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For Subscription Brands Looking to Expand, Do Physical and Pop Up Stores Make Sense?

Posted By: Jeff Miller    |    Tue, 02/13/2018 - 04:07    |    0

Very few subscription-based brands have opened physical stores. But some companies, like Madison Reed, Birchbox, FabFitFun, and TechStyle — which has focused on brick and mortar for its Fabletics brand — have tested brick-and-mortar or pop-up stores to try to better connect with customers or attract new buyers.

Considering the current state of the physical retail space, I would argue that the move generally doesn’t make sense for most subscription-based brands. However, a few will succeed, depending on their target markets, locations, and retail end goals.

The beauty of the direct-to-consumer channel is that it eliminates the costs associated with brick-and-mortar stores, from rent and shelving to staffing and dormant inventory. Not many subscription brands can willingly take on these costs; in fact, we’re seeing an increasing number of retailers going the opposite direction and testing their way into the subscription box business.

Trying New Retail Strategies

Numerous retailers have begun to experiment with subscription sales. Sephora is likely the best example of a true dual-channel strategy, and its subscription and retail sales exemplify complementary services. Companies such as J.C. Penney, Ann Taylor, Under Amour, and the Gap are also trying to join the movement, hoping to capitalize on the nature of subscription services to reduce returns and turn occasional shoppers into regulars.

A new development that could prove more viable for subscription services looking to set up physical shops is the appearance of “pop-up” stores. Pop-up stores have been around for a while but are resurging in popularity as a result of so many retailers closing their doors and making attractive locations available at affordable lease prices. The verdict is still out on whether the pop-ups make financial sense, but small and focused retail locations do lend themselves well to subscription box retail. Besides being more economical to run than a permanent store, a pop-up’s constantly changing nature means the customer experience stays fresh and interesting — which is exactly what subscription boxes need in order to be successful.

FabFitFun recently tested a pop-up store concept to celebrate the reopening of its headquarters after an expansion. The brand kept the experience exclusive by limiting the tickets available for the event. At the shop, customers were treated to beauty and wellness experiences and opportunities to curate their own subscription boxes.

Other companies experimenting with retail include Birchbox, which opened a New York City location, and Fabletics, which opened a series of high-tech retail stores in an effort to improve contextual data acquisition. As an online brand, Fabletics already had massive quantities of data at its fingertips, but according to General Manager Gregg Throgmartin, “More data does not equate to more insights.” Now, the company can test new products in-store and adjust its online offering on the basis of performance.

Weighing the Costs and Benefits of Brick and Mortar

Brick-and-mortar locations do provide some benefits, such as improved data quality, easy returns, and access to customer feedback generated in-store. Companies can also use physical locations to market to new customers, sell off excess inventory, and gain the PR bump that comes with opening a new store. And brands like Away have used experiential marketing through in-person events to drum up new business.

Of course, the advantages must be carefully weighed against some substantial downsides. Besides the most obvious challenge of increased costs, subscription companies with little retail experience will almost certainly make mistakes that could cost even more. While they would learn from such slips, they could also struggle to rebound after losing time and money. Additionally, shifting focus to a new channel could cause a brand’s original business to suffer.

In my view, the best opportunity for combining subscription services and brick-and-mortar stores is in the fresh food subscription sector. Companies such as Blue Apron and HelloFresh have enjoyed a surge of popularity, but they face slim margins and the logistical burden of delivering perishable items. An opportunity absolutely exists for a supermarket chain with an existing deli staff to offer walk-in customers a package of assembled ingredients and easy-to-cook recipes. I wouldn’t be surprised to see Whole Foods make this leap first.

Before companies decide to take the plunge into brick-and-mortar retail, companies need to consider the potential costs versus possible benefits. It might be worth waiting to see how the experiment turns out for some of the brands we’ve mentioned before deciding to go all-in on opening a physical location.

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Category: Subscriptions Subscription Strategy