Online brands turning to traditional storefronts

When Vanessa Barboni Hallik began working on a new line of sustainably sourced women’s apparel, she envisioned a direct-to-consumer model that would bypass traditional retailers and the complicated, often revenue-draining world of wholesale.

She started her company, Another Tomorrow, as a digital business six weeks before the onset of the pandemic, relying on social media and search engine advertising to reach potential customers. But opening a physical store was always part of her plan.

Barboni Hallik, a former Morgan Stanley managing director, focused on Greenwich Village, a robust residential Manhattan neighborhood that had a surfeit of storefront vacancies even before the pandemic.

“I felt a gravitational pull toward a more residential space,” she said. “And it felt meaningful to make an investment in an area that needed a shot in the arm.”

Barboni Hallik is not alone among e-commerce entrepreneurs who are turning to physical stores. Many retailers ramped up their e-commerce efforts while Americans were stuck at home during lockdowns, but for others, the pandemic presented new real estate opportunities.

Some larger online brands — like Warby Parker and AllBirds — have expanded with physical locations for several years, and smaller companies are now experimenting as well, opening free-standing shops, leasing from a retail service or securing short-term spaces in other stores.

Business owners are motivated by multiple factors. Some have always included brick-and-mortar outposts as part of their strategy, adopting what’s known as an omnichannel approach, which provides a seamless shopping experience across desktop, mobile and physical platforms.

For others, renting a store has become more attractive because the cost of acquiring customers through social media advertising “has become prohibitive,” said Michael Brown, a partner in the consumer products and retail practice at Kearney, a consulting firm. The tipping point varies, he added, but it “typically occurs where growth has slowed and the cost of acquiring new customers has increased.”

Estimates of an often-cited retail metric known as customer acquisition costs range from $100 to more than $800 per customer, said Daniel McCarthy, a professor at Emory University’s Goizueta School of Business, who has done extensive research in the field. In addition, changes to Apple’s operating system for its mobile devices make it harder to send targeted ads to potential customers; Google recently announced work on privacy settings for its Android operating system.