While internet retail is often associated with lower costs, it should not come across as a surprise that the increased level of competition in the space has driven up the cost of online marketing, a trend which is not particularly new. In light of these increased customer acquisition costs, some retailers have reverted to an older method to spread brand awareness—the brick-and-mortar outlet. Carefully selecting the right location and keeping the selling space, inventory, and store design minimal can all reduce the costs of the brick-and-mortar investments, further increasing their relative affordability as alternative website traffic drivers.
This month, the Euromonitor retail team explored a trendy corridor of Chicago where a number of online retailers have opened bricks and mortar outlets thanks to affordable real estate in the neighbourhood. On-site inspection and conversations with the store representatives only helped reaffirm the conclusion that the focus of these stores is less on revenue generation within the store itself, but more so on marketing with the aim of driving sales to their primary channel: their websites.
Case study: Two online apparel companies take their brands to the street
Two stores stood out among the rest in the retail corridor as examples of how an online retailer might come to market on Main Street. The first was Bonobos, a chic menswear outlet with a casual and summery positioning. One of 19 stores, including a larger flagship in New York, this “Guideshop” format is meant to introduce customers to the brand’s style via changing booths and knowledgeable salespeople to help familiarize the customer with the brand and its business model.
At the Bonobos store, you do not purchase clothing directly, but instead get a feel for materials and the way pieces fit. Once satisfied with an item, the store guides walk you through the final purchase online by using a computer in the store, which gives you access to more colours and prints. The stated reason for foregoing the traditional method of maintaining and selling inventory out of the shop was to avoid brand dilution. Bonobos primarily wants shoppers to buy things online. Its stores merely act as a place to try those things on first. It doesn’t hurt that it makes inventory management at the store—one of the toughest components of store-based retailing—that much easier.
The second retailer, another in the men’s apparel business, was a Chicago native, Tie Bar. The store, which was across the street from Bonobos, opened as a pop-up initially, but as of February, 2015 has become a full-fledged store. This was surprising to learn considering that as of July of 2015, the space still felt very much like that of a pop-up store. Merchandise was organized nicely with celebrity designed ties out in front and a nice selection of accessories off to the side, but this was all in a much smaller space towards the front that felt temporary. This was juxtaposed against a large and visibily empty backroom, which apparently was used mostly for larger marketing events like the four “How-To’s of being a modern gentelmen” that GQ Magazine hosted within the space. Unlike Bonobos, products could be bought right off the rack, and sales people were happy to ring products up in the store and sign shoppers up for an account for later online purchases.
The lines continue to blur as new retailers experiment with old methods (along with an occasional twist)
Being born of the internet, each store made the representation of its online offering a central component to its physical store. While Tie Bar still let you walk out with merchandise, a purchase at both outlets would ensure that you could log onto their websites and continue shopping with ease. Each store occupied a smaller space than one might imagine for an apparel retailer, but it felt as though Bonobos used its space very efficiently compared to the large empty backroom that Tie Bar maintained. Smaller spaces necessitate that each store carry less inventory which means that shoppers should expect a curated taste of what one might find online. The ability to actually walk out of Tie Bar with a product was great (although it was not a detraction for Bonobos due to their free shipping policy). Oddly enough, this policy was reversed for returns, as Tie Bar did not accept them in store but Bonobos did.
Space utilization ultimately felt more store-like at Bonobos, but it was it was interesting to hear about the sort of cultural events that Tie Bar had used its extra space for. Co-promotion of events alongside a chic lifestyle magazine like GQ not only has the ability to make your brand seem more fashion forward, but it opens up the store itself (and the merchandise within) to curious locals and brand ambassadors alike. Bonobos too has been known to run events to help drive traffic, although its approach here is far more traditional.
Stores and the people inside them are far more engaging than internet ads
Marketing is one of the main reasons that online retailers are opening up brick and mortar outlets. This sort of marketing is not only more engaging, but as online marketing costs increase, it becomes relatively cheaper. This allows companies to interact with current customers in a more personal way, but it opens the brand to a number of passers-by that may never have even known of it due to the targeted nature of internet advertising. According to the CEO of Tie Bar, Michael Alter, seven out of ten of their store customers made their first ever purchase in the store. The ability to connect like this is even more valuable in the apparel industry, because fit and style are so important, yet still very difficult to gauge with certainty online. Actively engaging with old and new customers at this stage gives the brand the ability to minimize returns because people are able to figure out what they actually like before they order. This is mutually beneficial for companies and customers alike. In a best case scenario, the store can become a destination itself, and with a good enough product selection, it can start to generate a profit, evolving beyond its original purpose while still maintaining it. Tie Bar’s CEO noted that, “Six months ago, I would have told you that the Chicago pop-up was just for marketing and that it was an expense. Now it’s a permanent store and it’s profitable. We’re thinking about pop-ups differently now.”