Retail Store Economics
Ever wondered what goes into opening a store?
In 2012, I co-founded a company called Tictail: a platform to help entrepreneurs build online shops, and a shopping destination for finding the best emerging fashion and home decor designers from around the world. We decided early on to invest in a brick-and-mortar flagship: Tictail Market. Our one and only storefront is located in Manhattan’s Lower East Side, a hip locals-only destination, off the beaten path from the usual tourist shopping meccas like Nolita and Soho. We reach approximately 50 visitors a day— 2,000 in a month—and we’ll capture around 500 emails from the lot. The store makes about $50K a month; rent is $17K. Salaries and expenses bring us close to $8K, and that about covers it.
As you can see by these numbers, we’re clearly not depending on storefront profits to carry the business. Hell, there are independent sellers on Tictail who make more online than we do in in-store revenue. So why does a platform like ours, which reaches millions of shoppers every week, decide to open up a storefront?
Industry At-Large
Let’s take a step back. On a macro-level, the US e-commerce market is a $400B industry (wow) and yet that’s only 12% of total retail sales in 2016. In this day and age, e-commerce is the underdog when it comes to share of wallet—but chances are, not for long. Online sales are increasing 15% YoY, quickly outpacing brick-and-mortar, which has stagnated at a mere 2.2%.
With this annual influx in traditional shoppers becoming online shoppers, we’re seeing the effects of one channel impacting sales into either channel. More specifically: 38% of all retail sales are already influenced by prior online research and have been expected to influence $0.64 of every dollar we spend in retail stores. No longer can online and offline operate independently of each other. Especially since we’re seeing consumers who are starting to shift to digital, but who aren’t pleased about it. For example, eight in 10 Americans are online shoppers but six in 10 still prefer buying from physical stores. More than a third of respondents said that they don't like waiting for items to ship, and 90% said they are more likely to make a purchase when receiving assistance from a knowledgeable store associate.
The future is moving toward online, but for many customers, the joy of shopping is still synonymous with an in-person experience. It’s easy to see why online-first businesses like Warby Parker, Bonobos and Away have entered the world of brick-and-mortar.
Google offers prime real estate on the search results page for businesses with a physical presence.
Putting a Stake in the Ground
At a time when anyone can create a professional-looking website at no cost and start a US corporation regardless of where they are located in the world, having a physical presence is a clear metric of brand legitimacy and perceived success. Google has realized this, and offers prime real estate on the search result page to the physical presence of a business.
Taking into account the range in real estate prices (especially when it comes to geography and square footage), startups have the surprisingly affordable opportunity to leverage a brick-and-mortar to boost brand trust signals, offer an in-person touchpoint to a digital brand, and take advantage of the space as an additional marketing resource for building brand awareness and rallying the community.
A Marketer’s Favorite Phrase: Brand Awareness
Tictail was founded in Stockholm and quickly became a big name in a small pond. We launched a unique product, we raised significant funding quickly, and we were referenced alongside household technology names, like Spotify and Skype.
When we opened our second office in New York, our local brand perception was zero. Outside of having a fantastic VC firm behind us in New York (Thrive Capital) and thousands of brands coming to us every day to start online stores, we were still very much unknown to shoppers.
We needed local brand awareness—and what better way to achieve that than a permanent advertisement on one of the coolest corners of New York City, with actual products that shoppers could see and touch and buy? While our reputation as a rising New York brand was certainly boosted by our buzzy marketing activations, the hiring of NYC talent, and the onboarding of cool, local designers, Tictail Market literally put us on the map in this city. It gave us street cred. It’s a daily reminder to locals that we have a presence in NYC, and an amazing product offering for shoppers as well. Within a year of our opening, the tone shifted from, “Tictail? Never heard of it...” to, “Tictail? I love that store on the LES! Did you know they have a website, too?” The question is not how much we make from our store, but how we derive all this value at essentially no cost.
Three Pillars
The value we derive from our store is not primarily monetary—it’s motivated by the desire to understand, promote, and bring together our community. Brands today beg, claw, and bite for seconds of consumer attention. But when someone enters your storefront, the rules change. For a few minutes, a shopper’s focus will be on your brand and your brand only. This is a precious time to learn, teach, and engage.
Learn
For any data driven organization, the benefits of capturing consumer insights from an in-store experience are endless. I personally love digging into user behavior to understand why differents cohorts of customers gravitate towards various sets of products. While this online analysis helps guide product development, it’s a blind data set that will only tell the story by the numbers.
In-store, you’re able to witness the entire shopping journey. You can watch as a customer browses product by product, or thinks about pricing, sizing, even brand messaging. You can listen to the questions that shoppers ask, something that has repeatedly helped Tictail shift our messaging away from being a platform that supports small businesses to the place to shop directly from emerging designers around the world.
Teach
Again, this is not necessarily about driving sales (although it usually helps). It’s about taking a potential shopper on a journey through your brand’s world. How do you approach your brand story? What sets you apart from competitors? How are you working to build a real, personal relationship with each and every customer?
One element of Tictail Market that has resonated with visitors is our bio card wall. We have a dedicated area in the back of the store with takeaway cards that tell the stories of every Tictail brand sold at Tictail Market. It’s a way to connect the brands and shoppers, and make the shopping experience feel a lot more personal.
Thinking about a storefront not only as a retail presence—but as a gallery that showcases your brand, your point of view, and your community, too—is the strongest way to transform customers into brand ambassadors. For each individual who visits your store, you should aim to reach another 50 through their extended network.
Engage
If content is king and distribution is queen, engagement is the knight in shining armour.
A storefront is the best possible way to engage with your community, whether it’s through in-person events, social media activity, CRM content, or larger brand partnerships. It can be the basis of building out an influencer program, of hosting press briefings, securing local media coverage, and creating an easy destination to borrow product and even use as a mock showroom. Consider it an event space, a meeting ground, an interview venue, a photo studio space, or a storage center. Whatever your choice, your store is an indispensable resource for connecting with your brand community. (Additional expert advice: stock beer.)
One size fits all?
A notable caveat to the benefit of building an in-store presence is industry. As much as people enjoy the in-person shopping experience, industry insights reveal how in some industries—particularly commoditized goods and electronics—suffer from people browsing in-person, and then searching for the same item at a lower cost online. The great benefactor of this, of course, is Amazon. One way we see this shaping the brick-and-mortar trajectory is the use of storefronts specifically as browsing centers, with no held stock.
As we continue to see launches of mobile tools like Pinterest Visual Discovery, which are designed to support the conversion of in-store browsing to online buying, it will be interesting to see how this further accelerates the retail-to-online switch.
