August 6, 2015
Some of the most funded, fastest growing startup brands, including Warby Parker, Bonobos, Birchbox, Etsy, Rent the Runway, and Harry's, who all started online-only, are moving their stores offline and opening up independent brick-and-mortar locations. What are the top three reasons these ecommerce startups are moving offline?
1. E-Commerce is not as high margin as expected
When online-only brands started popping up eight years ago, one of the main promises was it would be cheaper for consumers but also allow the brand to maintain a high margin. However with the combination of sales costs, fulfillment and heavy marketing expenses to build brand awareness in a crowded digital landscape, finding operating margin has been challenging. But with stores, Warby Parker's Co-CEO, Neil Blumenthal says “triple threat – profitable, brand elevating and awareness generating.”
2. A store is a media expense
Having a physical footprint is a very ROI effective form of marketing. Warby Parker states they're doing around $3,000 per square foot, which puts in the same category as best-in-class retailers like Apple and Tiffany's. Instead of investing in online banner ads, search ads, and print, creating experiential stores where you can establish deep emotional connections, can often provide brands with better economics. When a customer is in-store, the average order size can often be higher.
3. Fit is a challenge being online-only
With 90% of clothes still being bought offline, and 30-40% of clothes being bought returned, the aforementioned fulfillment and customer service costs can quickly add-up. Further it provides a strong barrier for potential customers to order.
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