• WWD / By Arthur Zaczkiewicz on May 6, 2019

Think Tank: Why Physical Stores Are Critical for Digital Natives

CBL Properties' Jim Ward shares insights into why it makes sense for digital brands to go physical.

Department store locations were once considered the only means for D2C brands to expand into brick-and-mortar, but digitally native brands are now seeing great value in opening storefronts of their own. In fact, digitally native brands are set to open 850 brick-and-mortar stores within the next five years, according to a recent report on more than 100 top online retailers. And, as the cost to acquire customers online increases, I expect this trend to accelerate.

Here are four reasons why brands such as Adore Me, Untuckit, Casper and other well-known concepts are moving beyond department stores and turning directly to retailproperty owners for support in pulling off successful pop-up and permanent locations.

1. Proprietary space is a powerful marketing tool.

Citing the increased ability to control brand messaging, visibility and the customer experience, D2C brands are investing in new stores of their own. Physical stores allow consumers to experience and engage with a brand, its products and its culture, creating a powerful customer experience and contributing to deeper brand loyalty.

When it comes to e-commerce, shoppers are easily distracted from an online purchase and every click away from a product page could lead to an abandoned cart and unfinished transaction. Acquiring customers online has also become more competitive and more expensive, making physical storefronts even more appealing to digital natives.

2. Physical and online retail are mutually beneficial.

Why not have the best of both worlds? According to a study by ICSC, brick-and-mortar locations increase online traffic by 37 percent. Additionally, physical retail still accounts for about 85 percent of global business-to-consumer commerce. It’s not surprising that formerly pure-play e-commerce brands want a piece of that pie.

Casper announced last summer that it would open 200 stores across the country after discovering its sales grew more quickly in areas where it operated temporary stores. Casper is not alone in its journey, as online start-ups like Warby Parker and Everlane have also added physical locations in an effort to boost visibility and sales. By creating a seamless shopping experience both online and in-store, retailers are evolving in response to changing shopping behaviors.

3. Landlords and mall owners are modernizing their business models to accommodate digital natives’ leasing strategies.

It’s more expensive than ever to operate an e-commerce site. Approximately one-third of retailers surveyed by Forrester reported increases in expenses, ranging from IT and marketing budgets to fulfillment and customer service costs. As the cost of online advertising increases rapidly, D2C brands are shifting their business models to accommodate physical locations. In response to this shift, landlords and mall owners are shifting their business models, too.

Winning retail property owners are increasingly offering strategic low-risk, high-reward partnership opportunities that entice D2C brands to experiment with physical store concepts and test the market for more permanent store locations. The landlord’s role is to create environments where winning retail concepts thrive. By offering smaller retail footprints, shorter lease terms and a wealth of customer data, landlords are cultivating relationships with digitally native brands and creating incubators where retailers born online can thrive in the physical retail world.

Last year, CBL Properties partnered with Rachel Roy to launch the brand’s first in-mall pop-up shop at Oak Park Mall, and generated sales that were 65 percent higher than their historical department store average. We’re also deploying pop-up marketplaces at some of our top-performing retail properties, like CoolSprings Galleria in Nashville, which invite established and emerging boutiques, artisans and entrepreneurs to build brand awareness and test concepts in high-traffic areas of the mall.

4. Technology and data-driven customer insights are transforming the in-store experience.

Online retailers have grown up with a wealth of information available to them about their customers, and their decision to expand into a particular market or center is driven largely by data. Advancements in technology are not only helping to close the gap between brick-and-mortar retail and its online counterparts, but are also leading to true partnership opportunities between property owners and tenants.

For example, CBL is expanding its data capabilities with its new retailer services platform. By expanding partnerships with RetailNext, Meraki, and a powerful SMMS tool, CBL is able to gain insights into many facets of the customer journey including valuable demographic information, traffic flow patterns, dwell times, sentiment, loyalty data and more. Digital programs like this are increasingly important as more digitally native concepts expand their real estate portfolios. In fact, CBL is actively working with more than 25 retail brands that started online but are now expanding into physical stores.

It’s an exciting time in our business, as mall owners and retailers evolve and work together to meet the demands of the modern consumer. Retail is going through a massive transformation, and both winners and losers are emerging. By cultivating relationships with digital natives looking to expand into physical storefronts and embracing the changing face of brick-and-mortar, we can create a new and exciting future for retail.

Jim Ward is vice president of innovation and new business ventures at CBL Properties.