Blending the Online and Physical Store
Retail

Big Bets on Small Formats and other Brick and Mortar Alternatives

By Megan Biner, Industry Research

While many retailers are closing hundreds of stores, succumbing to pressure from competitors and fickle shoppers, some online retailers are doing just the opposite—scrambling to establish a physical presence to serve younger shoppers for whom in-store shopping is on the rise. Our survey of 1,200 consumers and 400 retail executives across the U.S., U.K. and Australia found that Gen Z and millennials (43%) are most likely to increase their in-store shopping this year followed by Gen X (29%) and baby boomers (13%). Yet, because the average asking rent in Q1 of 2019 reached $17.84 per square foot, the highest price since 2008, retailers are looking for creative ways to offer those in-store experiences. Here’s how retailers can allow consumers to interact with products while avoiding the typical rental, stocking and build-out process.

Showrooms

Retailers traditionally occupy large spaces to accommodate a showroom and inventory storage. This is especially problematic for retailers that sell bulky items like mattresses, furniture, workout equipment, etc. Many retailers are downsizing or eliminating store stockrooms completely, opting instead for showroom-style stores at a fraction of the cost. Target is leveraging showroom stores to infiltrate more densely populated areas with its Open House idea. These stores occupy an average of 40,000 square-feet which is a little less than a third of the size of a full-size Target store. Assuming $17.84 per square foot, Target is saving $1.6 million per month on each small format store. Similarly, post-bankruptcy Sears is focusing on its new Home & Life concept with small format stores focused on showcasing mattresses, appliances and smart home products.

Retail-as-a-Service

Retail-as-a-Service providers like b8ta and Leap offer services for digital native brands to establish an in-store presence without the associated risk and barrier to entry. Former Nest executives launched Built by b8ta, a service that helps brands launch a brick and mortar location for a flat monthly fee. The company estimates that its offering represents a 50% savings over a do-it-yourself retail store. b8ta’s solution offers features like staffing, logistics and data analytics. Lower costs can be attributed to b8ta’s relationships with national real estate owners, architects, contractors and designers. And, on the staffing side, b8ta operates many stores in the same shopping center, like famed Santana Row in Silicon Valley, which enables easier operation and management for multiple brands.

b8ta
B8ta highlights the cost savings of their services. Source: b8ta

Leap offers a similar service for brands looking to launch an offline presence. Leap handles the real estate lease and financial commitments, staffing, technology integration and experiential design. Instead of charging a monthly fee, it takes a percentage of sales, which helps mitigate risks for brands.

Pop-up Stores

The pop-up concept dates back centuries, but the modern version was made famous in 1997 by Patrick Courrielche when he developed The Ritual Expo in Los Angeles. Also referred to as flash retail, it is everywhere from themed restaurants and bars to short-term bookstores. Pop-up stores allow brands to set up a physical location for a limited time in the hopes of generating buzz. For digital-native retailers like Glossier, pop-ups allow consumers to see and feel products they wouldn’t normally be able to try out before purchasing. While other online retailers use pop-ups to launch new product lines, like Birchbox Man. Appear Here, a marketplace for short-term retail space rents real-estate for pop-ups ranging from $24 per day to up to $45,000 per day.

Brand Collaborations

Other online brands opt for collaborations that leverage an existing store infrastructure. Bed-in-a-box online retailer Leesa formed a relationship with furniture and home décor store, West Elm. This partnership allows potential customers to test Leesa mattresses in person and gives West Elm a new avenue for in-store traffic. Other collaborations are more about brand awareness and building a personal relationship with consumers through new and interesting channels. Warby Parker and Arby’s joined together to create a novel April Fools prank around onion rings, called the “WArby’s Onion Ring Monocle” and sold WArby’s branded merchandise like shirts, hats and eyeglass lens cloths at Arby’s locations to raise visibility of both brands.

Shared Spaces

Independent storefronts may not be plausible for many small businesses, so some emerging retailers are looking to shared marketplaces. Operating like a year-round farmer’s market, The Makers Market in California offers a place where American artisans can sell products alongside similar retailers who share the cost of the space. WeMRKT is a similar concept developed by the popular shared workspace company WeWork, where products made by the WeWork community are sold in a shared space. Products showcased in stores are chosen based on a pitch competition and WeWork collects a cut of the sales of each product. Even Amazon is dabbling in this approach with its 4-Star stores, offering consumers the ability to browse the highest rated products from their ecommerce site in person.


Sales Chat

Interested in growing your business with NetSuite?

Start chat