VC says it sees a ‘renaissance’ for brick and mortar retailing
Kevin Campos, left, partner at Fifth Wall who leads the Retail Fund’s investments in omnichannel … [+]
Fifth Wall Ventures
Tuesday’s news that real estate-focused VC firm Fifth Wall Ventures closed a $100 million fund to invest in digitally native brands’ brick-and-mortar aspirations re-ignites that familiar debate around relevancy of stores.
Fifth Wall executives told the Wall Street Journal this week that the fund will serve as matchmaker between its investors, such as retail landlords Acadia Realty Trust and Macerich, and digital retailers that envision their next stage of growth in the world of physical stores.
Direct-to-consumer brands’ desire to build a store strategy remains solid, even as traditional retailers like Macy’s, Pier 1 Imports, Papyrus and Bose announce store closings. Already this year, more than 1,250 U.S. stores have closed, according to Coresight Research. That comes on the heels of a record-setting 2019, when the global marketing research firm reported 9,300 U.S. stores shuttered.
Stores are not going away. Direct-to-consumer retailers, armed with proprietary data about their customers’ unique preferences, are positioned to leverage bricks and mortar in new ways, and the rising costs of customer acquisition online is a motivating force.
“Retail is not dead. DTC is not dead. What is dead is thinking that any smart MBA could ‘growth hack’ their way to a real business through cheap digital customer acquisition,” says Matt Higgins, cofounder and CEO of RSE Ventures. “Ten years ago, that might have worked, but now, every mature company is chasing those same Instagram eyeballs, driving up CAC [customer acquisition cost] faster than a VC could shovel money back into a startup.”
Higgins, a recurring shark on ABC’s “Shark Tank” who teaches a “Moving Beyond DTC” course at Harvard Business School, says DTC companies can develop intimate conversations with customers “at warp speed.” However, he adds, “that conversation has to be taken offline very quickly to build a lasting business.
Matt Higgins, CEO and cofounder of RSE Ventures
“DTCs that have any form of physical touch point enable customers to form a deeper bond with their brand, which translates to lower [product] returns, higher average order size and more purchases over the long run,” Higgins says. “Non-traditional retail opportunities inside places like Showfields and Nordstrom are popping up to help DTCs dip their toes into retail before they make expensive, high-stakes real estate commitments.”
Digital brands that once relied on Google and Facebook to power their growth are encountering the law of diminishing returns, adds Jason Goldberg, chief commerce strategy officer for Publicis.
“Many of these firms have found that a brick-and-mortar presence is the cost-effective way to grow beyond that initial plateau,” Goldberg says. “So Fifth Wall has certainly hit upon a viable market helping those DTC brands make the leap to brick and mortar.”
Among the emerging omnichannel brands and retail concepts Fifth Wall has invested in are Allbirds, Carbon38, Cotopaxi, Foxtrot, Heyday, Industrious, Interior Define, Madison Reed, Taft and UNTUCKit.
Executives at Fifth Wall Ventures have a firsthand look into what drives digital brands. Fifth Wall cofounder and managing partner Brendan Wallace was on the founding team of the Cabify ride-sharing service in Latin America. Prior to joining Fifth Wall, Kevin Campos, the partner who leads the firm’s Retail Fund investments, was chief retail officer for Combatant Gentlemen, a digitally native menswear brand.
“New e-commerce brands know the importance of being wherever their customers want them to be at all times—they simply cannot reach their full potential if they remain solely online,” Campos said in a statement today. “However, digitally native brands often aren’t familiar with the challenges of retail real estate expansion and we’ve observed that many traditional VCs lack the experience to be able to meaningfully engage on issues like site selection, store design, merchandising and staffing. Fifth Wall aims to support brands on these very issues.”
Direct-to-consumer brands “know how to work a room,” one DTC expert told me, explaining these upstarts understand how to exploit the proprietary data they collect to put consumers front and center, to personalize the shopping experience and leverage various digital channels more effectively than traditional retailers.
With their inherent solutions-driven mindset—selling “better sleep,” for example, rather than just selling mattresses, and promoting “pet wellness” as Just Food For Dogs advocates, DTCs may prove that brick and mortar can still learn a few new tricks.