Page 34 - Bloomberg Businessweek-October 29, 2018

◼ BUSINESS Bloomberg Businessweek October 29, 2018

Everlane Inc. founder Michael Preysman, who Sears, U.S. mall vacancy rates hit 9.1 percent last
once said he’d rather shut down his clothing brand quarter—the highest since the depths of the reces-
than sign a lease, now operates two stores and is sion. So digital natives often figure it makes more
considering more. Casper Sleep Inc. has about sense opening stores than relying solely on pricey
20 stores and plans to open 10 times as many over Google and Facebook ads.
the next three years. Warby Parker expects to have Retail landlords understand that these upstarts
100 stores by the end of this year—giving it the big- typically require less space than traditional mer-
gest store fleet among these upstarts. In September chants because many don’t carry inventory. In
the trendy eyewear store opened a branch in a for- response, some have created recruiting teams target-
mer GameStop next to a Chick-fil-A in Raleigh, N.C. ing digital natives and are offering sweetheart deals
In April it opened in Alabama. And Bonobos, known and perks once reserved for established brands such
for its hipster vibe, recently opened in Lexington, as Apple Inc. or Barnes & Noble Inc.
Ky., and will soon have more than 60 locations. Some landlords aren’t demanding the once-
Untuckit, which has sold shirts online since 2011, standard long-term commitments and instead offer
tested a pop-up in late 2015 in Manhattan and now leases as short as a year, with extension options.
has almost four dozen permanent locations, includ- That flexibility applies to temporary locations, too,
ing one in the Mall of America. It wants 150 by the with spaces dedicated to rotating pop-ups so ten-
end of 2020. “A lot of people ask, ‘Why are you open- ants can test concepts. To further reduce risk, some
ing stores so fast?’ ” says founder Chris Riccobono. landlords offer to help pay for remodeling and take
“Well, all of our stores are performing well.” a small percentage of sales instead of monthly rent.
Here’s another reason: Online advertising is no “It’s extremely competitive,” says Jim Ward,
longer the growth accelerant it was. Buying ads on who in February was appointed to a newly cre-
Facebook, Google, and Instagram once made a lot ated position to recruit digital natives for retail real
of sense because nascent brands could narrowly estate company CBL Properties. “Every landlord out
target shoppers and grow fast, pleasing their ven- there is looking for these new, exciting concepts.”
ture capital backers. Now social feeds are jammed Some shopping centers are even becoming ven- 19
with posts from obscure brands hawking every- ture capitalists, investing in promising startups that
thing from sneakers to generic Viagra. The competi- could become future tenants. Macerich Co., one of
tion has pushed up the cost of ads even as those ads the largest U.S. mall owners, has a stake in B8ta,
become less effective, because so many are clam- a gadget retailer that sells goods on consignment
oring for attention. That’s also happening offline and lets customers test every product, even elec-
as pitches from subway ads, direct mail, podcasts, tric bikes. The company has 15 locations, includ-
and television bombard consumers. ing some in Macerich’s properties, and will add
Meanwhile, opening a physical location has another this year in suburban New Jersey. ▼ Online brands
gotten cheaper as established retailers have shed As online brands expand their brick-and- mortar Untuckit, Warby Parker,
and Bonobos all have
stores or died, creating millions of square feet of presence, they’re learning why Macy’s Inc. has stores in malls in
the Raleigh-Durham,
prime space nationwide. Spurred by the woes at 850 locations. A physical store uses the power of N.C., area
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PHOTOGRAPHS BY WILL WARASILA FOR BLOOMBERG BUSINESSWEEK