How D2C Brands Are Capitalizing on Physical Stores and Shifting Metrics of Success

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When it was first reported that Amazon was launching physical department stores, the news sent shockwaves through the faltering brick-and-mortar retail sector. For the last decade, much of legacy retail has struggled to capitalize on the advantages their physical spaces offer around engagement, customer data, and point-of-sale showcasing and upselling possibilities. 

Now, digital-first brands are embracing brick-and-mortar. In doing so they are upending the way we measure success in physical retail spaces and rewriting the retail playbook in the process. 

D2C brands clearly see an opportunity in brick-and-mortar. Digital natives like Peloton, Casper, Element Pet Food, Warby Parker, and SmileDirect all have either built or plan to build physical extensions of their digital brands. Here’s what the foray of digital brands into physical retail portends for the industry.

D2C Brands Shift Physical Retail Metrics of Success

Today, online brands struggle to differentiate from competitors. There are just too many products, offerings, and messages trying to claim a user’s attention. The result is a waste of digital ad dollars and a compromised customer experience.  

This reality was only compounded by Covid. In the wake of the pandemic, brands rushed into e-commerce. This further cluttered the space and made life even more difficult for pure-play e-commerce brands. 

External factors also helped to evolve digital perceptions around physical retail. These ranged from the cost of user acquisition going up to the cost of real estate going down to the simple fact that most commerce still happens offline. Additionally, the dawning of the privacy era forced digital natives to rethink how they acquire and retain consumers. 

Current US forecasts project online retailers will open a minimum of 850 stores by 2023.  These less expensive, brick-and-mortar retail environments offer e-commerce brands unique data collection and consumer engagement models. They provide access to polygon and transaction data sets and present powerful branding possibilities.  They can also act as fulfillment centers driving down logistical costs.  

All of these factors make physical retail extremely inviting for digital natives. They also explain why the metrics of success traditionally associated with physical retail don’t make as much sense anymore.  

Branded pop-up  and flagship experiences offer in-store experiences where D2C brand stories can come to life. Brands can host in-store product launches, events, and other marketing initiatives. Stores also present a great alternative growth strategy due to lower costs and the ability to test, move, and adapt.  

For pure-play e-commerce brands, maximizing these brand experiences is often more important than moving product. Mattress brand Casper dedicates more than half of its store to experiences such as interactive exhibits and small bedrooms where customers can test mattresses or hire a sleeping pod for a power nap.

Other D2C brands view physical retail as a way to drive organic marketing and earned media. Warby Parker, for example, offers in-store Instagrammable properties to encourage consumers to share shopping experiences on social media.

Legacy retailers valued KPIs like in-store sales and YoY same-store revenue growth. Digital natives are all about catalyzing social buzz and engendering omnichannel awareness or driving customer intent and, ultimately, conversions (wherever they may occur).   

How are Digital Natives Succeeding with Physical Stores?

To activate against these new metrics, digital-first players are tapping into their digital-first DNA and translating that offline. Thanks to analytics, most D2C players have a much better handle on customer data compared to legacy retailers.    

Unsurprisingly, a new wave of platforms have popped up to capitalize on the shifting benchmarks in retail. D2C brands utilize these platforms to surface data from their new, physical environments to operate more efficiently and navigate the steep learning curve of brick-and-mortar retail.  

Lightbox is a platform that helps digital brands translate the online shopping experience into the physical world by providing a contactless, one-tap way to browse and purchase online-only inventory in a store. Platforms like Leap are using data, systems, and scale to help brands launch and operate omnichannel-enabled retail stores. That can mean analyzing how an e-commerce business will perform in a given market or determining how brands can use data to effectuate merchandising decisions. Others, like Pathr, are helping D2C brands maximize in-store experiences via a “behavior engine” that evaluates the way people and objects move through, and interact within, a physical environment.

Platforms like these translate online sensibilities into offline spaces.  They surface actionable data that helps customize physical stores to fit D2C customer needs. They also help D2C brands maintain the variable cost structures to which they are so accustomed. Similar to the kind of flexibility a platform like Shopify offers e-commerce brands, these new platforms enable D2C businesses to scale up their retail presence quickly and efficiently. 

For many digital natives, physical retail has become an invaluable tool for customer insights and omni-channel growth. As more D2C brands get physical, digital attitudes and values will continue to shift success metrics in retail. Greater emphasis will be placed on experiential marketing and bidirectional revenue synergy when determining the optimal playbook at launch. Valuing in-store sales and YoY growth will take a backseat to proper omnichannel revenue attribution models created and/or fulfilled by a store’s presence.  

As use cases and measurement are redefined and software enabled, these new D2C in-store locations are less likely to suffer the same fate as other legacy retailers over the last decade. They struggled to combat consolidation and constriction in commerce as the retail environment fundamentally changed beneath their feet. For D2C brands. embracing those changes is part of the plan.  

Joe Apprendi is general partner at Revel Partners.