September 12, 2019
By Dennis Kaiser
Direct to consumer (DTC) brands continue to gain prominence and transform the retail landscape. The explosion of digital-native brands and online shopping has captured attention and consumers wallets. Yet, many savvy DTC brands are exploring physical stores as a long-term growth and sustainability strategy.
Connect Media’s planned conference, Connect DTC, will bring together a confluence of influential brands, top venture capitalists, and the most innovative minds in retail this month at Santana Row in San Jose. It promises to be a stimulating conversation among some of the hottest brands, the investors funding their retail expansions, and other industry visionaries.
Jeff Kreshek, SVP, Leasing, West Coast for Federal Realty Investment Trust, which owns Santana Row, shared insights from an owner’s perspective about the ways they collaborate with DTC brands, what he sees working or not, as well as a few of the trends coming over the horizon in our latest 3 CRE Q&A.
Q: How are owners working with DTC brands today, and what incentives do they have to do so?
A: The DTC brands are the new generation of retailers. As older brands are dying off, it is many of the DTC brands that are starting their expansion into bricks and mortar and who represent the future of retail. Working with the DTC brands can be challenging, as many of them are very new to real estate and thus are still trying to decide themselves what sort of store experience do they want to create, how do they want to engage with the customer, and where is the best location for them to express themselves.
DTC brands are looking for environments where they can have a strong physical presence and a personal relationship with shoppers, and we can provide that. We find that it is just as much an education process for the brands (as to what works on the bricks and mortar side) as it is an education for the landlord as to what makes the brand itself work. Many of the DTC brands are exciting and are breathing new life in to existing environments.
Q: What works to help make the transition to a physical store smoother for digital native brands?
A: Believe it or not, we really do not approach DTC brands any differently than we have been approaching mature brands for years. It all starts with a simple question – WHY? Why is the brand relevant to the environment, why is the environment relevant to the brand, and why are we both relevant to the customer. If we cannot answer the WHY, we should not be transactioning.
As to actually getting the deal done, it really all starts with the first conversation. That initial interaction is less about transacting, and more about understanding brand DNA – theirs and ours. How do we combine forces to meet customer needs? I think one of the biggest mistakes in store expansion is not having a very concrete explanation as to why you are expanding. Certainly, the DTC brands have some insight in to area sales, but that only tells part of the story. Bricks and Mortar expansion is primarily about customer acquisition, and also about brand expression. They are going into retail to expand their customer base and educate the consumer as to who and what they are. The most difficult part for the DTC brands is getting from a concept to an open store. Plans, permits, build out is often a new event for them so comes with complexity. Once in the store, managing the brand experience can be tricky as well.
Q: What do you see on the horizon for DTC’s? What are some of the most active or interesting brands making a transition to a physical presence?
A: I certainly see DTC brands continuing to expand into the physical realm. Over the next few years, there is bound to be some fallout as brands either naturally expire, or do not connect with the consumer on the brand experience. Not all brands need or can be successful in retail. That said, those brands with smart, disciplined growth are bound to be the most successful. With the need for retail locations diminishing, and some projects likely going away, and the shift in how and where we shop, there is not really a need for massive expansion. Rather, moderate growth and locating in the most impactful locations to your customer relationship will yield the best results. I really like what brands like Casper, APL, Mizzen & Main, Native Shoe and countless others are doing. I don’t mean to leave anyone out, as there are lot of interesting concepts, but these are a few that come to mind.
For comments, questions or concerns, please contact Dennis Kaiser