UPDATED Wednesday December 18, 2019, 9:08 a.m.: Direct-to-consumer brands represent a ray of sunshine for New York City’s soft retail market as many begin looking for their first physical stores.
And the real estate industry is greeting them with open arms, issuing research this week showing that direct-to-consumer brands see online traffic rise by 37 percent after opening a physical store.
Tom McGee, CEO of the International Council of Shopping Centers, which produced the report, called it proof of “a synergistic relationship” and that brick-and-mortar has a place in retail’s future.
But internet-based brands searching for space come with big demands: lower rents, flexible terms and direct access to customer data. They also have a distinct vocabulary and a flair for style.
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At the International Council of Shopping Centers’ annual New York expo last week, representatives from direct-to-consumer brands literally stood out from the usual, dark-suited suspects.
Rent the Runway’s Gaby Etrog Cohen glittered in a sequined rose gold dress as she explained why Nordstrom let her clothing rental company establish drop-off locations within its stores. (It drives foot traffic.)
Rockets of Awesome founder and CEO Rachel Blumenthal sported a trendy polka-dotted skirt with sparkling black heels during another panel where she explained why her apparel brand opened its first store in Flatiron.
And, finally, during a lunchtime keynote, Zak Normandin, founder of beverage company Iris Nova, sported a light-blue denim outfit while revealing why he believes consumers want to have a texting relationship with retailers (to request restocking of their favorite products).
Though pop-up shops are nothing new, Frank Greco, Savills’ managing director, said the concept is “just now becoming more mainstream.”
But that doesn’t ease the “sticker shock” many direct-to-consumer brands experience upon hearing the asking rent, renovation costs and other fees such as common-area maintenance charges, Greco added.
“There is a learning curve,” said Jordan Cohn, a broker at SCG Retail. He said the move he recommends as brands begin looking at brick-and-mortar is to hire a development director or head of leasing that knows real estate.
Third parties, such as Showfields, are cropping up to help bridge the gap.
“Opening a pop-up is not such a simple thing,” said Amir Zwickel, Showfields’ co-founder and chief real estate officer. “Finding the space is really the easy part today. The challenge is how to activate it.”
Showfields typically charges brands $5,000 to $45,000 per month to take care of every detail from hiring and training in-store staff to design, attracting foot traffic, and capturing and relaying customer data to the retailer. The firm has one location at 11 Bond Street but is planning to open two in other cities next year.
Another company, Guesst, offers to sell direct-to-consumer brands’ products in pop-up stores they staff and build out for a monthly fee of $1,000 to $5,000 per location and turn over 20 percent of sales revenue.
But many brands are doing it themselves.
Blumenthal, for example, said Rockets of Awesome’s first store came about through a pop-up lease. She declined to elaborate on the rent, but said her preference is always to work with a broker because “you don’t know what you don’t know.”
Melissa Mash, CEO and co-founder of handbag brand Dagne Dover, said she negotiated a 15-month pop-up lease for her Soho store with broker Adam Henick of Current Real Estate Advisors, formerly operating as Warwick Capital Management, which is focused on direct-to-consumer brands.
While speaking on a panel at the New York expo, Mash said she intends to open multiple stores, despite continuing to expect about 75 percent of sales to continue to be made directly online. But the CEO said that tenant flexibility and lower pricing needs to be present to interest her.
“Brands like us are not going to be willing to sign a 10-year lease,” she said. “It’s just not the same landscape anymore and it’s certainly different options for brands like ours where we can spend our money elsewhere to acquire customers.”
Correction: In an earlier version of this article, Showfields’ co-founder and head of real estate Zwickel’s title was listed as head of retail. Showfields’ price ranged was also corrected.