How ecommerce companies benefit from brick-and-mortar stores

A funny thing happened when e-tail menswear pioneer Bonobos tried to sell shirts on its website. The New York City-based brand, which shot to the forefront of the direct-to-consumer online trend in 2007 with its line of pants, believed its model heralded the future of retail and set out to prove it with its first collection of shirts in 2012. Problem was, nobody wanted to buy them.

“Customers kept asking if there was any place they could try them on, though, so we built a couple of fitting rooms in the office’s lobby,” says founder and CEO Andy Dunn. “We didn’t tell many people about it, but it took off through word-of-mouth. Next thing I knew, we were on track to do $1 million in sales—out of our lobby.”

That experience changed Bonobos’ model forever. Today the company has 10 U.S. shops and plans to add 30 more in the next three years.

And it’s not just Bonobos that’s changing its tune regarding brick-and-mortar: In October Amazon announced it will open a store in Manhattan, as well as pop-up shops in California.

Women’s clothiers Nasty Gal and Rent the Runway are opening storefronts, as are subscription services and e-tailers Birchbox (beauty, grooming and lifestyle) and JustFab (shoes, clothing and accessories).

Even Inspirato, a private vacation club, has come to appreciate the power of a physical consumer-facing presence.

Fueling this trend are venture capitalists who finally understand that physical retail isn’t a bad thing. “Back in 2010, holding inventory in a store wasn’t cool,” says Birchbox co-founder and co-CEO Katia Beauchamp, who concedes that she probably wouldn’t have attracted funding at the time if her business plan had included a rollout of retail stores. “But now investors see how the store can add legitimacy to an established online brand.”

At Denver-based Inspirato, a critical part of its latest $20 million funding round, led by tech-savvy firms W Capital Partners, Institutional Venture Partners and Millennium Technology Value Partners, was its plan to open five “experience centers” in upscale U.S. malls.

“An Inspirato membership is one of the only considered purchases where the buyer has no idea how he or she would use it,” admits founder and CEO Brent Handler. “The centers help prospective members understand how they can, and it brings that membership to life.”

None of this surprises Paul Becker, a senior consultant at Short Hills, N.J.-based FitForCommerce and a veteran of developing sales and marketing strategies for multi-channel retail businesses, including Hasbro and “E-commerce may be up by double digits, but brick-and-mortar retail is still responsible for more than 90 percent of sales in the country,” he says. “Expanding to retail stores is just another way for these pure-play e-tailers to capture some of that market share.”

Nor should it surprise established e-tailers that their retail stores do so well right out of the gate. Brooks Bell—who has an eponymous e-commerce optimization firm in Raleigh, N.C., that has worked with American Eagle Outfitters and Brooks Brothers to scale their online operations—says that by the time online brands open their first store, they’ve already figured out the hardest parts of the operation: warehousing, inventory management and logistics. “E-tail is driven by tech people, not creative types,” Bell says, “and as a result they usually have their back end already set up by the time they think of opening a store. It should be a piece of cake.”

Perhaps, but e-commerce companies still have much to learn about face-to-face interactions with customers. “Our biggest insight,” says Dunn of Bonobos, “was that customers didn’t have to walk out of our store with a purchase to be happy with their experience.” In other words, a positive in-store interaction can translate into more online sales down the line.

Similarly, Birchbox had to learn quickly how to maximize the sensory appeal of its store in New York’s SoHo district. “We spent—and still spend—so much time on the store’s look and feel, whether it has too much or too little merchandise, even its smell,” Beauchamp says. “And we’re shocked at how much our customers buy in the store.”

At Inspirato, Handler says he’s most surprised that acquiring a new customer through his experience centers costs the same as it would through the company’s traditional direct marketing. “The cost of rent and staff is equal to what we’re paying the likes of Google for digital advertising and producing direct-mail promotions,” he points out.

Call it a win for the power of old-school customer service and immediate gratification, the kind that drove more than $1.2 trillion in sales during the second quarter of 2014, according to the U.S. Department of Commerce.

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