DEATH OF PUREPLAY RETAIL

INTELLIGENCE REPORT DEATH OF PUREPLAY RETAIL RETURN ON INVESTMENT

Financial Returns Stores provide more than enhanced customer experience. As evolved retailers have transitioned to bricks-and-mortar, they have seen financial returns on their investments. Stores are making sales—in 2014, stores accounted for 5 percent of Frank and Oak sales, 41 20 percent of BaubleBar sales, 42 and 60 percent of Blank Label sales. 43 In March 2015, Bonobos womenswear spinoff AYR reported that its Chelsea showroom accounted for about 20 percent of the brand’s overall sales. 44 Evolved retailers have also benefited from a general uptick in average order values offline. 45 Nearly three quarters of multichannel customers are more profitable than their single-channel counterparts, 46 and Rent the Runway, Blank Label, Bonobos, and BaubleBar all report higher average order values in-store than online, where customers are more likely to make both high-value and incremental purchases. Stores allow customers to interact directly with sales associates, who can encourage additional purchases and allay fit concerns, a process that Rent the Runway credits directly for its higher in-store transaction sizes. 47 Stores have also bolstered online sales. In November 2015, Blue Nile CEO Harvey Kanter cited an uptick in e-commerce sales in the area surrounding Blue Nile’s first store 48 —a second-order benefit that further supports the value proposition of stores. Indochino also reports increased online revenue from its offline investments—the company has seen awareness and sales grow four-fold in regions surrounding each of its new stores. 49 Not only is brick-and-mortar retail profitable in and of itself, but stores also act as marketing vehicles that boost awareness and online sales in surrounding areas. 41. “ Frank & Oak Raises $15M to Make Menswear for Creative Professionals ,” Wall Street Journal, September 4, 2014. 42. “ With $10 million, BaubleBar continues its foray into brick-and-mortar retail ,” Fortune, July 29, 2014. 43. “ Custom men’s wear shop on expansion track ,” CNBC, June 29, 2014. 44. “ Can $1 Home Try-ons Help an Online Denim Brand Win New Customers? ” Fashionista, March 4, 2015. 45. “ Sales Down, But Sales Per Shopper Up for Physical Stores ,” Retail Touch Points, May 22, 2015. 46. “ The Omnichannel Challenge: Strategies That Work ,” Oracle, 2014. 47. “ Bonobos, Rent eh Runway Navigate Clicks-to-Bricks Evolution ,” Apparel, November 1, 2014. 48. “Custom Suit Startup Indochino Wants More Physical Stores,” Bloomberg, December 8, 2015. 49.Ibid.

Death of Pureplay Retail: Percentage of Total Sales Occurring Offline* 2014**

60%

20%

20%

5%

Blank Label

AYR

BaubleBar

Frank & Oak

Source: Press Reports. * Baublebar data includes sales at Nordstrom. ** For brands with data available (AYR data for 2015).

39

January 12, 2016