The new capital brings Udaan’s total funding to date to US$1.15 billion. Indian Business-to-Business (B2B) ecommerce startup Udaan announced on January 6 that it has raised US$280 million in additional financing from existing investors Lightspeed Venture Partners, DST Global, GGV Capital, [...]
Unpacking the how and why of digital-first luxury brands opening physical retail locations
With the rise of Shopify and the founding of glossy digital brands like Away, Casper, and Recess, retail is no longer restricted to a physical shopping experience. These luxury digital-native brands built up loyal online followings through innovative branding strategies, convincing consumers to put their trust in products they had never touched before. Ecommerce became the final word in retail, and brands created new ways to reach consumers digitally.
The success of digital-native brands not only proved their viability, but the ability to inspire cult-like followings–setting a new standard for luxury goods. Like traditional luxury, such products came at a somewhat inflated price tag. However, these brands stayed clear of the hallmarks of luxury–imposing heritage buildings, expensive and unethical practices, branding based on wealth–and instead, chose values-based branding and no physical retail location at all.
Things appear to be coming full circle now. Direct-to-consumer (D2C) glasses brand Warby Parker introduced the Warby Parker Class Trip–a yellow school bus outfitted as a showroom that drove around the United States–in 2012, following up with their first permanent retail location in 2013. Cosmetics brand Glossier and luggage brand Away opened their first permanent locations in 2016. In 2019, there were over 1,700 brick-and-mortar stores under the umbrella of digital brands, with another 850 expected to come into being by 2023 (Forbes).
One of the primary drivers behind this phenomenon, according to Jasmine Bina–Founder and CEO of branding strategy firm Concept Bureau–is that digital brands are in search of a new demographic of consumers. They’re trying to attract the later adopters, who are perhaps more accustomed to the traditional, try-before-you-buy retail experience.
“They can go in, and they can experience the ethos and idea behind a brand without having to take that risk online and then decide if they want to buy the product,” says Bina. Tellingly, the words Bina uses–‘ethos’ and ‘idea’–provide a glimpse into the calculated world of D2C branding that few consumers ever get to see for themselves.
A crowded ecommerce marketplace
Digital native brands have often turned to unorthodox methods of accessing consumers out of necessity. Warby Parker, for instance, has a try-at-home policy that gives buyers the option to try out glasses and return them. When its waiting list exploded with new users, the company tested its first showroom in Co-founder Neil Blumenthal’s dining room. Similarly, Heidi Zak, Co-founder and Co-CEO of lingerie brand ThirdLove, was pushed toward brick and mortar by the rising costs and lower efficiency of Instagram advertising.
“A few bad players that took advantage of the Facebook ad ecosystem kind of ruined ad prices for everybody. But that’s how most D2C was built,” says Bina.
In the early days, she adds, such brands were pumped full of venture capital and able to use it to aggressively market to users, drowning out all competitors. However, there were two flaws in that plan: firstly, investors weren’t accustomed to putting capital into consumer goods companies. They gave these companies tech valuations, pressuring them to reach impossible growth rates. Secondly, being louder than the competition simply isn’t sustainable as a branding strategy.
“The user has gotten more sophisticated. The ad landscape has gotten more competitive. The barriers to entry for all these industries have gotten super, super low,” Bina says.
Also, the dream exit strategy–acquisition by one of the big incumbents like Kimberly-Clark or Unilever–soon became out of the question as the incumbents’ corporate innovation departments began launching their own buzzy startups to disrupt themselves before a startup could get to it.
“It was a model that was easy to copy. So there’s really nothing inherently advantageous about D2C anymore–it’s just another option for figuring out how to launch your company and go to market,” says Bina.
With obsolescence staring these brands in the face, it came time to return to the old way of doing things and open brick-and-mortar stores–but with the millennial-driven mindset that’s quintessential to today’s upcoming brands.
Branding in the millennial age
When viewed through a millennial lens, traditional luxury has almost become a bit of a has-been. Where fur coats and expensive champagne were once the status symbols for sophistication and taste, the implied classism and rampantly wasteful practices have turned consumers off these brands. Now, it’s responsible production and aspirational values that matter to big-spending consumer groups–pushing them to make purchases from brands that echo this mindset.
“When you feel like you’re buying this larger narrative, you’re willing to pay a little bit of a higher premium, because when you wear those products or carry those products, you’re kind of signaling to the world that those are the values and ideals that you hold,” says Bina.
In large part, launching brick-and-mortar stores is more of an ode to a company’s ethos than its product, Bina says.
“There are plenty of places where they don’t stock too much product, and that’s on purpose–they don’t really see the store as a place to sell a product, they see it as selling the brand,” she says.
This strategy is what gave U.S. consumers the Casper Dreamery, a luxurious concept store from mattress startup Casper, where visitors can book 45-minute nap sessions on Casper mattresses before enjoying a cup of coffee and getting back to work. Recess, which sells beverages infused with marijuana-based compound cannabidiol (CBD), opened a location in 2019 designed to replicate the calming influence of the brand’s products.
“In this space, I want you to feel like you are walking into Instagram […] or walking into a billboard,” Recess Founder and CEO Ben Witte told CNBC in a 2019 interview.
Designed unlike anyone’s expectation of a retail store, these spaces are undeniably made for social media. Visitors who explore, take photographs, and share them on Instagram, provide a loop of organic attention that keeps feeding into itself.
“It kind of makes you wonder–what’s the real product here?” says Bina. “You can drink a bottle of Recess, and you’ll feel calmer and more creative and inspired according to them […], or you can go to the Recess store and have an experience where you might leave feeling those same things. And you don’t have to necessarily buy a product, but you’ve experienced the brands in a meaningful way.”
The risks and rewards
In cases like these, the numbers usually tell a compelling story, but many of these brands don’t publicly release revenue figures. However, Gartner’s L2 Intelligence Report: Death and Pure Play Retail noted that retail stores could provide a significant boost to a company’s online traffic. Having a physical location is beneficial both in terms of Google rankings and credibility to the target audience.
The relationship between cost and revenue becomes more complicated when it’s a digital native brand going brick and mortar, especially when the brand in question isn’t even really using the space to move product. For D2C brands, it’s all about using physical space to complement the brand and build a greater understanding of their customers.
Opening retail spaces also allows brands to interact directly with customers, engaging with them more deeply to collect contextual data on their buying habits. However, considering that these stores aren’t entirely built for sales, the risks of investing in brick-and-mortar become apparent in many situations.
For instance, the outbreak of COVID-19 has dramatically reduced foot traffic to retail stores, diluting the beneficial branding impact they offer. Additionally, after building a considerable amount of brand equity online, any events that run counter to these values–for instance, the late-2019 Verge article that exposed toxic work culture at Away–can immediately tarnish the brand’s image.
Ultimately, the ‘customer journey’ is an all-important process that is essential to get right–giving consumers a special connection or tribe-like feeling of belonging with the brand.
“I don’t think you have journeys and retail like you do when it comes to D2C brands and their stores,” says Bina. “They really want you to leave somewhat of a changed person, even if just a tiny bit.”
Some might argue that the cool calculation put into optimizing retail stores for customers takes some of the shine out of these unique customer experiences. Still, digital brands have learned how to add a new dimension to their sales process. As consumers, it’s up to us to decide whether we want to subscribe to it.
Nayantara is Jumpstart’s Editorial Associate.