Retail is dead? Don’t tell hot online brands rushing to open stores in desirable urban US neighbourhoods

Tan KW

Publish date: Mon, 07 Jan 2019, 11:05 AM

CHICAGO: Four days before Christmas, athletic apparel retailer Outdoor Voices opened a store in Chicago's Ranch Triangle neighbourhood. It should feel at home among neighbours like Bonobos, Warby Parker and Marine Layer.

All are within a block of one another, and all began as online retailers before opening bricks-and-mortar stores. Soon, Outdoor Voices will be sandwiched between two more: home goods brand Parachute to the east and shoe retailer Allbirds to the west. Parachute opened temporarily for the holidays, but both plan to open their permanent stores this spring.

Brands that start online are increasingly recognising the importance of bricks-and-mortar and amassing the resources to build physical stores. It's a bright spot in the retail sector, which has seen mass merchants like Sears, Toys R Us and Carson's close thousands of stores in recent years.

But don't count on the newer online brands to fill all that empty space in malls and shopping centres. Most are picky when it comes to where they want to put their stores, and many have their sights set on the same affluent neighbourhoods and high-end malls.

Retailers that initially made most, if not all, of their sales online plan to open 850 stores over the next five years, according to a report from real estate firm Jones Lang LaSalle.

Some will undoubtedly end up in Chicago. The city ranked a distant fourth among locations where so-called clicks-to-bricks brands open a first permanent store, behind New York, Los Angeles and San Francisco, JLL said. But it's a natural stop for brands seeking their first destination off the coasts, said Phillip Golding, a vice president at real estate firm CBRE's urban retail group.

"Chicago is a big market, so there's an attraction to the trade area and the city as a whole," he said.

When Italian sneaker-maker Koio decided to expand beyond its first store in New York, it looked to its two next-biggest markets: Los Angeles, where it opened a store in October, and Chicago, co-founder Johannes Quodt said. Koio opened a store near the other online-first brands in the Ranch Triangle neighbourhood in November.

Having a physical presence is a way to stand out among the flood of products filling consumers' Facebook and Instagram feeds.

"If you're advertising online, you're next to all these brands," Quodt said. "If you open a store, you become much more real. People perceive you differently."

Lingerie brand AdoreMe, which aims to open about 300 stores in the next five years, says it plans to keep its first locations close to its East Coast headquarters and distribution centres. But the company plans to venture farther as it gains experience with physical retail and has already visited Chicago to look at potential locations, said Iris Voltaire, business and brand development manager.

Like many online-first brands, AdoreMe was initially proud to be store-free, Voltaire said. Its subscription model was designed for online retail, and the company was confident it could help customers pick the right fit, she said.

But over time, the company dropped the subscription-only model and realised some customers still insist on trying before buying, especially for products like lingerie, where fit is crucial.

Even if most companies now recognise the value of letting customers shop both online and in person, it takes time for brands to get the resources and scale to be ready for bricks-and-mortar sales, said Jason Trombley, senior vice president at JLL.

"They want to, and it behooves them to do so, but it's an expensive endeavour," Trombley said.

There are a few factors working in their favour.

Store closures have made landlords more open to working with newer companies that are reluctant to commit to traditional five- to 10-year leases.

"Vacancies have opened things up for digitally native brands to get a really good deal on a pop-up or short-term lease, and they're taking advantage of it," Gabriella Santaniello, president and founder of retail research firm A-Line Partners.

There are also companies trying to make the process of opening bricks-and-mortar stores easier for brands that lack experience.

Koio was able to open its Chicago store sooner than it otherwise might have because it tapped another company, Leap, to assist with finding a location, negotiating a lease, building out the store and finding staff, Quodt said.

The Chicago Koio store was Leap's first, and Leap co-CEO Jared Golden declined to say how many other brands the company is working with.

San Francisco-based b8ta also works with companies that want to outsource some or all of the work of operating stores. Companies that don't yet want to commit to their own locations can pay for space in b8ta's branded stores, one of which is in The Shops at North Bridge on Michigan Avenue.

"Everyone has the aspiration to own and operate their own stores, but getting the infrastructure to do it isn't easy," said Phillip Raub, co-founder and president of b8ta.

Despite growing enthusiasm for bricks-and-mortar among e-commerce companies, they will be only part of the solution for filling empty storefronts left by struggling retailers. Many of those stores were part of big-box chains like Toys R Us and Sports Authority or department stores like Sears and J.C. Penney. They're far bigger than the average clicks-to-bricks store, which measures about 2,800 square feet, according to JLL's report.

Not only are many of those vacant stores too big, but they're often in the wrong places.

Clicks-to-bricks brands tend to cluster in the same malls or neighbourhoods that are already known as shopping destinations. In Chicago, Armitage Avenue in the Lincoln Park community area, Southport Avenue in Lakeview and the Fulton Market district on the Near West Side are among the most popular, real estate experts said.

For many brands, that's by design.

Rob Royer, CEO of furniture company Interior Define, thinks today's consumers would rather visit multiple shops to get the best version of each product rather than one store with a little of everything. Picking spots near brands that specialise in different products but have similar philosophies means more exposure to customers with "a similar perspective on how to shop", he said.

Interior Define had a showroom from the start, but the company saw interest take off after moving to a more visible spot on Armitage Avenue, Royer said. It now has six permanent stores nationwide.

Other retailers want a location that makes a statement. Away, which makes smart luggage, chose a highly visible spot in the Gold Coast neighbourhood for its Chicago store to signal it was "playing with the big boys", JLL's Trombley said.

The store opened in late November. Away wasn't sure it would need bricks-and-mortar stores and experimented with a couple of concepts in New York, Berlin and Paris before committing to permanent locations, said Jen Rubio, co-founder and chief brand officer.

The luggage company thought the stores could help build awareness but wouldn't necessarily be "a cornerstone of the business", she said in an email.

"We were quickly proven wrong when we realised how much our customers valued the in-store experience and getting to interact with our brand and team in real life," Rubio said.

Home goods brand Parachute has come to a similar conclusion. The Chicago store will be the company's sixth, and it plans to open 20 in the next year or so, founder and CEO Ariel Kaye said. Parachute's customers want to touch merchandise like bedding and linens and see it laid out like it would be in a home, she said.

While Parachute and other clicks-to-bricks brands are planning for growth, they're willing to wait for prized spots in the same neighbourhoods rather rushing for quick expansion.

"The retail apocalypse people talk about is more about the huge big-box retailers," Kaye said. "We're going after great neighbourhoods, which are a little more coveted." – Chicago Tribune/Tribune News Service

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How abt Parkson. Aeon. Padini?

2019-01-07 11:33

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