Digitally native retailers find luck in new cities

Digitally native retailers find luck in new cities

In 2018, ICSC released the first iteration of its landmark “Halo Effect” study, which described the symbiotic relationship between online and brick-and-mortar retail. Although these two channels had been trumpeted as adversaries in the past, the report found that the opening of a new physical store led to a 37% increase in web traffic in the area. Almost concurrently, a 2018 JLL “Clicks to Bricks” report found that digitally native retailers planned to open more than 850 stores over the next five years.

Well, here we are five years later, and these digitally native retailers now make up a significant portion of the retail real estate demand profile. Retailers like Bonobos, Athleta, and Reformation were initially attracted to SoHo in New York City due to the ample foot traffic, solid residential population, and lower rents (relative to the city’s other prime retail corridors). But when most of the city shut down due to COVID, these characteristics of SoHo persisted, attracting attention from almost every other retail category, including the well-capitalized and rapidly expanding luxury retailers. 

This steep competition in SoHo encouraged digitally native retailers to look elsewhere, and has led to their appearing in areas like Walnut Street in Philadelphia, M Street in Washington, D.C., and the Marina in San Francisco. These locations offer similar foot traffic to SoHo at an almost 40% discount on asking rents. Retailers including Brooklinen, Gorjana, and Glossier have found this strategy to be successful, opening multiple stores across those three cities in the past year alone. The growing base of direct-to-consumer brands in these cities has also been augmented by the presence of Leap, a service that helps online retailers open and operate physical stores. Leap’s turnkey model has allowed digital brands like NADAAM, ThirdLove, A Pea in the Pod and more to open in Chicago, New York, and Washington DC.

ICSC updated the Halo Study in 2019 in an effort to quantify the impact on sales; they found that when a consumer spends $100 online at a retailer, they often end up spending an additional $131 in-store at the same retailer within 15 days. Similarly, when a consumer spends $100 in-store at a retailer, they tend to spend an additional $167 online with that retailer within 15 days. Further, Placer.ai has found that Allbirds saw increases in both overall visits and average monthly visitors per store after opening nearly 30 new locations from 2021-2022. As a result, the brand reported a 53% increase in physical store sales over the same period in 2019.

Personally, I have noticed the increased presence of these retailers around me. The entire third floor of The Westchester in White Plains, NY, my local shopping destination of choice, is now lined with stores from brands like Warby Parker, Untuckit, and Indochino. And I know I can’t be the only one who noticed the new Lululemon at the bottom of the Vanderbilt ramp in Grand Central. I was so tempted to stop in – until I remembered the cost of one t-shirt, and then I quickly continued along my way.