For Emerging Retailers, Bricks Can Boost Clicks

Emerging brands and direct-to-consumer companies are taking center stage in the U.S. retail real estate industry, not as alleged destroyers of brick-and-mortar locations but as converts to those stores.

Companies are acknowledging to real estate brokers and landlords that having a physical location, it turns out, is important. It can substantially drive their online traffic and sales, as the combination of e-commerce and brick-and-mortar can lead to profitability and best serve consumers, according to several speakers.

Today there is a "retail renaissance" and a "convergence and synergistic relationship between physical retail and digital retail," said International Council of Shopping Centers President and Chief Executive Tom McGee. Simply put, it's bricks boosting clicks. And the ICSC has data to back that up.

For example, opening one new physical store in a market results in an average 37% increase in overall traffic to that retailer’s website, compared with web traffic prior to the store’s opening. For emerging brands, defined as those less than 10 years old, new store openings drive an average 45% increase in web traffic following a store opening. By comparison, established retailers experience an average 36% boost in web traffic.

On its floor at the Javits Center in New York City, the International Council of Shopping Centers New York Deal Making conference last week showcased the new categories of retail tenants – digital native, wellness and food – that are filling the vacant space left by legacy companies that have filed for Chapter 11 bankruptcy protection and shuttered thousands of brick-and-mortar stores this year, an estimated 9,000 closings.

In one case study, direct-to-retail brand Rockets of Awesome, a children’s apparel firm, opened a pop-up shop in August at 133 Fifth Ave. in Manhattan. Its sales did so well the company has taken a permanent lease for that space and expects to open more stores, according to founder Rachel Blumenthal.

During the conference's keynote panel on the future of experiential retail, moderated by McGee, the founders of two companies that are operating nontraditional brick-and-mortar sites explained why they were advocates for the need for merchants to have some kind of physical presence.

“We believe, and it’s probably very good news for everybody in this room, that every brand in the world should have a physical platform,” said Tal Zvi Nathanel, chief executive and co-founder of Showfields in New York.

That doesn't mean a company has to have a gigantic store, but rather just "a place to meet the customer for the first time” and for a brand to tell its story to consumers, according to Nathanel.

Showfields has a four-story, 14,000-square-foot building at 11 Bond St. in Manhattan, where at any given moment it hosts 50 brands, most of which are digital-first, and give consumers a chance to touch, interact and engage with their products, he said. Within five weeks, a company can set up at Showfields without having to go to the expense, commitment and risk of signing a lease for its own brick-and-mortar space.

“The city of Nashville has a space within Showfields right now,” Nathanel said.

His co-panelist was Zak Normandin, founder and CEO of Iris Nova, the parent company of Dirty Lemon, a New York-based beverage brand that has Coca-Cola Co. as a major financial backer. When he started the company in 2015, Normandin said he was bullish on selling beverages direct to consumers, through text messaging, rather than through brick-and-mortar locations. But he said he's changed his opinion, and has now opened several The Drug Store sites, where Iris Nova drinks are sold, because he levies consumers want to actually go into stores and experience products.

"That’s why I opened The Drug Store," he said.

The first one opened in Manhattan’s Tribeca neighborhood at 293 Church St. and doesn’t use cashiers for payment. It's an honor system where a patron grabs a bottle out of the refrigerator, texts Iris Nova what they took and are sent a link to check out, according to Normandin.

“Consumers actually want to hear the story of a brand again,” he said. "Only so much can happen online, and there’s a lot that can happen. But I think people do want to be stimulated in a physical setting and that requires a retail experience to achieve that from a consumer standpoint.”

But retail landlords considering leases must be open to companies such as Iris Nova and its Dirty Lemon brand, Normandin said.

“There's obviously a tremendous opportunity for us in retail, but it takes a little understanding from the real estate groups to really understand how to do business in a different way," he said. "We’re not a Sephora. We’re not Rolex, or pick a brand that’s been in retail for a really long time. And I think there needs to be consideration for that in the broader real estate and development world."

McGee said e-commerce is having an impact on brick-and-mortar locations, but that the "retail renaissance" the industry is undergoing is also a response and adaption to changing demographics and consumer tastes. Millennials are spending more of their dollars for experiences, such as food, than prior age groups and retail has to adjust accordingly, he said.