The Supply Side: Online retailers seeking out brick-and-mortar locations

One of the most surprising retail trends of 2019 included more digitally native brands seeking brick-and-mortar exposure, according to Scott Benedict, director at the Center for Retail Studies at Texas A&M University’s Mays Business School.

Benedict was particularly struck by a new innovative retail concept in the Dallas suburb of Plano called Neighborhood Goods, situated in a posh mixed-used center known as Legacy West.

The Northwest Arkansas Business Journal recently visited Legacy West and the Neighborhood Goods store, a concept launched by Matt Alexander, a graduate of Southern Methodist University and entrepreneur at heart.

Neighborhood Goods is a 14,000-square-foot space where online brands can lease space to showcase items or experiences. The concept is a takeoff of the store-within-a-store, or a marketplace approach. At any given time, the center has up to 40 direct-to-consumer brands that are curated to the shopping desires of the neighborhood.

The shopping model combines a traditional store environment with a pop-up store and a treasure hunt feel. There is a shopping app consumers can download to provide more engagement with the brands showcasing products and experiences.

While Neighborhood Goods declined to say what it charges brands for the exposure, store personnel told a reporter the brands are rotated in and out based on three- to six-month contracts. Brands interested in leasing space begin the process online. From there, the brand team at Neighborhood Goods will attempt to select a wide selection from men’s and women’s apparel and children’s items, to fashion accessories such as handbags, scarfs and eyewear.

A large portion of the store is dedicated to beauty and skincare. At the back of the store, Dollar Shave Club has a large space that showcases cologne, shaving butter, razors and other skincare products. There is a sink in the back for trying products.

General Manager Coy Barton said Neighborhood Goods employs storytellers, not sales associates. The store staff has grown from five to more than 20 in the year since it opened.

“It’s not about the transaction. It’s about the experience,” he said. “You can come in and experience the brand. You can try on the Rothy’s shoe that you’ve seen online but have never physically seen. And whether you transact on their website, our website, or in the store, it’s a success story.”

Alexander said the Neighborhood Goods concept is about prioritizing a positive, dignified and ethical retail experience. He took his lead from brands looking at exploring customer demographics interacting with products alongside particular events. The brands leasing space are tasked with keeping their products and displays fresh and interesting for everyone.

Alexander wanted the space to include a full-service restaurant and bar, which could be a gathering place for Sunday brunch or evening cocktails. The space also includes a reading nook and a display of art books from German publisher Taschen. The entire space is light and airy and allows consumers to see across the large building. There are payment kiosks throughout the space and several storytelling associates who help direct shoppers through the new concept.

Alexander opened a second Neighborhood Goods location in the Chelsea market area of Manhattan in December. It’s a smaller version of the format at 4,500 square feet and includes a restaurant and bar called Tiny Feast. He plans to open a second location in Texas this year.

Central to Neighborhood Goods’ business model are events, which Alexander said help the brands come to life. This past year, the Plano location hosted dozens of events with brands.

Sucharita Kodali, vice president and principal analyst at research firm Forrester, said the Neighborhood Goods model is interesting and has the potential for reasonable success. She said the business model is how most department stores in Europe operate, though it has been slower to be adopted in the U.S.

Matt Powell, vice president and retail adviser for market research firm NPD Group, recently said experiences can help brands and retailers demonstrate their added value. He warns, “embarking on an experiential strategy is easier said than done as experience is tricky.”

NPD recently reported on seven key experiential models that allow brands and retailers to create compelling value propositions that move beyond price. He said as consumer needs continue to shift and brand loyalty wanes, smart brands and retailers are embracing one or more of the seven key experiential models that win over shoppers. Those include convenience, expertise, treasure hunt, curation, entertainment, being frictionless and community.

“Blended online and offline capabilities are especially critical as retailers and brands aim to offer value-added experiences in an increasingly digital landscape,” Powell noted.

Neighborhood Goods is all of those in one, which analysts said is a model with staying power. Powell said the key is for retailers and brands to blend physical and digital assets. In his recent report on winning retail formats, Powell highlighted some other examples leading this change. The activewear brand Lululemon Athletica has taken the world by storm and is at the top of the experiential strategy, according to Powell. He said while sales in the activewear category are expected to increase 7% between 2019 and 2021, competition is becoming fierce as more retailers expand activewear offerings to rejuvenate their businesses.

“For activewear to maintain its projected growth trend, retailers and manufacturers will need to stay ahead of consumer trends, like increased demand for experiences,” Powell said. “Several classic brands have experienced resurgences of late. Capitalizing on the brand cache will drive growth in the category.”

The Legacy West mixed-use development in Plano has several digitally native brands that run brick-and-mortar stores alongside Neighborhood Goods including Warby Parker, Tesla, Bonobos, Peloton and Lululemon.

During a recent visit by the Northwest Arkansas Business Journal to the Tesla and Peloton stores, consumers were walked through technology the products include. While the Tesla store did not have vehicles at the time of the visit, store employees said they stay busy demonstrating the software applications and technical capabilities in Tesla products via kiosk stations that simulate the driving experience.

In the Peloton store, consumers can try the stationary bike units and get expertise on how to access various riding experiences.

“Experiences like travel, dining, spa, and health-related entertainment have eroded discretionary spending in recent years,” said NPD chief industry adviser Marshal Cohen. “To compete for consumer spend, retailers and brands should embed similar experiences into their stores to draw in more shoppers.”

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.