Ecommerce Retailer Indochino Ventures into Brick-and-Mortar

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After years of cataclysmic prognostications, physical retail may have found its place in the future of commerce. Over the past year, a bevy of ecommerce companies — once the self-proclaimed destroyers of the store — have started to invest in brick-and-mortar retail in search of an edge in an extremely competitive ecommerce market.

The latest comes from Indochino, a Vancouver-based apparel brand that made its name selling custom suits online. The company, which raised $17.5 million in funding last year, opens its first permanent retail showroom in New York today in a move that builds on a series of pop-up shops that the apparel maker has hosted in cities across the country for the past few years.

Kyle Vucko, the retailer’s founder, says a physical presence has quickly become a necessity for the high-end apparel business online as the industry moves beyond early adopters to a more mainstream audience of consumers. For Indochino, Vucko says, the stores provide an important on-boarding tool for new customers who want to feel fabrics and receive professional tailoring before committing to a purchase.

In 2011, the company began hosting pop-up shops in cities across North America to bring fabrics and tailoring services to customers for a few weeks at time. During the early days, the events were hosted in unused retail spaces, and offered little more than a representative from the company, a few sample fabrics as well as a handful of temporary workers. Employees took orders by hand, entering the information into the companies website manually.

Today, the process is a bit more efficient, but still holds onto the ecommerce roots. The stores remain fairly simple — white-wash walls and a handful of now-full-time employees. Employees use an iPod touch to enter users’ orders and measurements into a custom app, but the software still runs off of the same back-end system that manages an order online. The new stores — five more of which will open before the end of the year — will even offer a handful of products exclusive to the location.

Vucko, who started the company in 2008, says that running a permanent store is both operationally and economically more efficient than the ephemeral pop model. There’s no tear-down cost; there are employees who can learn the ins and outs of the company; and most important, the cost of building the shop is amortized over years not weeks.

But financially, the cost-intensive brick-and-mortar presence is supported by the more profitable ecommerce business, correct? Not necessarily, says Vucko.

“On its face, ecommerce overall has lower costs than physical retail, but you tend to make up for those costs with service guarantees, shipping and return shipping — and in some cases it actually nets out to the same or more than retail,” says Vucko. “A lot of current ecommerce retailers either have come to that conclusion or are going to — particularly if your proposition is driven by quality and value, not just price.”

Other online apparel brands been vocal about their about-face when it comes to physical retail. The New York-based Bonobos, whose founder Andy Dunn was an ardent believer in the ecommerce-only model, raised another $50 million in July to expand its guideshops — small showrooms similar to Indochino’s stores — across the country.

But the decision by ecommerce companies to enter physical retail should not be seen as a validation for the future of legacy retailers. The archetype of 20th century retail — stores with footprints packed with inventory always in between dramatic sales — is as outdated as ever, and the growth of these new brands offline should only accelerate the decline of the incumbents.

These new companies often omit seemingly definitive aspects of retail. For instance, the stores developed by Indochino and Bonobos do not hold inventory. Instead, customers enter an order which is delivered as if it was made online. The lack of inventory allows these companies to sell a wider array of products in stores with smaller footprints located in higher-traffic areas.

The future of physical exchange will not be the same as its past. The endless warehouses and all-in-one department stores will likely fade away, replaced by smaller shops aimed at complimenting — not competing with — the digital experience.

Digital networks are cheap and fast. The physical world is rich and slow. Decrying one or dismissing another ignores the opportunity that lies when the two come together.

Steven Jacobs is Street Fight’s deputy editor.