one in Manhattan. The number of showroom visitors varies by time of year and how much Gemvara markets the showrooms, but they average a couple of people a day, Holian says, characterizing the stores as “nice to have” but “not essential.”
A store is the crucial component that got BrazenCosmetics.com into the black, says Sandria Marie, the retailer’s owner. Marie, who started selling her proprietary cosmetics on the Etsy marketplace in 2007 before launching her e-retail site, spent about $5,000 to open the 1,000-square-foot Brazen Beauty Lounge in February on the ground floor of an office building in Ferndale, Mich., a Detroit suburb. In addition to selling Brazen products, the shop hosts girls’ night out events and offers cosmetics demonstrations and classes where women can learn how to apply makeup to achieve certain looks, like “perfect pin up” and “sultry smoky eyes.”
The store has paid for itself in retail sales and it also drives incremental web sales, Marie says. The store’s success came quickly; almost immediately it increased shoppers’ awareness of the brand and by August it was profitable.
Since the store opened, about 25% percent of new customers to BrazenCosmetics.com are consumers who learned of the retailer from the store location, Marie says. She tracks this by logging each guest who comes into the store in a sales book. She tries to collect everyone’s name and e-mail address for future marketing and promotions, and she cross-references those names and e-mail addresses with the shipping addresses of online orders.
Internet retailers that open stores often find their overall sales increase because the physical locations serve as an added marketing vehicle for their online stores, experts say. “The word of mouth is expanding more than they anticipate,” says Todd Dittman, executive director of the Association for Retail Environments trade group. Further, two-thirds of web shoppers will shop in a retailer’s store before or after they make an online purchase, according to a 2014 report from consultancy A.T. Kearney.
Web retailers make up more than half of the 1,000 merchants that have used Storefront, which is an online marketplace that connects merchants with temporary retail spaces. The online merchants use the site to open pop-up stores in New York and San Francisco, says Tristan Pollock, co-founder and chief operating officer of Storefront, which launched in 2012. Indochino has used Storefront to find space for the traveling tailor, for example. Pollock says taking on temporary space is especially appealing to web-only retailers because it allows them to experiment and get noticed without having to commit to a standard commercial lease.
Pollack says Storefront’s customer merchants on average take in $7 in sales revenue for every $1 spent on rent; the figure does not count other operational costs or incremental web sales that may come as a result of new customers discovering the retailer at the store. Storefront, which raised $7.3 million in venture capital in April and began matching retailers with short-term leases in Chicago this summer, collects a 5% fee for arranging the rental and providing insurance, with that fee split down the middle between the merchant and space owner.
Still, the cost of setting up and operating a store can’t be overlooked. Top multichannel merchants, for example, spend three-quarters of their capital expenditures on their stores, according to an A.T. Kearney analysis of Bloomberg data, retailer web sites, and annual reports from a sample of retailers such as Nordstrom Inc. and Neiman Marcus Group Ltd. LLC. Those are expenses retailers that stick to the Internet don’t have.
Glasgow and Watson of Country Club Prep say they understand the costs, which they declined to disclose, but are willing to invest in stores for the long-term boost they believe they will get in web sales. Online continues to drive most of the company’s revenue. “I anticipate that to be the case regardless of the number of stores we have open,” Watson says. “That’s the model.” The idea is to use the well-placed stores to attract first-time buyers who will buy again on the web, where there’s a greater selection.
The Charlottesville store has brought in some high-spending clients. When Country Club Prep threw a big store grand opening party in August—replete with musical acts, beer from local breweries and photo opportunities with Thomas Jefferson cut-outs (Jefferson being the university’s founder)—the highest-spending customers in the store were alumni, many of whom hadn’t previously heard of the retailer, the founders say. The challenge ahead is to convert them to loyal customers.
Of course, merchants like Watson and Glasgow are hardly the first direct-to-consumer retailers to open stores in hopes of building their direct business. Consider that catalog merchant J.C. Penney opened its first store in 1902 in Kemmerer, Wyo. And L.L. Bean operated only a flagship store in Freeport, Maine, and a liquidation outlet in New Hampshire until July 2000, when it opened a store in McLean, Va. It now has 19 retail stores besides its Maine stores.
What’s changed, experts say, is that today companies have the option of trying out a concept first on the Internet, an option that didn’t exist 20 or so years ago. The web-only option is ideal for a startup without a lot of cash because it affords them the opportunity to reach a broader market for less money on a per-customer basis than a store can. Now some are adding a physical presence after gaining traction online.
That’s the route menswear e-retailer Ministry of Supply is following. The e-retailer launched online in 2012 because the company’s founders determined the Internet was the most cost-efficient way to introduce its wares to a large market. Co-founder and president Aman Advani says the cost to build out MinistryofSupply.com and its first bricks-and-mortar store were “roughly the same.”
However, he says, stores were part of the e-retailer’s strategy from day one. Fueled by $3.8 million in venture funding it raised last January, Ministry of Supply is now working to make them a reality. The company is testing a temporary location on Boston’s Newbury Street, although Advani says the goal for the store isn’t immediate profits but gaining insights about consumers, such as watching how they react to apparel items as they walk past them. The company also has tried a series of pop-ups in other locations, which are useful in determining what works and what doesn’t.
For example, the company is evaluating whether it should keep inventory on-site or ship orders from a warehouse to consumers’ homes. The latter model is one another menswear e-retailer, Bonobos, uses in its 10 shops, each of which is between 1,000 and 1,500 square feet in size. Bonobos announced in July plans to open 30 more shops by the end of 2016 at the same time it announced a $55 million venture funding round. A Bonobos spokeswoman says the average order value for shoppers who’ve visited a store is twice that of a web-only shopper.
While sales from Ministry of Supply stores will be a bonus, Advani says revenue takes second place to the market research takeaways stores provide. “What we are taking away from this opportunity is often about what information we are coming away with,” instead of the profit and loss of a given location, he says. “We’ve met people from the storefront we wouldn’t have met online. The conversations have been incredible. We wouldn’t have had the opportunity to do it online because you’re talking through a computer.”
Selling through a computer has worked well for Amazon and many other successful web-only retailers. But with even Amazon, which long has extolled the superior economics of the web, testing out physical stores, it may be that other previously web-only retailers will test the proposition that carefully chosen physical locations can boost online sales.
Ann Meyer is a freelance writer based in Evanston, Ill.